Slowing economy threatens small banks

WASHINGTON, June 22 (UPI) -- Borrowers unable to make payments on their loans to U.S. banks amid a slowing economy are causing a new round of troubles for financial institutions.

Late payments on home-equity loans are at a record high, while the delinquency rates on loans for cars, small businesses and construction are at decade highs, The Washington Post reported Sunday.

"We are not finished with the mortgage problem, but you are starting to see increased delinquencies in other forms of consumer debt," said Paul Kasriel, an economist at Northern Trust Securities. "We are in the eye of the hurricane. We had the first wave of the credit crisis, and it was quite damaging. But there's another wave coming, and it's likely to be as destructive."

The newspaper reported the financial institutions that will likely be hit hardest by this new phase in the credit crunch are regional and local banks.

"The rise in consumer credit delinquencies is consistent with a rapidly slowing economy," said James Chessen, the American Bankers Association's chief economist. "Stress in the housing market still dominates the story, but it's a broader tale of an overall weak economy."