Are bigger banks better?

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By Kathy Lynch

Financial fears are being felt by Americans everywhere.  Large banks whose names in the past brought feelings of safety and security,  are now in trouble themselves.  Add the bailout everyone is talking about and one must ask the question:  If the big banks can fall, what about the small community banks and how can the consumer find out?

Potential customers are not able to get financial information about local banks through normal avenues such as the financial page or cable news channels. The Peoples Bank and Citizens Union Bank are traded privately which mean they have no stock symbols and do not show up on the ticker tape from Wall Street.  This also means that when deciding which bank will make customers feel their hard earned money is “safe and sound,” they have to do research on their own, and hope for the best.

Besides contacting banks and asking questions, there are several ways for consumers to get objective information on banking institutes online.  Steve Bowman, CEO of The Peoples Bank suggested using the online site, Bankrate.com. Other sites such as Veribanc and TheStreet.comRatings are also available to the public, but of the three, Bankrate.com is the only site which had no charges to obtain the information. It’s as easy as entering the first two digits of a zip code and scrolling down to find a bank. 

 By offering what Bankrate.com calls, “Safe & Sound ratings,” consumers can get an idea of where a bank stands among the many out there.  Banks receive two ratings - by looking at how a bank is doing regarding capitalization, asset quality, earnings and liquidity (CAEL) a grade is given using the 1 - 5 scale, with 1 being the highest and best score.  Also Bankrate.com rating has a star method of rating that is just the opposite, with five stars being the best score possible.  So each institution looked at will receive both a star and a number rating.

Upon visiting this site, ratings for both local banks were easily acquired.

The Peoples Bank in Taylorsville received CAEL scores of 2 (with a 1 being the highest score possible) and star rating of four stars (with five stars being the goal).  The overall institution summary suggests the bank has been rated sound according to the Web site.  Adding, “we believe that the composite CAEL rating for this institution is unlikely to change within the ensuing twelve month period.”

“We operate conservatively and try to stay within guidelines of policy,” said Bowman regarding the “Safe and Sound ratings” which The Peoples Bank received.

For Citizens Union Bank, main office out of Shelbyville received CAEL scores of 4 and two stars.  The overall institution summary states the bank has been rated below average according to the Web site.  And in this case, added,”we believe that the Composite CAEL rating for this institution is likely to decline within the ensuing twelve month period.”

“CUB has had a long history of very strong profitability  and we continue to be profitable,” said David Bowling, President of Citizens Union Bank.  “Like most financial institutions we are feeling the impact of the downturn in the housing market.  The primary reason being, we focus a lot of energy and attention to the housing in our local community, whether it is supporting residential developers or homeowners.”

Adding, “One of our greatest strengths which will see us through this market downturn is that we have capital levels that far exceed the regulatory requirement and would be at one of the highest levels of any bank in the area.”

After seeing these banks ratings, whether good or not-so-good,  consumers can get an idea of the status of a bank, but before making any decisions regarding how one does their personal or business banking, people should contact their banking institution to get further questions answered.

And as always, keep in mind this information is believed to be reliable but the information is not guaranteed. In addition, events since the information was collected may have altered an institution’s financial condition.  Their ratings are referenced on televised financial spots such as CNN and MSNBC as stated on the Web site.  Readers should not use just information they read on any one site to make their financial determinations.

“We’re very solid,” said Bowling.  “And despite the current economic conditions, are optimistic about the future.”