With the scary threat of bank failures on the rise, it is appropriate to consider just which banks might be most at risk. 

  

We explored briefly the major banks' increased exposure in “Big Credit Cramps”.  But what about the small and midsized banks, and other community institutions such as savings and loans, and credit unions? 

   

It appears that there could be some winners in this debacle.  There is a consensus forming that the small and midsized banks, savings and loan institutions and credit unions may be well positioned to prosper as the BIG banks struggle with the sub prime mess.  These community oriented financial institutions did not get swept away in the flood of exotic credit instruments that welled up over the last few years as did the BIG banks.  The smalls stuck pretty much with the more traditional core banking functions while the BIG banks positioned themselves for the BIG flush when the mess hit the toilet bowel.

    

One of the problems with combining and repackaging, and trading the packages between sometimes several financial institutions is that the loan originator transfers the accountability for the loan with the paperwork.  That invites churning of loans with looser standards, and some downright chicanery.    The buyer of the repackaged instrument is left holding the bag, as it were, and it is a tangled mess of good and bad loans indeed. 

  

The smalls are much more likely to know their customer, and to be dependant on good relations with that customer for survival.  And the small will almost certainly hold the loan rather than package it and ship it off to another institution.   The result would understandably be greater diligence in lending, and a more sympathetic ear if the borrower encounters difficulty down the road.  

  

The smalls may just be in a good position to take advantage of opportunities to gain customers and clients as they slide past the sub prime mess without getting soiled by it.