According to a recent article titled â€œSmaller Banks are Falling Fastâ€ by Apartment Finance Today it has been found that larger banks have been bolstered by federal bailout funds and equity raising efforts. However smaller banks are struggling with their balance sheets which have been affected by bad commercial real estate loans.
The FDIC has noted that â€œde Novoâ€ banks (banks which have started greenfield operations within the past seven years) formed a disproportionately high amount of these failures. Of all the 98 bank failures so far in 2009 De Novo banks formed 21. The difficulty facing small banks seems to have worsened as those banks represented only 10% of the total bank failures between 2000 and 2007.
I say that one can draw a similar conclusion for real estate investors by finding that most of the people who have started investing in real estate in the past 7 years are more likely to have failed than those who have been investing for much longer. However this should not discourage such investors but let them take it as a stride in their step as they have now a much better understanding of the challenges of dealing in real estate. Therefore my suggestion to such investors would be for them not to quit their investments in real estate as that is the only decision that would ensure failure, but to consolidate their positions, review their learning and proceed more wisely and their chances for success in the future would then be much brighter.
In late August 2009 new rules for young banks subjected them to higher capital requirements and more frequent exams during the first 7 years which is up from the previous 3 year subjection. Meanwhile the Obama administration has developed an initiative to dole out TARP funds to smaller and community banks to help them stave off further bank failure.
I believe this is a good initiative for developing local real estate as it is the smaller banks that keep the market competitive and also help with local lending as many times it is the local banks that help the smaller operators.
The FDIC says that in late August 2009 the watch list of troubled de Novo banks formed 416 which is up 25% from 305 just a quarter ago. Therefore 111 lenders were added to the list in a matter of months thereby forming a 15 year high.
The article had been published by Senior Editor Jerry Ascierto.
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