As a result, it becomes more difficult for community banks to cover their overhead, pressuring their earnings and their ability to support capital needs from internal sources. It is possible that this declining trend in spread income could be reversed once the high level of non-accruing assets falls and if the premium charged for credit risk remains elevated once the current crisis has passed.
Smaller banks may also find that they are able to win good, solid business away from their national competitors, if customers turn away from large banks as a consequence of the crisis. But community banks cannot count on this happening. As a result, some banks may reach further out on the risk spectrum to relieve earnings pressures.