COVID aid bank-fee revenue generated downstate, too

Bill Knight column for 7-12, 13 or 14, 2021

 The saying “Think globally, act locally” has a parallel in how news is received.

Headlines stressing Big News can seem to imply important events or acts happen far away, not in our backyards. That’s true whether it comes from international or digital sources, national or local press, broadcasters or print.

Sometimes, the effects – or the participants – are close by.

A recent “Watchdog” story in the Chicago Sun-Times was an excellent analysis of Small Business Administration data showing how U.S. banks handled fees they charged for federal Paycheck Protection Program (PPP) loans. Journalists Lauren Fitzpatrick and Stephanie Zimmerman put into financial – and some geographic – context the bank practice of charging fees to furnish federal aid to businesses hurt by the COVID-19 pandemic.

PPP started in April last year after the pandemic forced businesses to close, jeopardizing not just employment, but the whole economy. PPP was intended to help small businesses and their workers, and it was launched with $342 billion in forgivable loans. Administered through banks, PPP let banks charge a processing fee, and U.S. banks earned more than $48 billion in such fees from April 3, 2020, through March of this year.

Illinois banks alone issued $29 billion through some 239,000 PPP loans, and collected $1.5 billion in fees, the reporters found.

“Illinois ranked 10^th among states for total fees and 7^th for dollars provided in the loans, which did not need to be repaid as long as businesses spent all of the money to keep employees on the payroll and pay rent and utilities,” they wrote.

The Sun-Times piece covered Illinois, but understandably focused on Chicago, their main market.

A “deeper dive” demonstrates downstate banks’ experiences, too.

I’m not anti-bank. I have accounts in a small, independent community bank and a credit union, and a mortgage in a larger (formerly local) bank. So this information is meant to more fully show that banks downstate generated considerable fees from PPP loans as well as Chicago institutions.

Plus, the average Illinois bank fee – paid by the government, meaning taxpayers ultimately – was relatively low (5.29%); New Jersey banks averaged 11.6%. The government’s PPP rules have varied, but generally, banks could charge 1% on the largest loans, 3% to 5% on smaller ones, and up to $2,500 on loans of less than $50,000.

Again, borrowers didn’t pay; taxpayers did.

Further, most of the federally guaranteed loans Illinois banks processed – about 191,000 of them – went to Illinois businesses, which is good. The remainder of the loans, totaling some $365 million, went to businesses outside the state.

The banking industry defends the processing-fee practice as the nation getting its money’s worth by having banks ensure the funds quickly got to businesses. But critics say it would have been just as fast and cheaper to eliminate the processing step like some European countries did with direct payments to businesses.

For statewide reference, here are the top 10 Illinois banks that charged fees for processing the PPP loans (plus their headquarters and presence throughout the state) and the PPP fees they charged, according to the SBA and bankbranchlocator.com.

Six of the 10 are based outside the city of Chicago, and three operate exclusively downstate.

■ BMO Harris Bank (Chicago HQ: 184 branches in 107 communities; 2 downstate) -- $232,882,250

■ First Midwest Bank* (Chicago: 100 branches in 70 towns; 7 downstate) -- $79,856,409

■ CIBC Bank USA (Chicago: 19 branches in 17 communities; none downstate) -- $59,666,551   

■ Busey Bank (Champaign: 58 branches in 42 communities; 28 downstate) -- $46,690,490          

■ Byline Bank (Chicago: 60 branches in 23 towns; none downstate) -- $45,269,415          

■ Wintrust Bank. (Rosemont: 31 branches in 7 communities; none downstate) -- $41,469,092     

■ Carrollton Bank (Carrolltown: 6 branches in 6 communities; all downstate) -- $30,977,431       

■ First Mid Bank & Trust (Mattoon: 60 branches in 41 towns; all downstate) -- $25,697,197       

■ Morton Community Bank** (Morton: 34 branches in 27 towns; all downstate) -- $23,407,018 

■ First American Bank (Elk Grove Village: 49 branches in 38 communities; none downstate) -- $23,071,822

 

* First Midwest last month merged with Indiana-based Old National Bank, and the new entity will operate as Old National, with headquarters in Evansville, Ind., and Chicago.

** A subsidiary of Hometown Community Bancorp, Inc.