A Talk With My Banker

I had a meeting with my banker yesterday. The purpose of the meeting was to take a financial statement and tax returns to the bank, which is required each year when you have commercial loans. While I was there, I asked the banker a lot of questions about the banking industry in general, and this small local bank in particular.

Here's what I found out. My local bank keeps all their loans in their own portfolio, which means that they don't sell any loans on the secondary market. They have always required good credit of their customers and therefore do not have any exposure to subprime loans. They also have not invested in any of those mortgage derivatives that have recently been such a problem.

I asked him if the bank borrows money from the government and he replied that they normally do not. They have a strong deposit base and therefore usually don't need to borrow money for loans. In addition, with all the problems being publicized about the big banks, they have actually increased their deposits as people take their money out of troubled banks and put it in small local banks. He said that they have money to loan and their standards have not changed!!!

Finally, I asked him about foreclosures. He said that because they do not make subprime or other risky loans, that they have very few foreclosures, sometimes going an entire year without a foreclosure. At the present time, they only have two foreclosures. Both of these are rental properties owned by the same guy.

I had been curious about these issues and found the answers to be enlightening. The bottom line is that while the big banks have gotten themselves in a lot of trouble, there are many small local banks that have been doing things right and these banks are operating with business as usual.