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Small Banks: The Next Bust?

Posted by: Stacy Perman on January 30, 2009

In the midst of the banking industry’s meltdown, a number of community banks across the country have proven to be a bright spot in the otherwise doom and gloom that has seized the big financial institutions for months. Recently, I wrote about how many small businesses, struggling to obtain capital or being flat out rejected from the big banks were still able to receive loans and credit lines from small banks. Many of these smaller institutions were reporting sizeable increases in their lending. Although Randy Fuchs, a principal at Boxwood Means, a research firm that follows small business lending cautioned that about three-quarters of the loan surge was originating from ventures refinancing existing loans — certainly underscoring once again the depth of the troubled economy.

Looking at the industry from another angle, reports on what could be the next potential wave of bank failures — a slew of small banks going bust due to overexposure to commercial real estate loans. The article looks at the recent bust of Nevada’s Silver State bank that it calls “another casualty of the subprime flameout.” The article is more than just a cautionary tale. Silver State demise it reports:

… highlights an aspect of the financial crisis that’s been overshadowed by the crash of Wall Street and its megabanks: How small banks are suffering from a wave of defaults on construction and development loans that could cause dozens more to succumb in the year ahead.

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