It’s the small banks you have to watch

Jeremy Hobson Aug 11, 2009
HTML EMBED:
COPY

It’s the small banks you have to watch

Jeremy Hobson Aug 11, 2009
HTML EMBED:
COPY

TEXT OF STORY

Kai Ryssdal: If TARP hasn’t already become a part of your daily vocabulary here’s a refresher. It’s the Troubled Asset Relief Program, last fall’s $700 billion bailout to stabilize the financial system. Today the congressional panel that’s supposed to monitor the program gave us an update. The headline goes like this: The financial system may not be out of the woods just yet. And it’s the small banks you gotta watch. Marketplace’s Jeremy Hobson reports.


JEREMY HOBSON: The report says smaller banks are more likely to be hurt by troubles in the commercial real-estate market. Loan defaults are rising, as layoffs and weak consumer spending empty office buildings and malls.

Harvard Professor Elizabeth Warren chairs the TARP oversight panel. She says if there’s bust in commercial real-estate, it’s still to come because many mortgage rates haven’t reset yet.

ELIZABETH WARREN: That is the mortgages that were put out in 2006, 2007, even into 2008 don’t come due until 2012, 2013, 2014 and that’s when the numbers really start to get big.

The panel recommends more stress tests for the 19 largest banks that were already tested, but especially for the smaller ones that weren’t.

WARREN: They are the principle lenders to small businesses and so when small banks go down, it means that our capacity to get more money into the hands of small businesses shrinks.

Bruce McCain is chief investment strategist for Key Private Bank. He says the panel’s report is a good list of things to worry about if the economy heads back downhill.

BRUCE MCCAIN: But for the moment things seem to be trending in a good direction, and we’ll hope that their dire warnings about what could happen simply will not happen.

Furthermore, McCain says, small and regional banks don’t pose nearly the same threat to the overall economy as the 19 largest banks.

In New York, I’m Jeremy Hobson for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.