The financial crisis is contributing to an increasingly gloomy economic picture heading into the holiday shopping season.
Retail sales fell sharply in September, as consumers turned away from auto dealers and shopping malls, and signs point to even worse showings ahead. The Federal Reserve’s “beige book,” a regular survey of the Fed’s 12 districts around the country, was stunningly negative last week.
Meanwhile, in a bid to contain the worldwide financial crisis, U.S. Treasury Secretary Henry Paulson all but forced that nation’s largest banks to take injections of capital from the government. The stock market was not impressed.
In this economic mess, silver linings are few.
Yes, gas prices at the pump have fallen sharply, although that’s largely due to a plunge in world oil prices attributable to fears that recession will take hold worldwide.
But another positive trend appears to be developing in Connecticut.
Community banks and credit unions seem poised for a rebound as they take market share from the larger banks, many of whom have been caught up in the financial crisis headlines.
This can only be a positive development for Connecticut communities that are searching for ways to rebuild their hurting economies.
As local banks gain momentum, they are well positioned to lend to small businesses that create jobs and drive fresh economic activity.
Community banks, it turns out, are becoming increasingly popular alternatives for skittish investors who are pulling money out of their stock, bond and mutual fund portfolios.
In a crisis, people feel safer when their nest eggs are covered by federal deposit insurance. They feel safer still when they know the person who runs the bank where their money sits.
The decision by Congress earlier this month to raise coverage on federal deposit insurance from $100,000 to $250,000 per account further encouraged nervous investors to reconsider banks as a safe haven for their money.
The Federal Deposit Insurance Corp., which hasn’t let down one depositor in its long history, has managed to maintain its credibility throughout the crisis.
While the evidence so far is only anecdotal, community banks report that they’re seeing an increase in both deposit business and lending.
For example, some community banks are taking advantage of new opportunities in mortgage lending – even in a down market.
In recent years, that mortgage lending field was dominated by aggressive mortgage brokers who offered highly competitive terms, if not subprime options.
But the collapse of the housing market has driven many of those mortgage brokers out of the business, leaving more of an open field for community banks to offer traditional mortgages that used to be a major part of their business.
Farmington Savings Bank, for example, has originated $125.5 million in mortgages this year, $52 million more than all of last year.
While the current economic downturn isn’t going to improve much before Christmas, and may in fact last for several quarters, if not years, it’s an encouraging sign that community banks are not being left out in the cold.
Community banks are run by executives who live and work near their customers and have a vested interest in seeing them thrive. They are positioned to be an important part of the recovery, when it does finally arrive.
