LI lending rose as banks nationally cut back

Even as the banking industry nationally continued to struggle and cut back on lending amid a tough economy, Long Island-based banks generally continued to make loans.

According to year-end statistics released this week by the Federal Deposit Insurance Corp., lending by banks in 2009 declined by 8.3 percent, from $7.7 trillion in 2008 to $7.1 trillion, a dip fueled mostly by larger banks' tightening credit and setting aside more reserves to cover bad loans.

Locally, however, the 18 banks based on the Island -- almost all of them small and mid-size banks -- increased lending last year by 14.8 percent, from $48.2 billion in 2008 to $55.3 billion.

Much of that increase, however, was the result of the acquisition by New York Community Bank in Westbury -- the largest Long Island-based bank -- of the assets of Ohio-based AmTrust after it failed in December. Even so, fewer than one in four banks based on the Island reduced lending in 2009.

"On Long Island, for the most part, banks are eager to lend money," Joseph Perri, president of Gold Coast Bank of Islandia, said.

Not only is Long Island's economy somewhat healthier than the nation's as a whole, Perri said, but smaller banks are more willing to work with customers to make loans. They're more likely to know customers better and to look for evidence that they can repay loans, he added.

"What's creditworthy to one bank is not creditworthy to another," Perri noted.

The FDIC and other banking regulators have encouraged banks to lend, but at the same time officials warn that a lack of caution could lead to problems. Indeed, the FDIC noted that 702 banks are on its list of troubled institutions, up from 252 in 2008 and higher than ever.

The FDIC does not say which banks are on that list, for fear of undermining confidence in them. Earlier this month, the Bank of Smithtown, which had aggressively expanded commercial real estate lending, acknowledged that it is under a consent order with state and federal regulators that will require it to scale back lending and set aside more money to cover bad loans.

In 2009, 140 banks failed, and banking officials expect that number to climb this year.