Expectations Cautious on Obama's Local Bank Plan

The president said he wants to put more money into smaller banks, the banks on Main St. as he called them, because they are the ones that work most closely with small businesses and small businesses create jobs. According to a recent study from the state’s bankers’ association, local banks increased their lending in this recession.

Merrimack County Savings Bank fits that pattern, and in way, the trend takes a little steam out of the president’s plan. Ed Caron, the bank’s Senior Vice President for Commercial Lending , says he doubts it will generate much change in his shop.

CARON: We have plenty of capital and plenty of cash to lend right now.

But banks can face a limiting factor. If the amount of loans they put out the door grows faster than their deposits, they can bump up against capital requirements – the cash cushion they need to protect against losses.

Jerry Little, head of the New Hampshire Bankers Association, says some banks face that possibility, and for them, the proposal makes sense.

LITTLE: They might look at this and say we can really pick up a lot of new business if we had some extra funding.

However, if the goal is to give small businesses the money to create jobs, there could be a hitch. There’s nothing in this plan that would change the way the banks evaluate the health of a potential borrower. Those are called underwriting standards and for Jeff Baker, that’s key.

BAKER: I think underwriting standards have to loosen.

Baker owns Image 4 in Manchester. Image 4 makes displays for use at trade shows and other places. Baker says the recession did a number on his balance sheet and it scares banks away.

BAKER: If the under writing standards don’t loosen, it’s going to make it pretty much impossible to hire because I’m going to use every penny to rebuild my balance sheet.

Still, Baker says if giving the banks cheap money allows him to refinance some current loans, that could take pressure off his cash flow and who knows, maybe he would hire someone. For Dave Stabler, the question is, how much cheaper. Stabler owns Whitney Brothers in Keene, a maker of pre-school furniture and other items. He uses Bank of America, not a local bank by any stretch. While Stabler complains that the cost of borrowing has gone up, switching banks is nothing he would do lightly.

STABLER: One or two points, it doesn’t make much sense to change banks. But more than that, that’s interesting. That’s provocative.”

It’s unclear if the president’s plan would give Stabler enough of an incentive to actually use it.

Fred Kocher, president of the New Hampshire High Technology Council, has a related concern. Kocher questions whether businesses have much appetite for risk right now.

KOCHER: There’s great uncertainty on the part of CEO’s and CFO’s as to where the economy is going and as to whether it makes financial sense for them even to take out a loan, even though they think they need to, want to, could use it to grow the company.”

Kocher says the president’s proposal might work, but maybe not as fast as anyone would hope.

For NHPR News, I’m Jon Greenberg