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The Last Real Banker? 67<br />
char acteristics <strong>of</strong> the local market, for example—rather than rely<br />
on a single computer- generated credit score like the big banks do.<br />
That level <strong>of</strong> personal knowledge and consideration helps explain<br />
why the loan portfolios <strong>of</strong> small banks under $1 billion outperform<br />
those <strong>of</strong> their bigger rivals. 2<br />
The same could be said for the nation’s nearly 8,000 credit<br />
unions, which, as member- owned not- for-pr<strong>of</strong>i ts, are managed for<br />
and by their member- customers.<br />
These community-based fi nancial institutions have been the<br />
chief ally <strong>of</strong> small business. Loans to small business make up 27<br />
percent <strong>of</strong> the overall loan portfolios <strong>of</strong> banks with less than $500<br />
million in assets, compared to just 5 percent for banks with more<br />
than $50 billion in total assets. 3 While fi nancial institutions <strong>of</strong> all<br />
sizes cut back lending in the aftermath <strong>of</strong> the subprime meltdown,<br />
none did so as drastically as the large banks. Community banks<br />
and credit unions <strong>of</strong>fered the only lifeline for many borrowers.<br />
Overall, community banks increased their total loans by<br />
about 2 percent, compared to a 6 percent decline for larger banks.<br />
Small business lending dipped by 3 percent at com munity<br />
banks, com pared to 21 percent for larger banks. 4 Credit unions,<br />
meanwhile, increased their small business lending by 10 percent<br />
in 2009. 5 (The amount credit unions can lend to small business<br />
is capped by federal law at 12.25 percent <strong>of</strong> their total assets.<br />
Credit unions argue that raising the limit to 27.5 percent for wellcapitalized<br />
institutions, as some congressional members favor,<br />
could spur $10 billion in new small business lending, at no cost to<br />
the government).<br />
“It is said that a community with a local bank can better<br />
control its destiny,” Thomas Hoenig, the outspoken head <strong>of</strong> the<br />
Kansas City Federal Reserve, noted at a hearing <strong>of</strong> the House<br />
Subcommittee on Oversight and Investigations in late August<br />
2010. “Local deposits provide funds for local loans. Community<br />
banks are <strong>of</strong>ten locally owned and managed—through several<br />
generations <strong>of</strong> family ownership. This vested interest in the success<br />
<strong>of</strong> their local communities is a powerful incentive to support<br />
local initiatives. It is the very ‘skin in the game’ incentive that regulators<br />
are trying to reintroduce into the largest banks.”