While larger banks, like Bank of America are planning the return of TARP funds, regional and community banks will need to rely on these funds to stay afloat for the foreseeable future. Among the 35 biggest regional lenders in receipt of TARP monies, 25 hold thirty-percent or more in commercial real estate and construction loans in their total loan portfolios. In seven of the regional lenders, commercial real estate loans make up more than fifty-percent of their loans. Significantly these 35 lenders, in the aggregate, hold an average of 37% of the total commercial real estate and construction loans made. There are more than 8,000 banks and most of them are community and regional lenders. These banks typically lack national or international operations and thus alternate streams of revenue like the Banks of America.
The FDIC has seized 130 banks this year and all of them have been regional or community lenders. The primary cause cited for these failed banks are non-performing commercial property loans. As we turn our attention to 2010, the forecast for the banking industry is becoming more dire. Delinquent loans on shopping malls, hotels and home developments reached a 16 year high of 3.4 percent default rate in the third quarter -which is expected to increase to 5.3 percent in the next two years. An unbelievable $36.6 million in TARP funds is held by the 35 largest regional lenders.
It is increasingly apparent that the anticipated benefits of the TARP program no longer exist nor provide the required incentives to stimulate the economy.
I submit that without the meaningful participation of the private sector, individual and corporate investors alike, hope for recovery in the credit markets is a distant realization. Perhaps the $45 billion dollars scheduled to be repaid by Bank of America, and returned to the American people, should be redeployed as tax cuts to stimulate the private sector to achieve the intended assistance to communities and regions alike?
[Data Source: Bloomberg.com, December 7, 2009]
