“Massachusetts banks are well capitalized and eager to lend.”
At various points over the past three years, this ubiquitous rallying cry from the Massachusetts Bankers Association has prompted us to alternately roll our eyes, sigh in resignation or throw up our hands in frustration.
In our business, we’re conditioned to be skeptical. We never really took our friends at Mass. Bankers seriously when they continued to toe this company line. It seemed preposterous to us, and more than a little disingenuous, to brazenly spout such flagrant optimism in the face of what we knew to be a terrible lending environment.
But as it turns out, shame on us for being so jaded.
In the latest issue of Communities & Banking, a quarterly publication of the Federal Reserve Bank of Boston, research based in part on Mass. Bankers’ data shows Massachusetts community banks increasing annual small business lending volume in each of the past three years – 2008, 2009 and 2010.
These increases came, essentially, right through the teeth of the recession – and came as lenders nationwide scaled back their own small business lending. According to the Fed and Mass. Bankers, Massachusetts community banks increased year-over-year small business lending by 5.3 percent in 2008, 6.7 percent in 2009 and 1.2 percent in 2010.
In short, over the past three years, Massachusetts community banks were quietly putting their money where their mouth was – or rather, where their mouthpiece was.
That local community banks were able to capitalize on the struggles of their larger, national rivals should not come as a surprise. Another longstanding talking point of Mass. Bankers is that community banks are more in tune with their local markets than larger organizations, and as such can make better decisions to limit risk and filter credit-worthy business borrowers.
That’s a line we’ve never had a problem believing.
But what is surprising, at least to us, is that local community banks have been able to grow their business lending in the absence of so many of the fiscal and political advantages held by their larger brethren. It seems those already healthy increases could have been even bigger had more attention been paid to smaller institutions at the expense of bigger ones, and not the other way around.
Much has been made of the controversial TARP program and its derivatives that, for better or worse, helped banks replenish battered capital levels. Yes, smaller community banks could and did take advantage of these programs, but the biggest payouts were reserved for the biggest fish in the pond.
Only a few days ago, famed investor Warren Buffet made a splash by throwing $5 billion in private money at Bank of America. It’s a move initially lauded as an example of confidence in the shaken financial services sector. But we doubt Buffet would make a similar commitment to a smaller, local institution.
All the move really did was boost BofA’s stock price, and temporarily at that. It doesn’t seem to us that any of that $5 billion will make its way into the hands of small business borrowers.
This summer, the Treasury unveiled what looks like a promising small business lending program, aimed at incentivizing community banks to grow their business lending portfolios. The more business lending community banks do, the cheaper money becomes from the Treasury.
But so far, only half a dozen Massachusetts banks have committed to the program. And it is still one more example of the Treasury’s lack of understanding of – or outright disregard for – mutual institutions, of which there are many in Massachusetts. Mutuals can’t sell the necessary stock to Uncle Sam in order to raise said cheap Treasury money, simply because mutuals don’t issue stock.
Even so, local community banks, mutual or stock-based, remain well capitalized and eager to lend. Indeed, they always have been – with or without federal “help.”
In this instance, we’re happy to admit how wrong we were.
