Bank Failure: Not In Rhode Island
Thursday, June 03, 2010
As the recession has spread across the country, it has left hundreds of failed banks in its wake.
Rhode Island has certainly been hit hard by the recession yet not a single bank has collapsed. Compare that to other states like California, which has lost 29 banks, and Florida, which has seen 32 disappear, according to an FDIC lists of closed banks.
What saved Ocean State banks?
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTExperts agree: a conservative approach to lending has a lot to do with it.
“At the end of the day, New Englanders will be more conservative than other people,” said Linda Simmons, Chief Financial Officer and Treasurer at Bank Rhode Island.
At local financial institutions, the managers of the bank have some ownership of it. “I think we manage the money here like it was our own,” Simmons said.
That means they are less likely to take on bad loans, according to Bob Newton, whose Rhode-Island based company trains financial executives worldwide. “The locally owned banks, which are closely held and where owners are involved in management exercise a degree of self-discipline that has saved them from a lot of recent troubles,” Newton said.
As a result, local banks like Bank Rhode Island have stayed away from risky consumer loans, like sub-prime mortgages to homebuyers, that have sunk other financial institutions. “That market in Rhode Island is dominated by the mortgage brokers who represent primary out of state banks or out of state mortgage companies,” Newton said.
Another saving grace for the Ocean State is its small size.
A western state like Nevada, with lots of undeveloped land, can quickly throw up a hundred-lot subdivision while a small New England state like Rhode Island simply does not have that kind of space, Simmons said. Little surprise, then, states which had a booming housing market—like California and Florida—are losing the banks in droves.
“Because of that high-growth model, you’re going to see more failures than you will in New England,” Simmons said.
Of the six New England states, only three have had a bank close. Connecticut, Massachusetts, and New Hampshire have each lost just one bank, according to the FDIC.
But in the last big recession, in the late 1980s and early 90s, Rhode Island banks were not so lucky. In 1991, more than 40 banks and credit unions were closed down by Gov. Bruce Sundlun, when their insurer, the Rhode Island Share and Deposit Indemnity Corporation collapsed.
That experience made bank managers so cautious today, according to Michael Marques, director of the Department of Business Regulation. “I think it was because people had very vivid memories of what happened in the last credit crisis here,” Marques said.
