Magazine article American Banker

How You Can Beat the Loan Funding Blues

Magazine article American Banker

How You Can Beat the Loan Funding Blues

Article excerpt

When I make a speech at a convention, I like to ask bankers at the reception the night before: "What is the biggest problem you face today?"

At the recent convention of the Pennsylvania Association of Community Bankers, the answer I heard over and over again was "funding."

"We can't get the money we need," everybody said.

My first thought was that this is not altogether bad news. Obviously, the people in their communities are still coming to them for loans. Despite the competition from larger banks, dot-com lenders, brokerage firms, and other finance companies, community banks are still looked upon as the basic source of credit.

Be that as it may, a shortage of funds is a major concern.

I asked some bankers why they don't just raise the interest rates on the loans they write so they can bump up their CD yields to buy the money they want to lend. Their answer: "If our loan rates are one-eighth of a percent above the competition, borrowers will leave us in a heartbeat."

If that is no solution, what is?

One solution may be to boost savings account yields. Community bankers "complain that they can't get core deposits," one well-informed observer said, "but I'll bet most of them are still paying only 1% to 2% on demand deposit accounts."

The Federal Home Loan Bank System is another. Many at the conference blessed its advances. Some who had always thought they could survive without this government-sponsored enterprise admit that the advances now account for a substantial portion of their funds. …

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