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What About the Smaller Banks?

Posted by: Dan Beucke on May 11, 2009

By Mara Der Hovanesian

In the wake of all the ink spilled over the federal bank stress tests, some folks think there has been lopsided attention by the government to the largest banks, to the detriment of the smaller players that may hold the key to kick-starting the economy.

“The too-big-to-fail problem was so huge and so large that they had to tackle that first, but when they did that they also put on blinders. They forgot the rest of the system,” says economist Mike Moebs, head of Lake Bluff, Ill.-based Moeb$ Services, an economic research firm that counts the GAO and the Federal Reserve as clients. “The rest of the system is as important as the stress-test 19.”

Moeb estimates that thousands of smaller community banks and credit unions need about $141 billion in total to get them through the economic downturn under the same standards the Fed has used for the initial stress test group of big banks. “These Main Street banks need that money fast,” says Moebs. “They are the ones in effect that create jobs and support 27 million small businesses.”

Reader Comments

Hugo van Randwyck

May 12, 2009 7:25 AM

There could be an easy/quick solution - have people switch their accounts from TARP banks to community banks, using 'online switch kits'. This would increase the amount of capital they have for lending and growing the economy. There could be a number of simple options, these banks could check which businesses have gone bankrupt recently, contact the business owner to see if it was because a TARP bank stopped financing, then if it was because of a TARP bank, set up a meeting, maybe with former employees of the bankrupt business, and show them how easy it is to switch accounts. They could also contact existing businesses to see if they are having trouble with any accounts with a TARP bank, and do the same, with presentations to employer/employees. This way, the TARP banks will also look to close some of their over-capacity in branches, so creating more healthy smaller banks, for the recovery.

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