New Hampshire has been through purgatory. It has paid dearly in lost jobs, foreclosed houses, and recession for the glory days of the 1980s.
Back then, as bankers put it, "anyone who wore a pair of overalls with a hammer hanging from it would get a loan to build condos."
The result: a large number of bank failures. Most major banks that have survived are now owned by out-of-state or even out-of-the country institutions.
The New Hampshire Bankers Association reached age 100 this year, but the economic atmosphere dampened the celebration.
On the plus side, the association now includes all banks and savings institutions in the state. This is a far cry from the situation of two decades ago, when there were two New Hampshire banking associations.
In those days most towns would have both bank and a savings bank, operating in opposite ends of the same building and sharing toilets in the middle.
Era of Cooperation
Customers coming to the bank for a mortgage would be sent to the savings banks. Those who sought a consumer loan at the savings bank would be sent, along with commercial borrowers, to the commercial bank.
Now you can't tell them apart.
One of the main problems facing New Hampshire's bankers is the "too big to fail" doctrine.
This could be far more dangerous to this state's community bankers than the threat of majors opening offices as branch bank limits are relaxed.
Large New York or Boston banks don't have the capital needed to open de novo branches in New Hampshire towns. The acute community bankers recognize this.
But they also recognize that "too big to fail" makes many employers with large payrolls afraid to leave money in the town bank above the $100,000 deposit ceiling. These employers know that regulators won't let a large Boston or New York bank fail; there are no such assurances about hometown banks.
Thus size rather than quality is what many large depositors look for. That makes large banks larger and small banks smaller.
Gerry Little, president of the New Hampshire Bankers Association, told me about another problem for community banks in the "too big to fail" doctrine.
Potential borrowers also look to size, he noted. They fear that the smaller bank will close in case of trouble, leaving them without credit accommodation.
In contrast, they see no such threat to their credit supply if they borrow from giants that regulators want to keep open.
Is there light at the end of the tunnel for New Hampshire banking? Definitely yes.
Some banks are stressing trust services, which can be quite profitable. And most are back to basic community lending.
One CEO reported that when his bank auctioned foreclosed properties, an amazing 88% of its committed funds were recovered.
It must be added, however, that New Hampshire allows foreclosure a lot sooner than other states.
But if this state can teach us one lesson, it is that too much capital can cause as much of a problem as too little.
Much of the overlending and overbuilding took place after most of the state's mutual savings banks had gone to stock form and got new money to play with.
As the Boston Fed stated in March-April New England Economic Review, "High capital ratios put pressure on managements to find investment projects with huge payoffs, in order to provide adequate return to the new stockholders. Thus increased capital levels alone should not be relied upon as a substitute for regulatory supervision."
But history repeats itself. Several CEOs of savings banks that are still mutuals told me the regulators are putting pressure on them to convert to get more capital.
One can wonder, once again, how they would put that new capital to work.
The Good Old Days
Couple "too big to fail" with the capital issue and the compliance question and it is easy to understand why New Hampshire bankers seemed so happy to have a "back to the '50s" hop for the big social event of their recent convention.
Those were the days. Banks were banks. Thrifts were thrifts. Competition was slim, profits were high.
And the only major issue was whether the bank or the thrift in the building should take care of cleaning the toilet.