Regional banks: examples of risk from SoCal

Regional banks have not suffered the writedowns suffered by the major banks and investment banks due to their lack of derivatives exposure. But, loose lending standards are starting to bite. The LA Times has an excellent story out, which details how the community or regional banks will be affected by the housing slowdown. Notice, it is construction and commercial real estate loans that are now hitting the regionals.

I fully anticipate most bankruptcies in the financial sector to come from community banks because of their lack of credit exposure diversification. So, this is a sector to watch as the downturn gathers steam.

When developer Empire Land sought protection in U.S. Bankruptcy Court in Riverside in April, its biggest debt by far — $5.1 million — was to PFF Bank & Trust.

Southern California’s oldest bank, PFF — formerly Pomona First Federal — had doubled its loan portfolio to $4 billion over the last decade, in large part by financing residential developers and builders of affordable housing in the Inland Empire.
-LA Times, 17 Jun 2008

Add these stories in SoCal to the stories coming from Ohio and the Midwest as harbingers for what to expect in other depressed and bubble markets.

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See also: posts with ‘regional banks‘ label.