Main Line Community Banks Still Thriving in Shaky Economy
In the shadow of big banks customers love to hate, community and regional banks provide the services and trust that's been lacking in the recent recession.
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It’s not surprising that Ted Peters has friends in the banking business. But one of those relationships has become a stark illustration of the difference between his community-based operation and the national and global megabanks people love to hate.
“I had to call a friend who worked at Wells Fargo, and it was a personal matter,” says Peters, the president and CEO of Bryn Mawr Trust.
“I knew where he worked and everything, but I couldn’t get him. Every time I called the number, I’d have to hit more buttons, or put in a password or a code or an account number. And if you don’t have one, you get kicked somewhere else,” he says. “I know exactly where he works; I know the building he’s in … And I can’t get him.”
Did Peters bemoan his friend’s situation? Not quite. “I loved it. They’re so bad—they really are,” he says, laughing. “You can get somebody pretty quickly when you call our banks, because that’s what we’re selling: service.”
Regardless, today’s community banks have been left to contend with customers’ lingering anger and multiplying federal regulations over something that wasn’t really their fault. “Too often, when public officials are speaking, they speak of bankers in a universal way, not realizing that they’re really not talking about Wall Street, they’re talking about all of us,” says Bill Latoff, chairman and CEO of Downingtown-based DNB First. “It’s had a detrimental impact.”
Chalk it up to almost a decade of suspect behavior by the biggest banks in the country. By now, the story should sound all-too-familiar: In 2008, after years of creating complex, artificial, downright dicey loan instruments designed to maximize profits, the largest financial institutions in the country found themselves in a bit of a pickle.
The problems started as early as 2006, when the housing market—driven by historically low interest rates and federal pressure to expand home ownership—shattered under the weight of extensive lending at sub-prime rates. Many of those suspect mortgages were then bundled together and traded or sold to other banks for a quick, high return based on the assumption that home values would continue to rise.
When they didn’t, real estate values around the country plummeted, with the most visible damage seen in what had become overvalued areas like Las Vegas and much of Florida. Many homeowners defaulted on their mortgages. As a result, the values of those bundled loans plummeted. Between June 2007 and January 2008, six international banks had declared losses between $5.5 and $18 billion. By March 2008, Bear Stearns, the fifth largest investment bank in the United States, had
collapsed and was taken over by JPMorgan Chase & Co. Failures and buyouts of banks continued, and job losses related to the financial industry skyrocketed.
In October 2008, after weeks of wrangling over how to help keep the disaster from spreading, Congress passed a $700 billion bailout of the U.S. financial industry, citing the need to rescue institutions deemed “too big to fail.” It was a striking moment for consumers. Home values collapsed. Investors, who depended on that vigorous mortgage market for dividends, saw portfolio values plummet. Many who got into their homes using those aforementioned exotic loan instruments saw their interest rates balloon and were unable to make their monthly payments.
For banks of all sizes, the crisis resulted in tons of animosity aimed in their direction. According to a July 2012 Gallup poll, consumer confidence in the banking industry is at a record low. Such rampant distrust has been particularly hard on the little guys.