Posted on 08/13/2008 10:11:23 AM PDT by saminfl
I live in a small town in Florida. On the way home today I counted 11 banks in approximately a 3 mile stretch of the main thoroughfare. The 2005 population estimate of this town was 12,582. The per-capita income was $20,175.00.
I thought to myself, "Why are there so many banks for this small town? Where do they get the business to keep operating?"
Some of these banks are branches of large banks, while others are locally owned. One locally owned bank is continually opening new branches in the general area. I don't understand what is going on here. Are there any Freeper bankers that can explain this?
Income ain’t wealth. Lots of elders in this town?
Banks generally buy a lot of property and build banks as a hedge investment for their holdings.
If this were multiple choice I’d pick answer #2....
and I’ll betcha since it’s florida in a town of 12,000, more like nuttin’ but elders! Sounds like a nice little retirement community. (oh, and ‘income’ is what you have to take out of your retirement accounts to ‘get by’ and supplement your SS).
Let's suppose a local retiree deposits $10,000 in an interest bearing instrument paying, say, 4%. The gross interest cost to the bank is $400 per year.
The same bank can turn around and loan that money for an average rate of, say, 8%. Double sounds nice, but then consider the deposit represents cash on hand.
If the deposit requirement is 20% (which is actually on the high side), they can loan $10,000 divided by that 20% or $50,000.
8% of $50,000 is $4,000 or roughly 10 times what that $400 interest rate is costing them. Yes, they have to write off some loans which do not get paid back, pay the salaries of the people who run it, plus pay for the building, taxes and utilities, but it is still a pretty nice income gross.
Compare that to your average grocery store who is grossing maybe 5% or 6% on their average sale and has to deal with the same things and more (shoplifting losses actually exceed defaulted loan averages for banks) and you get the idea.
It is a lot smaller investment to throw up a banking branch with a dozen or so employees than a mid-sized food store which requires more employees and constant stock turnover to maintain profitability.
I can remember when my mother got paid every Friday with real money in a little envelope. Now days, we need banks for everything we do:
From Wikipedia (sorry)
In the modern U.S. the term “national bank” has a precise meaning: a banking institution chartered by the Office of the Comptroller of the Currency (”OCC”), an agency in the U.S. Treasury Department, pursuant to the National Bank Act. The inclusion of the word “National” in the bank’s name or the designation “National Association” or its abbreviation “N.A.” is a required part of the distinguishing legal title of a national bank, as in “Bank of America, N.A.”
Many “state banks”, by contrast, are chartered by the applicable state government (usually the state’s department of banking), although the banks are still typically regulated by the Federal Deposit Insurance Corporation (FDIC), which insures their deposits.
Notwithstanding the name, not all “national banks” have nationwide operations. Some “national banks” have operations in only one state. Further, some state-chartered banks have nationwide operations, but are not properly called “national banks”. “National banks” should also be distinguished from federal savings associations (which include federal savings and loans, and federal savings banks), which are financial institutions chartered by the Office of Thrift Supervision, another agency in the U.S. Treasury Department. The Federal Reserve is an example of a central bank.
That’s a good question. I was wondering the same thing. Businesses are closing down but more and more banks keep being built.
My small bank just went out of business. Thankfully, it was bought by a bigger, very secure bank. The banks that are getting into trouble are the ones who made those risky loans. Now, I have a question about those risky loans...What happens to all that property that is being held by banks that are going out of business?
Over draft fees always help out.
Nice explanation. Very profitable. :)
I’m not an expert on this but I think that the bigger more secure bank takes over the loans on those properties. In certain instances if that new lender feels that the property is not worth it, it is turned over to the state government and could become a burden to the taxpayers.
This link may help you and I’m sure lots of people know more about this.
It just strikes me as strange that when I enter the lobby of any of these banks, there is only one or two or no customers there.
I do use one of those local banks for one of my accounts.
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