(10) Joseph Ricci, who runs a private school in Maine for children with behavioral problems, spent more than two years trying to borrow $700,000 from as many as five banks. But even with $17 million in assets and an unerred credit history, Ricci walked away empty-handed. “We demonstrated to all of them how we could carry the loan. But the banks were just not lending money to business,” he says. Ricci went to a finance company and within six weeks got a loan.
(11) That’s the way the credit crunch has brought rapid growth to many nonbank lenders. “There is plenty of demand for financing from small companies,” says Access Capital president Miles Stuchin. “It’s just that the banks are turning them down.” Stuchin set up a finance company in 1986 that Inc. Magazine last year placed in the top 20% of the 500 fastest-growing companies in the U.S.
(12) Perhaps the greatest threat to commercial banks has come from life insurers and pension funds. The two have combined assets of $4.5 trillion, exceeding that of the entire banking industry. They are the largest source of financing for U.S. industry. While bank lending was dropping during the past two years, loans by life insurers jumped $50 billion.
(13) One such loan went to IDB Communications Group, a telecommunications service company based in Culver City, California, whose $78 million line of credit was canceled by a group of banks. “I spent every wak-ing hour for half a year on this issue,” says IDB’s chief financial officer, Ed Cheramy. “It was the worst experi-ence of my life.”
(14) Coming to the rescue with a $20 million loan was Teachers Insurance and Annuity Association, the na-tion’s third largest insurance company. In the past year, TIAA has lent a record $3.5 billion to business. Some $225 billion in loans to business are now held by the life-insurance industry, up 11% from two years ago.
(15) Wall Street firms have also cherry-picked some of the banks’ best business. Merrill Lynch, for example, has been targeting smaller companies since the mid-1980s. Last year its business financial-services division had about 3,000 clients and $800 million in loan commitments.
(16) With their loan portfolios under fire, banks are in danger of losing their depositors as well. Americans have withdrawn more than $500 billion from low-yielding bank accounts over the past three years in favor of higher-paying investments like mutual funds. Even the Federal Deposit Insurance Corporation’s $100,000 guarantee is no longer exclusively available to banks and S&Ls. Brokerage firms like Prudential Securities now offer “insured income accounts” with checking privileges and government insurance.
(17) A few banks are vigorously working to recapture their share of business lending. This spring Chemical Bank, the nation’s third largest, kicked off the biggest marketing blitz in its history to attract small and me-dium-size business borrowers. An army of 1,800 lending officers, including bank president Walter Shipley and chairman John McGillicuddy, went knocking door to door at 5,000 companies across five states. “Am I con-cerned about Wall Street firms and investment bankers coming into the market? Absolutely,” says Frank Lourenso, who heads Chemical’s midmarket lending division. “They are real players, and I take them very se-riously. But we’re going to be very aggressive in looking for new business.”
(18) That drive was underscored last month when the Federal Reserve gave Chemical the green light to sell and underwrite corporate bonds. Normally banks are barred from such investment-banking activity under the Glass-Steagall Act of 1933. But the Fed cited a loophole, and its decision allows certain banks to take on Wall Street directly in wooing business borrowers.
(19) Unshackling the banking sector entirely from such Depression-era regulatory chains may be the only way to reverse the 20-year structural decline of the banks. But that is something the Congress has steadfastly refused to do. Nor do such comprehensive reforms appear on President Clinton’s agenda. Yet until such changes are made, banks, once a fixture on the U.S. financial landscape, will continue their slow fade.
