December 19, 2009

The old proverb about the fear of dismounting a tiger – once you’re riding one, you can’t hop off without becoming easy prey for the beast – seems applicable to the banking industry at the moment.The tiger it’s riding is an economy marked by delinquent mortgages, companies shedding jobs and unpaid consumer loans stacking up as borrowers fall further behind. As a result of that upheaval, the U.S. government has basically turned into a vast holding company sitting on giant stakes in automakers and hundreds of banks.

Since a vast swath of the financial industry has operated essentially as a ward of the state for much of the past year, the industry as a whole can’t immediately dismount that tiger and go back to lending and operating as normal. For many small, regional and national banks, the near future will continue to be dominated by pressure on balance sheets, uncertainty in loan portfolios and a generally cautious outlook.