Small Banks Upset With Citi Bailout

Community banks want the big banks held to the same accountability standards.

ByABC News
November 24, 2008, 7:15 PM

Nov. 25, 2008— -- Wall Street might have been happy with the government's latest multibillion-dollar banking intervention, but many small community banks are asking for equal treatment.

"I guess appalled is not too strong a word," Cindy Blankenship said to describe her feeling after learning of the government's help for Citigroup. Blankenship and her husband founded the Bank of the West back in 1986. The bank, based in Grapevine, Texas, has since grown to eight locations in Northern Texas and has about $280 million in assets.

Late Sunday night, the government announced $306 billion in loan guarantees for the giant bank as well as another $20 billion cash infusion in exchange for preferred shares in the bank. The banking giant got $25 billion under the first bailout plan announced earlier.

For the smaller banks, who have to compete in many of the same territories as the big institutions, it's easy to feel stressed and overlooked.

"We're sitting there taking deposits, making loans, operating on a very conservative and prudent basic banking business model," Blankenship said. "We simply could not do what the big banks have done."

Blankenship and other small bank owners are upset that the executives leading Citi and other banks are getting help but not being held personally responsible. In small banks, she said, all the key decision makers have a large financial stake in the bank. If it goes broke, they lose their own investment.

"We haven't committed these sins but yet, our reputation is tarnished and yet, we still aren't too big to fail," she said. "We're the good guys and I'm furious about it. There is no equal treatment. I'm not too big to fail. If I had gone out and done what the big banks did, I would have been shut down."

The way that the legislation was crafted, not all of the small banks can qualify for the help. And those that do, fear that all the money will be spent on big banks before they even get a shot at the aid.

"It's a very un-level playing field. It just feels like the government doesn't care about Main Street, or at least Main Street banking," added Blankenship, who is also chair of the Independent Community Bankers of America.

Granted, if this community banks hadn't gotten into any trouble with subprime loans, they wouldn't want or need any assistance from the government.

Mike Menzies is president and CEO of Easton Bank and Trust Co., Easton, Md. He started with community banks in 1982 and has been at his current bank since 1998. It now has seven locations on the eastern shore of Maryland and $150 million in assets.