Grundy Bank, others declining federal funds

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Grundy Bank won’t be participating in a federal program announced Wednesday, Oct. 21, to make money available to small community banks.

“We have enough capital to meet the needs of our customers,” Kevin Olson, president of the Grundy Bank said.

Two weeks ago, President Barak Obama announced plans to make money available at low rates to small banks, which they would then loan to small businesses.

According to government statistics, over the past 15 years, small business have created 65 percent of the new jobs in the United States.

By increasing the availability of loans to small business, the administration hopes to increase the number of jobs and, eventually, reduce the unemployment rate.

Yorkville State Bank, part of FNBC of LaGrange, announced recently it is also refusing the funds, for the same reason.

“Our company’s board and management felt, given our capital strength and continued strong financial performance, the real and perceived costs of accepting this funding far out weighed any benefits of additional capital,” Richard J. Worzala, president of Yorkville Sate Bank, said.

“Our balance sheet is characterized by high capital levels and our capital ratios continue to far exceed the regulatory benchmarks for well capitalized institutions.”

Olson said that, according to information from the American Bankers Association, the money would be made available at 3 percent to commercial banks. Banks with less than $1 billion in assets – more than 6,500 nationally – are eligible, although all did not choose to participate. The asset cap means many local and area banks are too large to participate.

ABA Chief Operating Officer Diane Casey-Landry said her organization supports the plan to help increase lending opportunities for community banks and the small businesses they serve.

“Small businesses of all kinds, including community banks, are suffering from the recession. The success of many local economies, and of the broader economy, depends greatly on the success of small businesses and on the community banks that serve them,” she said

“Capital is the bedrock of all lending. Losses from sagging unemployment and declines in property values have caused a significant decline in capital for many community banks, at a time when capital is very hard to come by. Access to capital is critical for helping these banks and their local communities to get through these tough economic times.”

Olson said Grundy Bank has adequate capital and under the law is allowed to leverage it to increase the actual amount of loans that can be made.

Another proposal made by the president, to increase the maximum amount allowed for Small Business Administration loans, is favored by Olson.

The proposal, which must be approved by the U.S. Congress, would increase the caps on SBA loans.

For the micro loan program, the maximum would increase from $35,000 to $50,000.

For the SBA 7a program, which provides loans for start-up businesses, as well those expanding or looking to begin exporting, the maximum would be increased from $2 million to $5 million.

For the 504 program, which provides money to buy fixed assets, the maximum would be increased to $5.5 million.

The SBA does not make any loans, but guarantees a majority of the loan made by a bank under the program.


  

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