Monday, October 20, 2008

Local solutions to the effects of the global economic crisis on small towns

Two stories on NPR today made this point. One story's dateline is Big Sky, Montana, population 1,221, and the other (on Marketplace from American Public Media) is from Alexandria, Louisiana, population 46,342 and Shreveport, Louisiana, population 200,145.

The Montana story is about the half-built Moonlight Basin ski resort which had its financing cut off when Lehman Bros. went bankrupt a few weeks ago. The resort's owners are now turning to Montana banks, where they "know the board of directors." They are also turning away from debt financing and instead looking for investors, a turn which will slow the growth of the resort. Meanwhile, whether the resort will open this season is in question, and many have been laid off. In town, a waitress is quoted as expressing her amazement that "we're feeling the effects of [the financial crisis on Wall Street] from this small little town in Montana."

The Louisiana story is about the ascendancy of small-town, local banks in the midst of the financial crisis. Here are some excerpts, beginning with a quote from a local banker, Harold Turner. Note the emphasis on local reputation, which reflects the lack of anonymity associated with rural places:

Yeah, we have money to loan. And we're going to loan money like we have been. We're going to do it with people that we feel comfortable with that can pay it back that will sign on the note.

One person he feels comfortable with -- Debi Camus. She's a commercial real estate broker who recently borrowed $1 million to refurbish a building in downtown Shreveport. She shopped around for a competitive interest rate and found an existing relationship gave her the best deal.

Debi Camus: I can go walk across the street and sit down in front of Harold face-to-face. So not only was he comfortable with our financial statements, but he's comfortable with us personally.

Camus had two things going for her: her relationship with Turner and her excellent credit rating. Turner says those are the cornerstones of the local banking business and the key to those banks' state of health.

Turner: What we're trying to do is meat and potatoes. It's pretty much basic banking based on principles that have been proven for a long, long time. Where some of the larger banks, their business model requires them to do things that is somewhat nontraditional.

He's talking about those credit swaps and derivative contracts you might have read about. Community banks like his steered away from that swamp of exotic securities. Now, unlike the big banks, they don't need to swallow the Treasury's $250 billion bailout. And, they're still lending at reasonable rates.

Turner: The market is not going to allow us to be abusive on interest rates. If you think I'm charging you too much, talk to another bank. They'll loan you the money.

Turner is quite serious. Here in Shreveport, competition for customer deposits is intense. It's the same in small towns and cities right across the country.

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