A recent article in the NYTimes had put a nice spin on the numerous failures of community banks:
NYTimes: “People are angry with all the shenanigans on Wall Street,” [Camden R. Fine] said. “They believe their money stays local when they put it in a community bank, rather than sent off to Never-Never land.”
Yes, the money stays local alright. In fact there are numerous cases of real estate developers (you know, the local ones) getting on the boards of local banks to "advise" these banks to lend to them. Some even formed their own banks. Yes, why not use those local deposits to get rich on local construction projects with just a bit of help from the national taxpayer via the FDIC.
The chart below shows where that "local" money went. This is a comparison of commercial real estate loans as percentage of banks' assets for community banks vs. the large banks. It includes construction loans for those local strip malls, office space, single family housing developments, and those great condos. Many of those are nice and vacant now and the "local" developers are not local any more - they closed shop and skipped town.
source: FRB
These credit driven construction projects had created millions of jobs financed by those local FDIC secured deposits. But they were "bubble jobs" that were not sustainable and are not coming back any time soon. And people wonder why US employment continues to struggle.
Of course Mr. Fine does a good job blaming the large banks - after all it's an easy target. The taxpayer should in fact be angry with the regional banks who have put the FDIC in the red.
So next time you plan to open that account at Chase, hold off, think about it. Maybe you should keep your money local too, so it doesn't end up in the Never-Never land.