Hot-Button Issues for Small Banks
October 6, 2015 9:30 AM
What happens when big banks move into a market? Is it a good idea to partner with online lenders? How much of a problem are ag loans? Those questions were among the many addressed by researchers at the recent community banking conference in St. Louis hosted by the Federal Reserve and Conference of State Bank Supervisors.
Big-Bank Threat
Small banks' share of large and small C&I lending, including small-business loans, shrinks after a big bank enters a market, several researchers said. Community banks end up focusing on midsize commercial borrowers and smaller real estate players, a practice which one participant called "craft lending."
Power in Frenemies
Several speakers, including Fed Gov. Lael Brainard, urged banks to collaborate with alternative lenders. Formal partnerships and alliances are the smartest way to go, though they can raise compliance risks, according to a paper at the conference written by officials from two regional Fed banks.
Privately Held Banks Thrive
FDIC researchers determined that closely held community banks have consistently outperformed widely held peers , especially when substantial overlap exists between ownership and management. Succession, rather than access to capital, is said to be the big concern for privately held banks.
Stability in Ag Lending
decline in farmland values would have minimal impact on "the vast majority of banks" that specialize in agricultural lending due in part to underwriting practices and loan diversification, researchers at the Minneapolis Fed reported . To be sure, a subset of ag lenders could face pressure, if they hold a lot of farmland as collateral or have big asset concentrations.
De Novo Slump
A lack of new charters has significantly hastened a decline in the number of banks, according to researchers at the University of Virginia and the Cleveland Fed. Still, Chad Paul, co-founder of private-equity firm Harbor Island Partners, told conference attendees that the operating environment still isn't right for de novo activity to resume.
Mortgage Relief
A group of researchers found that mortgage lending has improved for small banks. Still, Fed Gov. James Bullard suggested increasing the transaction-value threshold that requires licensed appraisals and creating more exemptions for escrow requirements for certain types of community banks.
An 'F' for Compliance Examiners
Compliance exams still evoke negative responses from bankers, who in town-hall meetings used the following words to describe examiners' actions: antagonistic, aggressive, punitive, confrontational and predetermined.
