Small banks more prone to failure?

Jeremy Hobson Jul 14, 2010

Small banks more prone to failure?

Jeremy Hobson Jul 14, 2010


Kai Ryssdal: There was a report out this morning from the Congressional oversight panel, the group that’s in charge of keeping an eye on the TARP, the bank bailout of a year and a half ago. In a nutshell, it goes a little something like this: The $700 billion that was allotted to keep the financial industry up and running did a bang-up job taking care of the big banks, those “too big to fail” ones. Smaller firms not quite as systemically important? TARP didn’t really do much for them. They’re having a hard time making quarterly dividend payments, let alone paying the money back. In fact, the report says the TARP may actually lead to more takeovers and failures of small banks.

Marketplace’s Jeremy Hobson reports.

Jeremy Hobson: Today’s report says one in seven small banks that took money in the bailout
has already missed a dividend payment to the government. And those dividends will only get more expensive as time goes on.

Elizabeth Warren chairs the Congressional Oversight Panel that wrote the report. She says all this means some small banks will likely be swallowed up or shut down.

Elizabeth Warren: When the smaller banks are weak, their lending remains constricted, and these are the banks that disproportionately lend to small businesses.

And since small businesses are a key engine of economic growth, she warns the demise of small banks could stymie the recovery.
But not everyone is so concerned. Andy Stapp, an analyst at B. Riley, admits that small banks are an important resource for local communities.

Andy Stapp: But a lot of these are being taken over by larger community banks, so you know, in that regard I don’t think you lose anything.

Bart Narter agrees. He heads the banking group at Celent. He says losing one in seven small banks wouldn’t be the end of the world.

Bart Narter: Banks of under $100 million in assets simply aren’t of a viable size anymore.

Narter says small banks have been losing deposits to the mega-banks for decades, long before there were TARP dividend payments.

Narter: In the good old days, you had a branch and you had an ATM and you were done. Now you need Internet banking, you need mobile banking, you have all this regulation you have to comply with, so small banks have been disappearing at a very fast rate in any case. Nothing to do with TARP.

Still Elizabeth Warren’s panel warns fewer small banks will concentrate even more power at the large Wall Street institutions. She says that could set us up for more financial crises.

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

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