Weekend Economists Merry Little Christmas December 23-26, 2011

[Demeter]

55. The Bank Around the Corner

http://www.nytimes.com/2011/12/25/nyregion/the-bank-of-cattaraugus-new-york-states-smallest-bank-plays-an-outsize-role.html?pagewanted=1&_r=2&hp

AS winter approached, a retired secretary here named Carol Bonner was putting snow tires on her car when she noticed that her back-right rim was bent. Ms. Bonner took the car to Otto’s Auto Body Shop and got bad news: the work was going to run her $244 — more than half of her $417 monthly pension check. Without a credit card or enough saved up to replace the rim herself, Ms. Bonner, who is 61 and cares for her sister Jane, who is disabled, did the only thing she could do: she went down to the Bank of Cattaraugus and took out a $300 loan. The bank, in a reversal of the usual process, had bailed her out before. A few years ago, when Ms. Bonner fell behind on her property taxes and was forced to sell her home, the bank’s president, Patrick J. Cullen, who held the mortgage on the house, had his son Thomas buy it. Thomas Cullen, who lives in Chicago, never intended to live there. Ms. Bonner and her sister were able to stay as renters. “The whole thing was incredible,” Ms. Bonner said the other day, a single pine branch hanging in her living room in lieu of a full Christmas tree, which she could not afford. “I just didn’t realize there were people like that in the world, people who would help you. Especially,” she said, “a banker.”

This has not exactly been a time of great love for bankers. Amid the continuing foreclosure crisis and Occupy Wall Street’s campaign against “the 1 percent,” it is easy to forget that not all banks are complicated giants, trading in derivatives and re-hypothecating valueless collateral. The Bank of Cattaraugus, for example, is by asset size the state’s smallest bank (one branch, eight employees, no credit default swaps) and yet it plays an outsize role in this hilly village an hour south of Buffalo: housing its deposits, lending to its neediest inhabitants and recently granting forbearance on a mortgage when the borrower, a bus mechanic, temporarily lost his job after shooting off his finger while holstering his gun. If it sounds old-fashioned, it is. It’s not the kind of bank you’ll find anymore in New York City, where multiple branches and capitalizations counted in 10 figures are the norm. With $12 million in total assets, the Bank of Cattaraugus is a microbank, well below the $10 billion ceiling that defines small banks. It exists in a seemingly different universe from the mammoth banks-turned-financial-services-conglomerates, like Citigroup ($1.9 trillion in assets) or JPMorgan Chase ($2.25 trillion).

With obvious exceptions, business at the Bank of Cattaraugus hasn’t changed much since 1882, when 20 prominent residents — among them a Civil War surgeon and a cousin of Davy Crockett — established the bank to safeguard townsfolk’s money and to finance local commerce. In its 130-year history, the bank has rarely booked a profit for itself in excess of $50,000. Last year, Mr. Cullen said, it made $5,000. He and his officers are industry anomalies: bankers who avoid high-risk and high-growth tactics in order to reinvest in their community’s economy. “My examiners always ask me, ‘When are you going to grow?’ ” said Mr. Cullen, a Cattaraugus native who is 64 and has the prosperous stoutness of a storybook banker. “But where is it written I have to grow? We take care of our customers. The truth is we probably couldn’t grow too much in a town like this.” While it faces many of the same regulations that govern larger banks, it operates according to an antiquated theory of the business: that a bank should be a utility, like the power company, and serve as a broker between savers and borrowers in its community.

..........................................................................................................................


SMALL banks have been dying for 20 years. In 1990, there were 12,000 banks nationwide with assets of less than $10 billion; now, there are 7,350. The country’s top five banks have, meanwhile, grown relentlessly: In 1995, they held 11 percent of all deposits; last year it was 34 percent. For several years, the small-banking sector has been pinched on one side by the rising costs of compliance and technology, and on the other by historically low interest rates (which cut into lending margins). In the last year, though, anger over big banks’ fees and mortgage lending practices has turned consumers against the mega-banks, and smaller institutions have been the beneficiaries....The publisher Arianna Huffington has been behind the Move Your Money Project, which encourages people to take their money out of big banks and deposit it in local financial institutions. (Slogan: Invest in Main Street, Not Wall Street.) Ms. Huffington produced a video based on the Christmas banking classic “It’s a Wonderful Life” to support the campaign. BankTransferDay.org similarly claims to have persuaded 400,000 people to switch their funds from big banks to not-for-profit credit unions. Occupy Wall Street, which has pretty much turned “bank” into a four-letter word, has deposited nearly $500,000 into Amalgamated Bank, a big small bank in New York City owned by the labor union Unite Here. Edward Grebow, Amalgamated’s president, posted signs in his branches supporting the movement and marched with its members in October. Perhaps as a result, the number of new checking accounts at Amalgamated has doubled in the months since it took on Occupy Wall Street as a customer. But the increased business came at a delicate moment for the bank: under new rules passed in the wake of the subprime lending meltdown, Amalgamated was forced to raise fresh capital. In September, the bank sold a 40 percent stake in its business to two giants of the private-equities markets: Wilbur L. Ross Jr., a billionaire investor, and Ronald W. Burkle, a California supermarket magnate...

MORE WARMTH AND GOODNESS AT LINK