Uphill battle for smaller banks

19 percent decline in number of banks since beginning of financial crisis

Most Americans have gotten an earful about the too-big-to-fail banks, which created a financial tsunami that engulfed the world — only to be rewarded with a bailout by Uncle Sam.

But what about the little banks caught in the ensuing economic and regulatory backwash? Banks that wrote no dicey home loans, sold no toxic securities, never considered trading leveraged derivatives — the ones whose shareholders and customers live within an easy drive of the head office.

While the too-big banks have gotten even bigger, smaller community bankers are finding it increasingly tough to survive, in part because they must commit more of their limited resources to complying with new regulations stemming from the global near-meltdown. That has increased pressures on the owners and directors of small banks to sell out to their larger brethren, they say.

Indeed, many community banks are now too small to succeed.

"Regulatory burden is absolutely a factor for many smaller banks that are looking to exit," said Steven Gardner, president of Pacific Premier Bank in Irvine, Calif., which has acquired two failed banks and two open banks in the past two years.

"And it's absolutely going to continue," said Gardner, whose bank, with 13 offices and $1.6 billion in assets, is scouting more acquisitions.

It's the latest chapter in a long decline in the number of U.S. banks. At the end of 2007, right after the financial crisis struck, the government insured 8,534 commercial banks and savings institutions — down 52 percent from 1984. As of Tuesday, the count was 6,926, down 19 percent since the crisis began.

Of the 1,608 banks that have disappeared since the financial crisis — most of them community lenders — nearly a third were shut down by regulators in the biggest rash of bank failures since the savings and loan debacle in the 1980s. The rest were attributed to consolidation as bigger banks gobbled up smaller players.

The irony is that community banks generally avoided the kind of subprime home lending that brought down the housing market and the economy. They left such risky mortgages to large national lenders.

Many others remain well-managed with profitable niches, analysts say. And they have shared some legacy problems from the financial crisis with larger banks, including weak loan demand in a sluggish economy and low interest rates that have pinched lending profits.


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