Dawn of a New Era for Community Institutions?

10/07/2008 - Dawn of a New Era for Community Banks? 

It is extremely difficult to remain focused during difficult times.With the constant media barrage of bad news and doom and gloom, one would think this is the first time we’ve faced a financial crisis.  It’s made more difficult with the large amount of misinformation and misinformed commentary.

However when we step back and try to think about the ramifications of this particular financial crisis, it appears pretty clear there will be winners and losers — as always.

For many many years, we’ve seen consolidation of predominantly mid-sized regional banks to create a new breed of super jumbo banks.  Although this has been done with the rationale that they will be more efficient, studies have consistently shown this is not the case.  And we seem to have forgotten that they are still run by people, albeit very intelligent ones, that still make common errors and fall in to the logic traps that plague us all.

Contrast that with the community institutions who have tried to remain focused on the most import characteristic of success:  meeting customer needs.  The vast majority did not go reaching for higher yields or making questionable loan decisions.  They tried to keep the customer first.

In the aftermath of this debacle, we can isolate a few key factors which will undoubtedly lead to major successes by focused community institutions.

1. In general, community institutions are far better capitalized than the jumbo banks, with capital ratios several times as large.  Although everyone will suffer from the decline in credit quality, community institutions are much better positioned to take advantage of good credits.

2. The universe of mortgage lenders and brokers has shrunk dramatically and will continue to do so as mortgage brokers have very few places to sell their loans.  Community institutions can capitalize on this and acquire high quality mortgage loans at a reasonable profit.

3. The increase in deposit insurance should also benefit community institutions as investors experience losses in the markets and shift their positions to more conservative alternatives.

So, how should community institutions take advantage of this opportunity?

Advertising is certainly one way to raise awareness, but the key is to act accordingly.By granting loans to credit worthy individuals and paying reasonable deposit rates word will spread, one customer at a time.

And this is the most effective long term strategy.  Creating satisfied customers.

This entry was posted on 7. October 2008 at 22:16 and is filed under Capital Markets. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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