Wednesday, December 21, 2011

It's a Wonderful Life

This 1946 Christmas classic is a story about the impact one man made on his family, his business, and his community. It goes beyond the fate of the Bailey Building and Loan. It teaches us to take stock of our lives, to be helpful instead of hurtful, and be thankful for what we have instead of stressed over what we don't.

But It's a Wonderful Life is also a testament to the importance of community financial institutions (FIs). The classic scene of the run on the Bailey Building and Loan after the 1929 stock market crash depicts the basic principals of community banking, how FIs work, and how important character plays in bank lending and community development.

What you don't see here is the villainous Mr. Potter's diatribe on how the Bailey Building and Loan advanced loans to "riff-raff", and was unwilling to foreclose when the "rabble" ran into difficulty making payments. Instead, the Bailey's modified the terms to help borrowers make it through tough patches.

What you also don't see is the bank examiner showing up to review the bank's books. Note the examiner wasn't plowing through the loan portfolio and criticizing this underwriting anomaly or that. He was there to ensure what the bank reported in its footings was accurate. In the end, Uncle Billy Bailey loses $8,000 when depositing the funds in the correspondent bank; Mr. Potter's bank. It was the mismatch in footings that landed George Bailey in hot water with the examiners. It wasn't lax underwriting, or troubled debt restructurings.

When the Bedford Falls community pulls together to raise the missing $8,000, they toast George as the "richest man in town". The bank examiner actually contributed to the pot of money. My how times have changed.

It's a Wonderful Life portrays the significance a financial institution plays in elevating the socio-economic status of local residents. The working poor increase their wealth by owning cars so they can get to work, to go to college or technical school, and/or to achieve home ownership. The middle class can improve their wealth by upsizing their home, going to grad school, and/or starting a business. Many of these loans don't fit the one-size fits all underwriting criteria of government bureaucrats whose sole objective is to cover their butts should asset quality falter in an institution they examine. "Rabble" need not apply.

In this sense, regulators that examine our financial institutions are the modern day Mr. Potter. But in order to help businesses work through difficult economic times, to help families stay afloat during periods of unemployment, and to help communities re-adjust to remain economically vibrant during changing times, we need more Bailey Building and Loans, not less.

Is anybody listening?

~ Jeff

Note: Since this post, the NY Times wrote an article about a modern day Bailey Building & Loan: Bank of Cattaraugus. Cattaraugus, coincidentally, is in upstate NY, near Buffalo. Perhaps not too far from the fictional Bedford Falls. Although I salute the Bank for its success in helping local people, I do believe community FIs can achieve long-term success through the profit motive, which is consistent with operating in vibrant communities.

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