| US Federal Reserve Board Chairman Bernanke's views on Small Banks, Nonbanks |
American Banker Thursday, March 9, 2006
By Patrick Rucker <mailto:patrick.rucker@sourcemedia.com>
WASHINGTON - Listing a series of threats facing community banks, Federal Reserve Board Chairman Ben Bernanke said a majority of small businesses now use a nonbank to meet at least some of their financial needs.
Citing data the Fed has not yet released, Mr. Bernanke said Wednesday that 54% of small businesses surveyed said they had used a nonbank for a financial service in 2003, up from just 40% in 1998.
Small businesses that reported using any bank or thrift selected a "community" bank just 37% of the time in 2003, down from 42% in 1998, he said.
Bankers who heard the speech at the Independent Community Bankers of America convention in Las Vegas echoed the Fed chief's concerns.
John King, the president and chief executive officer of Three Rivers Bank of Montana in Kalispell, said his $90 million-asset bank has lost about 5% of its small-business credit lines to nonbanks, including General Motors Acceptance Corp. and American Express Co.
These are riskier borrowers who pay higher rates, so losing the business has a big effect on profits, Mr. King said. "It impacts on our net interest margin, because we are losing higher-interest-bearing receivables."
The Fed surveys the small-business market every five years. The results of the 2003 survey will be released this summer.
Mr. Bernanke also raised concerns about liquidity risk, saying, "A limited segment of community banks is increasing its reliance on wholesale sources of funding."
Bankers interviewed at the convention were pleased that Mr. Bernanke appeared in person so soon after his Feb. 1 swearing in. Most seemed to take his comments in stride.
Ellis L. Gutshall, the president and CEO of Valley Financial Corp. in Roanoke, Va., said he understands regulators' concern about the increased reliance on wholesale funding. But he said his $500 million-asset bank needs the funds to keep up with loan demand and grow its market share.
"Most of the banks can manage these concerns quite well," Mr. Gutshall said. "The key is to fully document and prove to the regulators that we know what we are doing."
Rodger Bense, the president and CEO of the $90 million-asset Lake Country State Bank in Long Prairie, Minn., said 18% of its liabilities are wholesale borrowings. Regulators are comfortable with that level now, he said, but he is concerned about their becoming more conservative.
If that happens, "where in the hell are the deposits going to come from then?" Mr. Bense asked.
Mr. Bernanke also noted that regulators are increasingly worried about community banks' exposure to commercial real estate. Though commercial real estate markets are strong in most regions, and community banks have booked solid loans, examiners have seen "signs of some easing of underwriting standards," the Fed chief said.
He suggested that the "risk-management practices in community banks … may be due for upgrades in oversight, policies, information systems, and stress testing."
The federal banking agencies are considering whether to require banks with commercial real estate concentrations to hold more capital.
Though many community banks have opposed this move, Mr. Gutshall said risky lenders should be reined in. "I'm glad to see regulators aggressive on this issue," he said. "It helps protect smaller institutions."
Mr. Bernanke did reassure his audience that "on the whole, we do not have broad supervisory concerns with community banks."
Such banks play a "critical role in the U.S. economy" and "are generally doing quite well," he said. "I expect that good performance to continue." |
| ID: |
37116 |
| Author(s): |
NCRC |
| Publication date: |
09/03/06 |
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Created: 29/03/06. Last changed: 03/04/06.
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