Defaults up, demand down at N.J. local banks

TRENTON, N.J. - New Jersey's community banks have stayed on solid ground during the economic crisis, but a leading banker predicts a turbulent future.

State and private-sector officials say New Jersey's 108 chartered banks largely avoided the risky loans and exotic securities that have sunk financial firms worldwide.

Instead, the banks kept it simple, making traditional loans to homebuyers, consumers and businesses.

But now, with the recession deepening, many of those customers are defaulting, and the banks are losing money.

The comments were made during a one-day hearing before the State Assembly Financial Institutions and Insurance Committee to discuss state's economy.

John McWeeney, co-chief of the New Jersey Bankers Association, says that demand for traditional loans is also falling, further slicing the banks' profits.

He says the state's community banks are not going to be "immune from this recession forever."