Small Bank Offers Advice For Big Guys

Much of the government's focus so far has been on big banks, but many of the banks that have failed have been small community banks. Kris Ausborn runs a community bank in Emmetsburg, Iowa. He says his bank is thriving and that big banks have something to learn from the little guys.

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JACKI LYDEN, host:

So far, most of the banking conversation in Washington has (unintelligible) on the challenges facing the biggest banks - Citigroup and Bank of America. But 13 banks have failed in the first six weeks of the year and most have been small banks.

Here is financial analyst Bert Ely.

Mr. BERT ELY (Independent Banking Consultant): I don't think the current crisis is an argument against big banks or an argument for small banks. Small banks and big banks can all make the same kinds of mistakes, but it's not a function of their size, but really how they're managed.

LYDEN: And now, we'll turn to a banker in a really small town. Kris Ausborn is president of Iowa Trust and Savings Bank in Emmetsburg, Iowa - a rural town (unintelligible) than 4,000 people.

Kris Ausborn, thanks for taking the time with us today.

Mr. KRIS AUSBORN (President, Iowa Trust and Savings Bank): Thank you, Jacki.

LYDEN: Tell us about Iowa Trust and Savings. How big are you? And what kind of loans do you handle?

Mr. AUBORN: Iowa Trust is $130 million institution and we handle primarily agricultural-related loans.

LYDEN: And how has the credit crisis affected your bank?

Mr. AUSBORN: On a local scale as far as the agribusiness end, it hasn't really had an effect on us at this point.

LYDEN: So what is it about Emmetsburg that allows you to be able to maintain that? You seemed to be doing pretty well.

Mr. AUSBORN: Yes. We've been lucky, in fact, that a lot of the negative effects of the economy have not affected us in northwest Iowa.

LYDEN: Why not?

Mr. AUBORN: The main reason is we are agricultural-based, and that area has had two to three years of prosperity, while other areas of the country have had the drawdowns from the subprime mortgages and the drawbacks on businesses with not being able to be profitable.

LYDEN: Do you think that the large banks have learned from smaller banks like yours?

Mr. AUSBORN: I would like to hope so. I think one of the main differences between a community bank such as Iowa Trust and a larger bank such as Citibank is that we know our customer and we have a relationship with that customer that goes all the way to our kids going to school together as knowing what's the customer is really looking for when they stop in the bank.

LYDEN: So far, this year, 13 banks have failed across the country. Four of those failures were announced just last night. These banks have ranged from Oregon to Florida, and some of them are from neighboring states to you, really tiny banks - Corn Belt Bank and Trust Company in Pittsfield, Illinois, and the Sherman County Bank in Loop City, Nebraska.

Clearly, this isn't just a big bank problem.

Mr. AUSBORN: The problem that has affected these banks, especially the ones you just mentioned, is that management did not accurately gauge the risk involved in their decision to fund certain types of loans. The borrowers were not able to repay their loans and the capital of the bank was then adversely affected.

There are over 7,000 community banks in the United States. And one of the closing of a community bank can be devastating for the bank's customers in the local communities. Nearly in every case of a bank closing another healthy bank has stepped in.

LYDEN: If you could give just one piece of Emmetsburg, Iowa, banking advice to Tim Geithner, the Treasury secretary, what would you tell him?

Mr. AUSBORN: That he takes a close look at the community bank model. It has been, all in all, very successful. And it has also done a good job of limiting risk, which is really the situation that the large banks did very poorly.

LYDEN: Let's talk about regulation for just one moment. Do you think that big banks should be regulated the way that small banks are?

Mr. AUSBORN: Large banks need to be regulated in proportion to the amount of risks that they have on our economy. The failure of a large bank has a potential to affect our entire financial system, which we have seen happened here in the last year. And a failure of a community bank, while it's devastating to the local community, does not have an overall effect on the U.S. financial system.

LYDEN: Kris Ausborn is president of Iowa Trust and Savings Bank in Emmetsburg, Iowa.

Mr. Ausborn, thank you very much for joining us today.

Mr. AUSBORN: Thank you, Jacki.

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