While most small, community banks in Connecticut weathered the economic storm during the last year and increased their lending, many larger, regional banks did not.
Last week, President Barack Obama scolded banking institutions that received federal bailout money for not doing enough to boost lending.
According to the U.S. Treasury Department, the value of loans held by banks that received the largest amounts of government bailout support fell for the ninth consecutive month in October.
The monthly report, which monitors the top 22 recipients of support from the government’s $700 billion rescue fund, showed that their average loan balances dropped in October by $36.8 billion, or 0.9 percent. That followed a decline of 1.1 percent, or $45.9 billion, in September.
In Connecticut, lending by the state’s 55 federally-insured banks fell by nearly $1 billion over the past year, and the state’s largest, regional lenders were mostly responsible for the significant drop in loans, according to a Hartford Business Journal analysis of Federal Deposit Insurance Corp. data.
In this week’s Hartford Business Journal, reporters Gregory Seay and Greg Bordonaro write about the impact on commercial landlords of the Great Recession and lending practices.
Bordonaro reports that loans and leases held by the state’s three regional lenders — Webster Bank, People’s United Bank and NewAlliance Bank — fell 5.3 percent or $1.7 billion during the one year period.
In contrast, Connecticut’s small community banks significantly boosted lending by $800,000 during the same time period.
Obama and other federal officials are right to say that the large banks that were bailed out on the taxpayers’ dime last year should make “extraordinary” efforts to increase lending to help consumers and businesses who have been hit hard by the Great Recession.
Last year, the nation’s Congressional leaders gave the nation’s major financial institutions on the brink of financial collapse a helping hand. Their fiscal crisis was due to a number of circumstances, but mostly of their own making by approving lots of risky subprime loans, and then selling those risky loans mixed in with safer, prime loans.
What they did was much like a greedy grocer hiding bruised and rotten apples in the bottom of a bushel, with the shiny fruit resting on top. When the rotten apples began to stink — similar to when the recipients of the risky, subprime loans couldn’t make their payments — it was hard to decipher the bad apples from the good ones.
Now that the big banks are financially healthier and beginning to pay back taxpayers, it’s time for them to return the favor. Based on the Hartford Business Journal’s analysis of government data, many are not.
Commercial property landlords now facing foreclosures are experiencing what many distressed homeowners know all too well. The mortgages or debt that they hold on their properties exceeds its value, putting them under water. Homeowners and the business owners with good credit who took out loans, many five years ago that are now coming due, are being denied refinancing by lenders because their existing debt exceeds the value of their property in today’s market.
The problem is a big one for Hartford and two commercial landlords, whose signature properties — CityPlace II, Metro Center and Bushnell On The Park — are involved in foreclosure proceedings.
Not that long ago, refinancing would have been simply a matter of paperwork. Now, as reported in the Hartford Business Journal today and in recent weeks, refinancing by large commercial landlords may require a costly court process where the owner files for bankruptcy and faces foreclosure proceedings by his or her lender.
If lending practices do not change, the revitalization of Greater Hartford — which has clearly slowed — will be in jeopardy.
