Saturday, December 08, 2007


Hold on!
BANKS across the United States, particularly the smaller ones, have become dependent on construction lending just as that area of the economy is weakening and the number of bad loans is growing.

Figures compiled by the Federal Deposit Insurance Corporation and released last week show that both midsize and small banks had construction loans outstanding that were greater than their total capital. A decade ago, such loans were equal to only a third of capital for those banks.

For most of this decade, that was a good strategy. Construction loans proved to be very profitable, particularly for smaller banks as competition from larger banks and securities markets eroded their position in areas like mortgage lending and credit card issuance.