Due to the shifting, stalling economic landscape, behemoth banks are less likely to make small-business loans that they consider risky; meanwhile, smaller banks are struggling to make such loans because they themselves don't have enough money to do so.
According to a report issued by the Maine SBA: "When the recession hit, lenders began tightening credit standards and reported continued tightening into 2009. Large banks state they have begun lending again but that limited demand exists from creditworthy small businesses. However, many small businesses and small business advocates also believe that the banks continue to apply overly strict standards of creditworthiness."
In countering this trend, Libby and other LD1452 proponents cite the success of the Bank of North Dakota (BND), which has been sharing business and agriculture loans with community banks for almost 100 years. Partnering with BND allows local banks to give bigger loans than they could on their own.
"In broad terms, BND has helped keep Main Street banks serving local business borrowers in hard times," says a report put out by Opportunity Maine.
According to the national Institute for Local Self-Reliance (ILSR), North Dakota has four times as many community banks than the national average; those banks account for 72 percent of deposits in the state (as opposed to 30 percent nationally and about 46 percent in Maine). State-bank supporters say that BND helped shield North Dakota from the worst of the recession; lending in North Dakota decreased less over the last few years than it has in comparable states, according to the Wisconsin-based Center for State Innovation.
Of course, not everyone is so gung ho. The Maine Bankers Association, the lobbying group that represents all the retail banks in Maine (there are 32 of them, holding $26 billion in assets), opposed LD 1452.
"We think the capacity for lending is already here," says Chris Pinkham, MBA president. He says the disconnect is between "what people expect versus what's really available in the marketplace." He says that there's money available for Maine's small businesses through federal and state lending programs, and there's not an overwhelming amount of unmet need in the small-business community. He also pointed out that setting up and regulating such a new institution would be complex, and that putting public funds (including tax dollars) up for loan carries a lot of risk.
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But: the Maine Bankers Association represents all retail banks in the state, from TD Bank (with more than $9 billion in deposits and almost 35 percent of the market share of Maine deposits) to Bar Harbor Savings and Loan ($51.5 million in deposits; 0.2 percent of the market share). That's a pretty wide spread that includes both national banks (like Bank of America and Key Bank) that would suffer from the state-bank proposal, and state-chartered banks, which could benefit from it.
Is anyone surprised that the Voice of the Fat Cats was the one represented in Augusta?
That said, the Maine Credit Union League was also nonplussed about the bill: "There's enough resources out there today," MCUL president John Murphy says of the lending atmosphere in Maine.