(RPT) MNI INTERVIEW: US Community Banks Resilient, Trade Group

(Story first published April 18) Local U.S. banks are pressing ahead with regular lending including for commercial real estate projects, an Independent Community Bankers of America executive told MNI, even after the failure of Silicon Valley Bank raised concerns about a credit squeeze.

"Anecdotally, they have not seen the kind of predicted deposit runoff that everyone was concerned about following Silicon Valley Bank's collapse and instead they've seen some influx," said Anne Balcer, a senior executive vice president of the trade group that represents about 5,000 community banks. "There's still caution but no crisis."

Higher deposit costs could increase the cost of funds and the cost of lending on the margin, but so far there is little to reason to expect a fundamentally different picture than before the collapse of SVB and two other lenders, Balcer said.

(See: MNI INTERVIEW: Small, Midsize Credit Seizing Up, Says Kaplan)

Deposits at banks in the U.S. fell to USD17.3 trillion through April 5, Fed data shows, a USD413 billion decline from the start of March. A year earlier, banks had north of USD18 trillion in deposits.

CAUTIOUS THROUGH THE CYCLE

The 25 largest U.S. banks gained USD18 billion in deposits last month, while the ones below that size lost USD246 billion. Balcer stressed the data is likely picking stresses at larger regional banks rather than smaller community banks.

"Community banks for the most part have been pretty cautious throughout the cycle, certainly last calendar year, going into this calendar year, and keeping mindful of higher interest rates," she said.

"A lot of the issues with the unrealized losses with the Treasury securities are largely behind us," Balcer said. Fed research has noted lower securities valuations can increase loan prices and reduce loan growth. America's community banks provide roughly 60% of all small business loans and make more than 80% of agricultural loans.

"The new Fed [Bank Term Funding Program] facility is helping to ease potential liquidity concerns as a result of some liquidity being tied up in Treasuries or other securities," she said.

MID-SIZED BANKS TIGHTENING?

Community banks have continued commercial real estate lending, but mid-size banks appear to be tightening up, Balcer said.

"Regional credit has been particularly impacted in the CRE space," she said, noting tougher underwriting and different business models. Fed data shows small lenders have USD1.9 trillion in commercial real estate loans, compared to the nation's largest 25 banks holding USD845 billion.

"Commercial real estate has always been a point of heightened supervision for regulators since the last financial crisis," Balcer said, downplaying financial stability risks around commercial real estate. "There's nothing to say this is an increasing or unforeseen crisis or we're going to see any kind of dramatic impact particularly for the smaller community banks."