<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Smaller banks doing better
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->WASHINGTON: It's a tale of two cities.
While borrowing and lending by big banks in the US has virtually frozen, smaller banks say deposits are flowing in as customers flee riskier investments and well-qualified borrowers are getting loans.
'We collect money from local savers, and we lend it in the local community,' said Mr William Dunkelberg, chairman of Liberty Bell Bank in New Jersey. 'We're doing fine. There are 9,000 financial institutions out there, and most of them are small and most of them are doing fine.'
Mr Dunkelberg, who is also chief economist for the National Federation of Independent Business, added that a recent survey of that group's members found that only 2 per cent said getting a bank loan was the great challenge facing their businesses. 'If you can't get a loan, my advice is to go see your local community bank,' Mr Dunkelberg said.
There is no question that big banks are struggling to borrow money and have basically stopped lending to one another.
Bank investors also are hesitating. The volume of short-term debt issued by financial institutions, known as commercial paper, fell by US$50.3 billion (S$71.5 billion) for the week ended Wednesday, even as the volume of short-term debt issued by other types of companies increased slightly.
That has forced banks into the arms of the Federal Reserve. Total borrowing in the last week set a record, at US$262 billion, more than double the previous all-time high set the week before last.
The most dramatic indication of the problems facing banks is how they are treating one another. Overnight on Wednesday, one measure of the cost of borrowing from another bank, the London Interbank Offered Rate (Libor) posted its largest spike for three-month loans since 1999.
Even more startling to market observers was the difference between the interbank rate and the price paid by the government to banks for borrowing their money.
The interest rate on a three-month Treasury bill fell to less than 0.5 per cent on Wednesday, creating a difference of more than three percentage points between the price banks charge the government and the price they charge one another.
'It's a sign that banks don't trust one another,' said Prof Richard Marston, a finance professor at the Wharton School of the University of Pennsylvania. 'It's a canary in the coal mine; it shows just how distressed those relationships have become.'
Large banks use Libor loans as a way to balance the books at the end of the business day. It allows the banks to make sure they're holding enough capital relative to the loans they have made. The inability to borrow - or to borrow at a reasonable price - forces banks to make sure they have enough money before they make a loan.
In some cases, that means a loan does not get made.
Smaller banks, by contrast, make few mortgage loans, and their lending is fuelled by deposits, rather than borrowing. That has insulated them from the troubles on Wall Street.
'We're drowning in liquidity because people are pulling money out from other places and depositing it with us,' said Mr Peter Fitzgerald, chairman of Chain Bridge Bancorp in McLean, Virginia. 'Our bank has benefited tremendously.' WASHINGTON POST
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->WASHINGTON: It's a tale of two cities.
While borrowing and lending by big banks in the US has virtually frozen, smaller banks say deposits are flowing in as customers flee riskier investments and well-qualified borrowers are getting loans.
'We collect money from local savers, and we lend it in the local community,' said Mr William Dunkelberg, chairman of Liberty Bell Bank in New Jersey. 'We're doing fine. There are 9,000 financial institutions out there, and most of them are small and most of them are doing fine.'
Mr Dunkelberg, who is also chief economist for the National Federation of Independent Business, added that a recent survey of that group's members found that only 2 per cent said getting a bank loan was the great challenge facing their businesses. 'If you can't get a loan, my advice is to go see your local community bank,' Mr Dunkelberg said.
There is no question that big banks are struggling to borrow money and have basically stopped lending to one another.
Bank investors also are hesitating. The volume of short-term debt issued by financial institutions, known as commercial paper, fell by US$50.3 billion (S$71.5 billion) for the week ended Wednesday, even as the volume of short-term debt issued by other types of companies increased slightly.
That has forced banks into the arms of the Federal Reserve. Total borrowing in the last week set a record, at US$262 billion, more than double the previous all-time high set the week before last.
The most dramatic indication of the problems facing banks is how they are treating one another. Overnight on Wednesday, one measure of the cost of borrowing from another bank, the London Interbank Offered Rate (Libor) posted its largest spike for three-month loans since 1999.
Even more startling to market observers was the difference between the interbank rate and the price paid by the government to banks for borrowing their money.
The interest rate on a three-month Treasury bill fell to less than 0.5 per cent on Wednesday, creating a difference of more than three percentage points between the price banks charge the government and the price they charge one another.
'It's a sign that banks don't trust one another,' said Prof Richard Marston, a finance professor at the Wharton School of the University of Pennsylvania. 'It's a canary in the coal mine; it shows just how distressed those relationships have become.'
Large banks use Libor loans as a way to balance the books at the end of the business day. It allows the banks to make sure they're holding enough capital relative to the loans they have made. The inability to borrow - or to borrow at a reasonable price - forces banks to make sure they have enough money before they make a loan.
In some cases, that means a loan does not get made.
Smaller banks, by contrast, make few mortgage loans, and their lending is fuelled by deposits, rather than borrowing. That has insulated them from the troubles on Wall Street.
'We're drowning in liquidity because people are pulling money out from other places and depositing it with us,' said Mr Peter Fitzgerald, chairman of Chain Bridge Bancorp in McLean, Virginia. 'Our bank has benefited tremendously.' WASHINGTON POST
