The business of banking

 

Early this August, 12 branches of a bank serving rural Washington state -- the Colfax-based Bank of Whitman -- shuttered their doors for good. The closure is just one more in a long series of bank failures stemming from the financial crisis.

While news coverage of the Great Recession highlighted the collapse of colossal financial giants like Lehman Brothers, the impact on small banks that lend to small businesses and farmers in rural communities was also significant. The recent closures in Washington show the recession's effects still rippling through small towns in the West, although there are also some signs of recovery.

The vast majority of banks are community banks, making up 98 percent of the total, or nearly 7,000 across the nation. They are often the lifeblood of local economies, lending to small businesses through custom assessments and face-to-face relationships.

Yet many of these local economic mainstays are struggling. In July, Arizona ranked first for the "highest concentration of capital-starved local banks among states," according to Invictus Consulting Group, a bank research firm in New York. This lack of capital means that banks might not have enough funds to cover future risks or deposits. The study reported that 19 of the state's 36 local and regional banks were at risk.

And last year, National Public Radio reported smaller banks, still struggling from bad real estate loans made during the housing bubble in the early 2000s, were slower to pay back bailout money from the Troubled Asset Relief program.

There are signs of recovery, even as some banks continue to close their doors. Bank failures are actually down this year. Compared with 2010's 157 bank failures, 2011 has just 73 so far.

Paul Merski, executive vice president and chief economist for the Independent Community Bankers of America says community banks are stable now, about three years after the financial meltdown. Slow growth and new regulations are worrisome, though.

"Community banks' bread and butter is small business lending and we need much faster economic growth and job growth to get that credit going again," Merski says.

And new requirements from the 2010 Dodd-Frank banking law can hinder community banks as they struggle to comply. Risk retention rules, which require banks to hold onto a portion of loans rather than sell them, could disproportionately impact small banks, which won't be able to do as much lending. And just figuring out the new regulatory environment is more costly for smaller institutions, says Chris Cole, senior regulatory counsel and senior vice president of the Independent Community Bankers of America. Merski agrees: "Bank regulators are in essence tying the hands of banks from being able to lend more because they are requiring banks to hold higher levels of capital," he says. The additional time, money and personnel used to keep up with regulations also creates greater expense for the community bank.

While many community banks seem stable, the fact that they have had to tighten their standards may mean they'll be lending less -- a sort of Catch-22, as more difficult access to credit means fewer small businesses get off the ground. In High Country News' home hub of Paonia, one local bank branch manager said they've had to tighten lending standards, requiring 20 to 30 percent down payment on a loan when they used to look for 10 to 15 percent. They've also shortened the repayment period from five to three years. Possibly as a result, but possibly because of the slow economy, they've also seen few small business loan requests.

Local bankers in Paonia believe they will outlast the hard times, though some economists thought economic growth would be moving more quickly by now, Merski says.

Kimberly Hirai is an intern at High Country News.

Image courtesy Flickr user Surat Lozowick.

High Country News Classifieds
  • POLLINATOR OASIS
    Seeking an experienced, hardworking partner to help restore a desert watershed/wetland while also creating a pollinator oasis at the mouth of an upland canyon. Compensation:...
  • ELLIE SAYS IT'S SAFE! A GUIDE DOG'S JOURNEY THROUGH LIFE
    by Don Hagedorn. A story of how lives of the visually impaired are improved through the love and courage of guide dogs. Available on Amazon.
  • COMING TO TUCSON?
    Popular vacation house, furnished, 2 bed/1 bath, yard, dog-friendly. Lee at [email protected] or 520-791-9246.
  • NORTHEASTERN UNIVERSITY
    All positions available: Sales Representative, Accountant and Administrative Assistant. As part of our expansion program, our University is looking for part time work from home...
  • COMMUNICATIONS ASSOCIATE DIRECTOR
    Position Title: Communications Associate Director Location: Flexible within the Western U.S., Durango, CO preferred Position reports to: Senior Communications Director The Conservation Lands Foundation (CLF)...
  • HISTORIC HOTEL & CAFE
    For Sale, 600k, Centennial Wyoming, 6 suites plus 2 bed, 2 bath apartment. www.themountainviewhotel.com Make this your home or buy a turn key hotel [email protected]
  • MAJOR GIFTS OFFICER
    High Country News, an award-winning news organization covering the communities and environment of the Western United States, seeks a Major Gifts Officer to join our...
  • RUBY, ARIZONA CARETAKER
    S. Az ghost town seeking full-time caretaker. Contact [email protected] for details.
  • VICE PRESIDENT, LANDSCAPE CONSERVATION
    Basic Summary: The Vice President for Landscape Conservation is based in the Washington, D.C., headquarters and oversees Defenders' work to promote landscape-scale wildlife conservation, focusing...
  • BRISTOL BAY PROGRAM DIRECTOR
    Seeking a program director responsible for developing and implementing all aspects of the Alaska Chapter's priority strategy for conservation in the Bristol Bay region of...
  • EXECUTIVE DIRECTOR
    The National Bighorn Sheep Center is looking for an Executive Director to take us forward into the new decade with continued strong leadership and vision:...
  • EXECUTIVE DIRECTOR
    The Powder Basin Watershed Council, based in Baker City, Oregon, seeks a new Executive Director with a passion for rural communities, water, and working lands....
  • EXECUTIVE DIRECTOR
    Powder River Basin Resource Council, a progressive non-profit conservation organization based in Sheridan, Wyoming, seeks an Executive Director, preferably with grassroots organizing experience, excellent communication...
  • ADOBE HOME
    Passive solar adobe home in high desert of central New Mexico. Located on a 10,000 acre cattle ranch.
  • EXECUTIVE DIRECTOR
    Eastern Nevada Landscape Coalition, based in Ely, Nevada is looking for a new executive director to replace the long-time executive director who is retiring at...
  • STEVE HARRIS, EXPERIENCED PUBLIC LANDS/ENVIRONMENTAL ATTORNEY
    Comment Letters - Admin Appeals - Federal & State Litigation - FOIA -
  • LISA MACKEY PHOTOGRAPHY
    Fine Art Gicle Printing. Photo papers, fine art papers, canvas. Widths up to 44". Art printing by an artist.
  • LOG HOME IN THE GILA WILDERNESS
    Beautiful hand built log home in the heart of the Gila Wilderness on five acres. Please email for PDF of pictures and a full description.
  • SEEKING PROPERTY FOR BISON HERD
    Seeking additional properties for a herd of 1,000 AUM minimum. Interested in partnering with landowners looking to engage in commercial and/or conservation bison ranching. Location...
  • COPPER STAIN: ASARCO'S LEGACY IN EL PASO
    Tales from scores of ex-employees unearth the human costs of an economy that runs on copper.