Small Banks Face New Risks in 2013

Finance expert Mike Periu on the upcoming profitability challenges small banks will face in 2013.
President, Proximo, LLC
December 19, 2012 Small banks—those with less than $10 billion in assets—tend to outperform larger banks when it comes to customer service and personal attention. But they also face greater risks in the current economic environment: Quality loan demand is weak; net interest margins - the difference between what a bank pays depositors and what it makes on loans—are low; new regulations increase costs and limit profit-making opportunities especially with fees. As a result smaller banks, who have less cushion than larger institutions to deal with these problems, are trying to make up for lost profits by investing their capital in riskier, longer-term investments. This presents a serious problem, because when interest rates go up, these investments will lose value, forcing the bank to sell them at a loss or keep their money tied up in the investments in lieu of funding better opportunities.

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