Small Banks Are Healthy, But They Are Paying The Price of Big Bank Failures

The nation's 7630 community banks loan their money to their community and get their deposits from their community.  Only 50 community banks have failed so far, and these are concentrated in Florida, California and Arizona, states that experienced the fastest run up and the most precipitous collapse in housing prices.   The New York Times reports on the DeMotte State Bank with 11 branches in northwestern Indiana.  Founded in 1917, DeMotte makes money the old fashioned way, from the difference between the price it pays to depositors and the price it chargest borrowers.  The bank's profits have been modest, but consistent and secure.  Even in the boom years of 2004-2007 DeMotte continued to pay 3-4 percent dividends to its 546 shareholders.  The average community bank has about $150 million in assets.  The four largest US banks lost $13 billion in the last quarter of 2008 alone, and these losses are expected to rise substantially in 2009.  To cover its own resulting losses, the FDIC, the insurance company underwritten by banks, has increased its premiums to all banks.  In 2008 DeMotte State Bank paid $40,000 to the FDIC in premiums.  In 2009 this will soar to $500,000 or more.