Protactix

After talking with more than one (and less than fifteen) bank officers and business owners, my take is that reality has set in.

Reality for me is that banks have realized that they are not very good at businesses besides banking.

OK, I know, it may be true that banks aren’t even very good at banking, but hold that thought for now.

This means what? Let’s talk first about construction/development and other small business loans.

Some time ago, (how long ago varies from industry to industry and depends also on the area of the country), banks believed that loan defaults were caused by deadbeats or profligate spenders.  Banks universally abhor deadbeats and profligate spenders.

The result: a search and destroy approach to loan collection.  For a while in late 2007 and early 2008, the aggressive gun-slinger special assets officer was the hero.  The attitude was “nail the deadbeats”

Unfortunately for all of us, including the banks, the economy got worse.  Many borrowers, although current on their loan payments,  became “defaults” simply because the collateral the bank held as collateral lost value and lost value and lost value.

This downward spiral not only affected the property owned by borrowers, but also the “repossessed” property owned by the banks.

What is even worse for the banks was and is that bank owned property is worth even less than identical property held by a non bank owner.

Why?  First, banks aren’t good at owning and maintaining  physical assets.  They don’t have the staff or the expertise to maintain a house or a piece of machinery so that it can be resold at a price to recoup the banks’ investment.  Second, time is not on their side.  They are not permitted, in some cases by regulatory requirements, to hold repossessed assets for more than a relatively short period of time.     Even if they can hold certain assets for some period of time, these sorts of assets cannot produce even a small amount of ongoing revenue, especially bad when banks need all the revenue they can get.  Banks typically can’t wait for the economy to turn around to sell assets that are otherwise depreciating.

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