Bank Failures: Should We Worry?

>> Eric Schurenberg: I'm Eric Schurenberg Editor and Chief of CBSmoneywatch.com

>> Jill Schlesinger: And I'm Jill Schlesinger Editor at Large.

>>

Eric: And today's Reality Check: Small banks are dropping like flies but does it matter?

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Eric: The small banks are kind of going through the second wave of bank failures. The first time at the beginning of the crisis we saw toxic securities take down some of the big banks or threaten to. This time it's a little different, hitting a little closer to home. A lot of home owners are losing their homes to foreclosure because they're unemployed, it's not about toxic security, it's not about subprime mortgages; commercial real estate where small banks are big participants that's another recessionary shoe to drop. All of this is hitting small banks particularly hard.

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Jill: And you know the problem is that it's emotionally an awful issue. No one wants to see a bank fail a business fail, but the reality is the economy can actually afford to see banks consolidate and it's sends a terrible message it sounds sort of clinical but you know there are 8,000 banks, we probably need maybe 4, 4000, 5,000 that would be plenty and that means that there are gonna be some that go away. I think the impact is really more psychological than any lasting impact economically.

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Eric: That's right I think the economy can take it but it is a tragedy when any small business goes under. It also psychologically is just one more shuttered store front on Main Street and who needs that? Also all the people who work at the bank are thrown under the unemployment rolls and that's not good.

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Jill: And I think the other issue, the real maybe lasting effect may be a more small business effect and as you said they are under great pressure right now and so if you have your local bank leave town and you had a line of credit with that bank and the new bank that opens up in its place says we're not gonna give you that loan that puts an enormous strain on already struggling businesses so I see the biggest impact not so much on individuals but the small businesses who are struggling right now in the recession.

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Eric: No that's right you don't want to be too sentimental about it but small banks had a feeling for the small businesses in their community and big banks after what we've gone through in the past 18 months it's just hard to see them gain market share at the expense of small banks.

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Jill: And I want to make sure that if we're gonna go through this whole consolidation process that there are lasting impacts on those big banks so that if we're unwilling to let them fail their better be some new rules, some regulatory oversights so they don't push us to the precipous assumed spelling again. You tell Barney Frank that will you?

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Eric: That's right and you tell the bankers.

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Jill: Absolutely.

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Eric: Enough of that.

>> Jill: Absolutely.

>>

Eric: And that's your Reality Check.

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==== Transcribed by Automatic Sync Technologies ====