For Community Banks, Survival Can Often Trump Lending

JUDY WOODRUFF: Small banks hope the president’s push to overhaul the financial regulatory system will help. That’s in sharp contrast to larger banks, which remain strongly opposed to reform now moving through Congress. For more on that meeting and the state of community banks, we turn to Matthew Gambs. He is chief executive officer of Diamond Bancorp in Schaumburg, Illinois. He attended the White House meeting today. And Karen Shaw Petrou, managing partner of the consulting firm Federal Financial Analytics, which advises the financial services industry. Good to have both of you with us. We appreciate it. Matthew Gambs, as we said, you were in that meeting today. The president went in — or what he said to the cameras was that this was all about getting small banks to loan more to businesses that need it.

JUDY WOODRUFF: Karen Shaw Petrou, how much demand is there for — for loans right now?

KAREN SHAW PETROU, Federal Financial Analytics: There’s less demand than there was because the economy — when you’re in a recession, people are hunkering down and not expanding. But that isn’t to say there isn’t demand. And small business lending in particular would help to restart some segments of the economy, if there were more credit available than there is right now.

JUDY WOODRUFF: Well, how much more room is there for the small banks like Mr. Gambs’ bank to do more?

KAREN SHAW PETROU: It’s a balancing act, because, as one of the bankers in the piece pointed out, there are problems in the small bank sector, particularly in commercial real estate. And the problem often in small banks is that they have all their eggs in one or maybe two baskets. And one — if one of them is fragile, the bank can be fragile, too. And we learned the hard way in the S&L crisis that, when banks are trouble, you need to be really careful and not let them get in any deeper. So, it’s a tricky balance.

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