The Credit Crunch: Is the Sky Falling Yet?

Not every lender is freezing up because of the financial crisis.

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According to a front page story in Wednesday's New York Times, "some small companies say they are no longer able to get loans from newly cautious banks as credit tightens across the country." There's nothing factually wrong about that statement—SOME small businesses are indeed experiencing that. My problem is just that the article seems to imply that commercial loans are mostly frozen. We know that's not the case.

I don't want to sound like I'm making light of this situation. Access to credit for small businesses is indeed being squeezed, and there's evidence that it could get worse before it gets better.

However, the situation is not quite as dire as our paper of record is making it out to least not yet.

I have a piece in the U.S. News magazine exploring this in more detail next week, but for now I'll just point out that, by most accounts, the doors of small, community banks are still quite open for small businesses in need of commercial loans.

Just yesterday I talked to Rodney Howard, director of First Metro Bank in Muscle Shoals, Ala. He told me that in terms of small business lending, "by and large we're going on as we always have" at his bank over the past few weeks, despite all the broader financial turmoil. Has there been a drop-off in lending? "Not as far as we're concerned, no."

How can this be? Isn't the financial system completely interdependent?

I asked Howard how the situation with large upstream banks has affected him. He said: "The subprime loans—we don't hold any of those. We by and large try to keep the proper amount of liquidity and organize our balance sheet differently than these large regional guys have done. So we've just not been affected in an adverse way."

The real problem is, if problems continue at large financial institutions, small banks won't be able to carry the burden of providing credit for our entire economy. But we haven't gotten to that point.