Home' Trinidad and Tobago Guardian : December 5th 2013 Contents BG28 | THE ECONOMIST
BUSINESS GUARDIAN www.guardian.co.tt DECEMBER 2013 • WEEK ONE
Bankers have a rough time of it in Hollywood on
the whole. Back in 1946, however, "It s a Won-
derful Life" depicted the Platonic ideal of a small-
town bank, with managers and customers who
knew each other and tried to help each other
through tough times. George Bailey (James Stewart) was the
banker we all wanted to have, and still is.
Most banks pay lip service to such goals, but fall laughably
short of them in practice. Marquette Savings Bank, the last
remaining lender headquartered in the once-booming industrial
city of Erie, Pa, could make a more plausible claim than most
... until distant regulators and policy-makers undermined its
A visit to Erie in the months before Christmas reveals two
different economies. Canadian shoppers fill the local malls to
take advantage of Pennsylvania s lack of sales tax on clothes.
Meanwhile high corporate taxes and demanding trade unions
have chased away manufacturers. The region is littered with
grand but derelict banks that used to cater to them.
In contrast Marquette, a 110-year-old mutual, is thriving.
It has nearly doubled in size since the crisis, to US$800 million
in assets, and its profits have almost tripled, to US$8 million.
It has 12 branches, compared to seven in 2007.
Marquette s Web site features a photo of each branch manager
and every foreclosed home put up for sale---there are currently
seven. Until the crisis it followed the "It s a Wonderful Life"
model, holding onto the mortgages it had originated instead
of selling them to government-sponsored entities, as most
Marquette s survival, therefore, depended on the quality of
its appraisals of borrowers and homes. Its approach was to
have a lending officer---accompanied by one of the bank s
trustees, in effect board members---visit every mortgage appli-
cant on the Saturday after each application was filed. Customers
received fast decisions, while managers and trustees learned
a great deal about their clients and market conditions.
Holding onto loans is a risky strategy for a small-town bank,
primarily because it ends up extremely vulnerable to a fall in
local property prices. Marquette emerged stronger from the
crisis in part because property in Erie, which had not enjoyed
as much of a boom as the rest of the country, dipped only
slightly. Its careful vetting of loans and strong ties to its cus-
tomers presumably also made a difference.
Given Erie s size---the city and suburbs have a population
of 280,000---Marquette s controls sometimes involved difficult
decisions about friends and neighbours. Given its inclement
weather, they often involved slogging through heavy snow. As
Marquette grew and expanded into an adjoining county, visiting
potential borrowers became more arduous.
It was the changing regulatory climate, however, rather than
Marquette s growth, that put an end to its assiduity. Its overseers
wanted it to sell its mortgages to protect itself from swings
in property prices. Moreover, the Federal Reserve has indicated
that its policy of suppressing interest rates will not last forever.
Higher rates will reduce the value of Marquette s mortgages.
So it has started selling them to the Federal Home Loan
Bank of Pittsburgh, part of a 12-bank network which raises
money cheaply in the capital markets because of implicit gov-
The subprime crisis revealed so much slapdash issuance
that buyers of mortgages consider valuations provided by the
originators worthless. Thus Marquette can no longer conduct
its own appraisals. Saturday visits have ended, along with the
fast turnarounds on mortgage applications. It now takes a
Marquette s strong results suggest that the changes have
not hurt. Then again, defaults are falling across America,
thanks to the improved economy. The real test will come with
the next downturn.
During the crisis the Pittsburgh Home Loan Bank lost money
on mortgage bonds it had purchased. It is suing Standard and
Poor s, the credit-rating agency that had provided a positive
evaluation of them. Numerous other entities that purchased
mortgages are doing the same.
Meanwhile, the old-fashioned way of making sure that loans
do not sour---being careful about issuing them---is disappearing.
@2013 Economist Newspaper Ltd. (Distributed by the New York
Small-town banks: wonderful while it lasted
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