April is Community Banking Month if you didn’t already realize this. I fully realize that, more than likely, the town is not redecorating the square/Main Street/main hub in your honor and I seriously doubt the schoolchildren are coloring the pictures from “Great Moments in Banking” for you to hang on the fridge. (“Daddy, who is this man and why is he so mad!?” “Why honey, that’s JP Morgan and he just didn’t like his picture being taken”).
No, community bankers are not going to get the recognition other fields receive (and they deserve every bit of it!). We’re not going to get the parades and the documentaries…and that’s ok. The ROI on those things are terrible anyway.
But where you bank matters. And for us bankers, how you bank your community matters. It matters in ways that most of our customer, and I would argue many bankers, don’t always see.
I have the good fortune of teaching a senior level undergraduate class of Commercial Banking here at Christian Brothers University. Over an 8 week class, these students get to listen to me ramble on about the mechanics of banking and, I am positive, that they would cherish your thoughts and prayers. But I would have never guessed what part has seemed to enthuse them and make them see banking in a whole new way.
GSE’s and Loan securitization!!
Stay with me now! I’m not totally crazy.
At their most basic function, what do the GSE’s like Fannie and Freddie do? They provide banks a secondary market for mortgages they ordinarily couldn’t and shouldn’t make. I did not say provide a place for banks to dump the bad loans!! As I explained it to them, during my “riveting” ALM lecture, consider this…a small mortgage might be $100,000. If you are a $100MM bank, one small subdivision might be 1% of your asset base. That’s considerable risk when you apply it to small town/communities that do not have a wide variety of banking options. At some point (usually at the demand of examiners), the desire to serve your community’s financial needs is overshadowed by the risk doing so requires. On the flip side, how many car loans equals one mortgage from a volume perspective? Quite a few. In the classroom example, it makes good sense, then, to balance car loans and home loans in your small communities.
GSE’s, then, allow the bank to make the loans, package and sell/transfer the loans off of the balance sheet, have capital restored, go make more loans, and still have a positive societal impact in the lives of the people in their communities. Are the details more complicated than that? Yes, I get it. But at the end of the day, community banks are enabled to provide key services in some markets where they have high market control due to the barriers of new entry for larger banks, and improve the lives of their customers. As a banker, have you ever had one of those “warm and fuzzy” moments? Mine were never the biggest loans or the most complicated…but they were the ones that made me remember why I’m a banker.
So, do you want to improve your communities…bank locally.
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