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Despite Economic Woes, Nation’s Community Banks Continue to Lend

ICBA to Congress: Focus on Small Business Needs, Rein in Overzealous Examiners and Too-Big-To-Fail Banks

Washington, D.C. (July 8, 2009)—The Independent Community Bankers of America (ICBA) today told Congress that our nation’s more than 8,000 community banks continue to lend and urged lawmakers to focus on the policy needs of the small business sector, rein in overzealous bank examiners and prevent too-big-to-fail banks from threatening the health of our entire financial system in the future.

“Community banks played no part in causing the financial crisis fueled by exotic lending products, subprime loans and complex and highly leveraged investments,” said Jack Hopkins, president and CEO of CorTrust Bank, Sioux Falls, S.D., in testimony before the Senate Banking, Housing and Urban Affairs Committee’s Subcommittee on Financial Institutions. “Although the current financial crisis is impacting all financial institutions, most community banks are well-positioned. Community banks have continued their prudent lending practices, worked with borrowers and even increased lending during this latest period of economic contraction.”

Hopkins stressed the importance of the small business sector, saying that it will help lead us out of the recession and boost needed job growth, especially in rural communities that have not been immune to the economic downturn. He said that because Small Business Administration (SBA) loan programs are an important component of community bank lending, those SBA programs must remain a viable and robust tool in supplying small business credit. “Even though community banks represent about 12 percent of all bank assets, they make 20 percent of all small business loans and more than half of all small business loans under $100,000. In fact, 48 percent of small businesses get their financing from banks with $1 billion and under in assets,” Hopkins said. He went on to say that the frozen secondary market for small business loans continues to impede the flow of credit to small businesses and recommended changing existing programs to unleash their full potential.

The South Dakota community banker also said mixed messages from bank examiners and policymakers are a serious issue for community banks. “Field examiners have created a very harsh environment that is chilling lending as examiners criticize and require banks to write down existing loans, resulting in capital losses, while policymakers are encouraging lending from every corner. Some community bankers are concerned their regulators will second-guess their desire to make additional loans, and others are under pressure from their regulators to decrease their loan-to-deposit ratios and increase capital levels,” Hopkins said.

In discussing ICBA’s position on the Obama administration’s regulatory reform proposals, Hopkins said ICBA strongly supports efforts to rein in too-big-to-fail institutions to avoid a similar crisis in the future. He went on to say that community banks support the dual banking system of state and federal bank charters to provide checks and balances that promote consumer choice and a diverse and competitive financial system. “Community bankers already work with their customers and use a wide variety of options to keep customers in business,” Hopkins said. “As Washington moves forward with regulatory reform, Congress should allow community banks to continue to work with their customers during these troubled times rather than adding unnecessary costs and complexity to the process.”

ICBA thanks Senate Banking subcommittee Chairman Tim Johnson (D-S.D.), Ranking Member Mike Crapo (R-Idaho) and the other members of the subcommittee and looks forward to working with Congress to ensure the nation’s common-sense community banks have the wherewithal to continue to lend to their customers both within rural communities and throughout Main Street America.

To read ICBA’s testimony, visit www.icba.org.