Last week, Small Business Finance Insights published “The Retreat of Community Banks: Quotes from Four Credit Managers.” In response, Dale Kluga, Equipment Finance Founder and CPA posted this letter to the editor:
I find it very disingenuous that all of your confidential community bank credit managers blame their withdrawal from lending to small business on regulation and small business risk factors. Those are simply poor excuses to blame it on others rather than looking inward at what they are doing wrong in failing to support their local communities by refusing to lend to small businesses.
If they were truly objective, they would acknowledge that banks in general have consistently failed to follow traditional, disciplined asset liability management strategies which has led to the $1 trillion in unrealized losses from bank underwater fixed income securities. Not to mention their repeat failure, once again, to duplicate their mistakes during the Great Recession by booking unsustainable and insolvent CRE in the $3 trillion range.
Keep in mind that the FDIC only has around $100 billion in insurance reserves to cover this $4 trillion colossal bank credit risk exposure.
None of which is attributed to small business. It results from incompetent bankers who failed to learn past lessons.
Small businesses represent over 60% of our GDP. We already know that the big trillion dollar and large regionals won’t support us. But if the community banks make the same lame excuse, that shows how weak our community banks have become financially and our economy will get hit hard by community bank failures if they stop lending.
Community banks need to lend to make money, they simply do not have the infrastructure to compete on lending to mid size or large businesses or to make money by trading securities. Until bankers come forward on a full disclosure basis and acknowledge their errors and change their business models to demonstrate to their communities that they have real skin in the game, they will continue to repeat their naive errors, as they have done once again after the Great Recession in 2008.
We could be looking at a situation this fall that mimics the Great Recession impact on all businesses. Particularly if the Fed refuses to drop rates.
Best Regards,
Dale R. Kluga
Equipment Finance Founder & CPA
Member AICPA & ICPA
We encourage you to keep the conversation going. Our banking and lending infrastructure continues to face strong headwinds. Did they manage risk well enough or are they victims of central bank monetary policies to combat inflation? Or is it a little of both?
