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What About the Smaller Banks?

By Mara Der Hovanesian

In the wake of all the ink spilled over the federal bank stress tests, some folks think there has been lopsided attention by the government to the largest banks, to the detriment of the smaller players that may hold the key to kick-starting the economy.

“The too-big-to-fail problem was so huge and so large that they had to tackle that first, but when they did that they also put on blinders. They forgot the rest of the system,” says economist Mike Moebs, head of Lake Bluff, Ill.-based Moeb$ Services, an economic research firm that counts the GAO and the Federal Reserve as clients. “The rest of the system is as important as the stress-test 19.”

Moeb estimates that thousands of smaller community banks and credit unions need about $141 billion in total to get them through the economic downturn under the same standards the Fed has used for the initial stress test group of big banks. “These Main Street banks need that money fast,” says Moebs. “They are the ones in effect that create jobs and support 27 million small businesses.”

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