You all know that I poke a bit of fun at bankers, and especially the mega institutions that are too big to fail. Like a standup comedian that makes jokes about his own ethnic background, I can get away with it up to a point because, well, I spent my whole professional life as a banker.
Everybody’s been fairly tolerant, and I’ve even got a smile or two out of banker friends.
I, being me, can’t resist some sarcasm in this piece. But it’s really about how small banks across the country showed big banks what the industry’s raison d’etre really is: to be a resource for customers in the good times and, as now, the bad.
In the second round of the Paycheck Protection Program small business lending effort, banks with assets under $10 billion in assets processed and secured approval from the Small Business Administration for over 587,000 loans, which comes to 61% of the total volume. Total dollar amount also topped other asset size categories with $43 billion funded, out of the $90 billion total.
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The real story, however, is in how the small banks came in first.
Concurrent with the bell announcing the availability of the second PPP stimulus package, was the difficulty that small business owners had in contacting lenders. For example, in one instance, a business owner called his local branch of one of the largest banks in the country and was told not even to bother applying for a loan. On the other hand, community bank CEOs took phone calls at home. Then there’s the story about the entrepreneur who emailed a lending officer of a local bank late on a Sunday evening in desperation inquiring about a PPP loan and got an instant reply: “Consider it done.”
To get an idea of how the community bank segment of the industry responded to the challenge over the last week in April, here’s what happened at the small Front Range bank, just $262 million in assets, that I’ve mentioned before.
On Monday, Feb. 27, the SBA portal to the program was jammed (the SBA must approve all of these loans). Apps were piling up, and the system kept crashing. The lending staff, including the CEO, worked until midnight inputting information.
The SBA got the problem solved on Tuesday, and by 9 p.m. that night, the crew had processed and secured SBA approval on 95 loans. Over a period of two weeks, for both stages of the PPP stimulus package, this community bank had funded 246 loans to small businesses, for a total value of over $13.5 million. I know a bit about lending, and I assure you, that’s a big job for a little team.
This vignette demonstrates how effective a small bank can be in competing against mega institutions. Quite simply, they can respond to their customers better than a TBTF (Too Big to Fail) ever can. At the turn of the century, there were 7,500 community banks in the U.S. That number had dropped to around 5,000 by 2019. Of course, a lot of that attrition came in 2008-10, when many of them failed because, well, they weren’t too big to fail. The shrinkage also has often been attributed to the muscle of large banks, with their remote banking apps and branch network that covers the country like dew.
But, in certain markets, at certain times, and especially when the chips are down for both borrower and bank, the little guy can eat the big guy’s lunch.
Try calling Jamie Dimon at Chase at 10 p.m. on Sunday evening for a $250,000 loan to save your business.
Pat Dalrymple is a western Colorado native and has spent more than 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is pdalrymple59@gmail.com.