Small banks punished for solid business model

Citibank is a big bank, one of those companies that are just too big to fail. When the government steps in to help a single bank – like Citibank – with an infusion of $20 billion in cash and more than $300 billion in loan guarantees, you’ve got to wonder how Citi’s competitors feel about all of this.

Let’s say you ran a small business the right way, with a solid business plan, focused leadership and sound financial principals. A large competitor in town is failing, and the government is going to provide them with some cash and guaranteed loans to help them out. How does that change your business model?

What can you do as a business owner? You did all of the right things and now you’re being put in the position of competing not just with the largest competitor in town, but one supported by the federal government/

Hat tip to Allah over at Hot Air who links us over to this story at the ABC News site.

Wall Street might have been happy with the government’s latest multibillion-dollar banking intervention, but many small community banks are asking for equal treatment.

“I guess appalled is not too strong a word,” Cindy Blankenship said to describe her feeling after learning of the government’s help for Citigroup. Blankenship and her husband founded the Bank of the West back in 1986. The bank, based in Grapevine, Texas, has since grown to eight locations in Northern Texas and has about $280 million in assets.

Late Sunday night, the government announced $306 billion in loan guarantees for the giant bank as well as another $20 billion cash infusion in exchange for preferred shares in the bank. The banking giant got $25 billion under the first bailout plan announced earlier.

For the smaller banks, who have to compete in many of the same territories as the big institutions, it’s easy to feel stressed and overlooked.

“We’re sitting there taking deposits, making loans, operating on a very conservative and prudent basic banking business model,” Blankenship said. “We simply could not do what the big banks have done.”

Blankenship and other small bank owners are upset that the executives leading Citi and other banks are getting help but not being held personally responsible. In small banks, she said, all the key decision makers have a large financial stake in the bank. If it goes broke, they lose their own investment.

“We haven’t committed these sins but yet, our reputation is tarnished and yet, we still aren’t too big to fail,” she said. “We’re the good guys and I’m furious about it. There is no equal treatment. I’m not too big to fail. If I had gone out and done what the big banks did, I would have been shut down.”

Exit question: So, what should these small local banks be doing themselves to level the playing field?

3 replies
  1. Rick - WH
    Rick - WH says:

    If you haven't heard or read Catherine Austin Fitts on the big banks and the so-called bailout, it is really essential that you do so. She appeared this morning (show date – 11/24/2008) on Coast to Coast AM with George Noory.

    Catherine echoed many of the thoughts on yesterday's Sound Off Connecticut Show. The "bailout" is not what we are being told it is.

    I will try posting a recording or a transcript if possible.

  2. Dimsdale
    Dimsdale says:

    "Too big to fail" is a direct result of too many big mergers, which usually just cut jobs and competition.

    Best deal in town: credit unions.

  3. Dave in EH
    Dave in EH says:

    First of all, let us correct the failure to use proper English nomenclature. The small banks are not being bailed out because they don't *need* to be bailed out. It is bad enough we're showering the failures with money, we need no start "rescuing" out the successes, as there is no need.

    Second, despite the first, they have a legitimate beef — too much is being done for the failures. Their re-capitalization from the public trough goes too far. This is, however, if not a separate issue, at least a different problem than the small bank say it is.

    Thirdly, Dims has it in one — credit unions are your best friend.

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