Tag Archive for 'ICBA'

The Small Bank–Small Business Cascade

America is exceptional for many reasons, not the least of which is the way our pioneer DNA morphed into entrepreneurship. But all DNA has to be nourished, and the food of entrepreneurship is capital.

As America’s pioneers claimed Manifest Destiny they simultaneously created businesses and markets, which were funded at first by sweat, blood and personal capital of the pioneer/entrepreneurs themselves. As businesses and markets grew, additional capital was needed, which was provided by another American invention: locally owned banks. Today we call them independent community banks (ICB).

There are a number of reasons America became the world economic leader. But no factor was more important than the financial, legal, regulatory and trust environment that fostered relationships between ICBs and small businesses. These two Main Street sectors formed a symbiosis that simply does not exist anywhere else on planet Earth. Indeed, without this symbiotic relationship, the twin pillars of the American Dream – home and business ownership – would not have been possible, nor would the financial foundation of American exceptionalism.

Alas, this unique relationship may be in peril. But not because of anything the two primary partners have done.

The financial crisis of 2008 shined a bright light on the behavior of large financial institutions, which had become too complex to regulate, too big to manage and, according to the government, too big to fail. But as the federal government and regulators attacked this crisis, ICBs are becoming collateral damage as the new regulatory regime does not differentiate enough between big banks and small ones.

It’s troubling enough to learn that existing ICBs are finding it difficult to manage under the new regulatory pressures, but that’s not the worst of it. Prior to 2008, when an ICB closed or was acquired by a larger bank, the marketplace would produce a new ICB to fill the newly vacated relationship-banking niche. But the following stats foretell an alarming trend.

According to the Independent Community Bankers of America (ICBA), there are 1,119 fewer ICBs today than in 2007. Only 96 new ICBs were chartered from 2008 to 2010, and since 2011, there have been no new ICB charters. Not one in 18 months! And if industry experts are correct, the net number of ICBs will continue to drop, ultimately to a dangerous level.

There are many causes of this alarming trend, but presently the biggest offender are the one-size-fits-all “solutions” being imposed by overreacting politicians, overreaching regulations and overzealous regulators.

In nature, when one member of a symbiotic relationship is diminished, the other is usually harmed too. Fewer independent community banks will result in a weakened small business sector. I call this trend The Small Bank–Small Business Cascade, and it must be stopped.

Small businesses are not only the backbone of the U.S. economy, they’re also the seedlings of future big businesses and the personification of the American Dream.

America, beware The Small Bank–Small Business Cascade.

#####

I’ve talked with Mike Menzies, President of Easton Bank & Trust in Easton, Maryland about the dwindling number of independent community banks in the U.S. and the impact on small businesses. Click on one of the links below to download or listen.

The symbiosis of small banks and small businesses

Why fewer community banks is not good for small business

Check out more great SBA content HERE!

The Blasingame Small Business Banking Rules-of-Thumb

For many years, I’ve made the following recommendations to small businesses with regard to their banking relationships, called: The Blasingame Small Business Banking Rules-of-Thumb:

1st Blasingame Small Business Banking Rule-of-Thumb
A small business should have at least two banking relationships. If you’re turned down for a loan at one bank, you have another place to go where the person already knows about you and your business. One primary reason for this rule is because if only one banker knows you and your story, when he or she gets fired, promoted or otherwise leaves the bank, Murphy’s Law will dictate that it will happen when you most need a favorable banker.

2nd Blasingame Small Business Banking Rule-of-Thumb
At least one of the banking relationships should be with an independent community bank – that means locally owned and managed – and preferably your lead bank. I’m not picking on big banks, it’s just that most small businesses need to be given a little extra consideration for their character and past performance, which is typically not as forthcoming in a large bank.

Loan decisions made by large banks have two elements that may not give a small business this extra consideration: 1) The actual decision is made by a loan committee in another city, by people who probably don’t know the business owners; 2) They rely heavily on what is called “credit scoring,” which is a computer program – each bank has its own proprietary model – that receives quantifiable information and produces a “score,” let’s say, 17. If this week the bank has decided that only scores of 18 or more are accepted, this loan request will likely be rejected. I’ve never heard of a credit scoring system that includes a variable for the applicant’s character.

Over the years, my Rules-of-Thumb have proven to be valuable to many small businesses. But since 2008, with all of the problems associated with big banks, those who have followed my advice were much less likely to find themselves without access to credit, since every independent community banker I’ve talked with in the past 15 months has emphatically said they had never stopped lending to their small business customers.

Recently, I talked with two presidents of independent community banks about working with small businesses and the health of the banking industry. First, Mike Menzies, who is not only the president of the Easton Bank and Trust in Easton Maryland, but he’s also the new Chairman of the Independent Community Bankers Association (ICBA). Mike’s also a long-time member of my Brain Trust. Secondly, there is Charles Antonucci, President of Park Avenue Bank in mid-town Manhattan.

Take a few minutes to listen to what these two veteran small business lenders have to say. And, of course, be sure to leave your thoughts.
For Mike Menzies:
For Charles Antonucci:




Warning: fsockopen() [function.fsockopen]: php_network_getaddresses: getaddrinfo failed: Temporary failure in name resolution in /var/www/wordpress/wp-includes/class-snoopy.php on line 1142

Warning: fsockopen() [function.fsockopen]: unable to connect to twitter.com:80 (Unknown error) in /var/www/wordpress/wp-includes/class-snoopy.php on line 1142