Local experts educate public about economic crisis
By Bruce Dybvik
Reporter
Saturday, October 4, 2008 1:32 PM CDT
Wall Street cries “beware,” while Wisconsin bankers urge be aware.
For Wisconsin citizens struggling to make sense of the economy these days — and to stem a crisis in confidence toward banks in general, the Wisconsin Bankers Association (WBA) is urging bankers to educate their customers on a number of matters regarding the banking and credit status at the local level.
Chiefly, the WBA wants people to know that the major banks that have failed so dramatically recently are different from those that hold the deposits of ordinary citizens in communities throughout Wisconsin. In addition, these citizen deposits are insured — and deposit insurance limits are expected to increase.
Another important fact to keep in mind, the WBA says, is that Wisconsin banks are largely financially sound due to conservative banking practices, and credit is still available to qualified borrowers.
Defining the problem
According to a recent WBA newsletter, “Failures, mergers, takeovers and bailouts are the current buzz words surrounding recent Wall Street events shaping the concerns regarding the economy. Two more words used often with no definition that are adding to the confusion are ‘investment banks.’ The misunderstanding and misuse of this term in relation to commercial banks and thrifts is causing an already complex situation to become even more convoluted.”
In contrast to investment banks, local savings banks are regulated and insured by the Federal Deposit Insurance Corporation (FDIC). According to the WBA, “the latest figures from the FDIC indicate that more than 98 percent of the banking industry is well capitalized, which is the government’s highest capital category. ... Not one penny of insured savings has ever been lost by a customer of federally insured institution.”
‘Bondster’ monster
Neal Frey, president of Bremer Bank in Menomonie, explained, “Investment banks are there to serve bigger transactions so that multi-national corporations and larger municipalities do what we would call ‘bondster’ transactions that a commercial bank in Wisconsin or the Midwest is not really involved with. An investment bank would work with a company such as GM secure a loan, or sell a security, or bring a big buyer and seller together for a common stock transaction.”
Frey added, “Community banks — or commercial banks as the definitions are going — are really there to gather deposits from the local customer base. And then they loan to businesses in that same customer base area, so they provide their own funding.”
He noted that investment banks are not inspected or regulated in the same manner as local commercial banks. Local bank deposits and investments are carefully scrutinized by the FDIC.
Stability, diversity
As to the difference in stability between banks, Mark Kalscheur, Bremer’s Wisconsin retail manager, pointed out that diversity of holdings is another hallmark of local banks.
“Banks in the news like Washington Mutual (WaMu) and IndyMac banks got into trouble because they were heavily into subprime mortgage loans,” he explained.
By contrast, Frey said, “If you look at most of the banks in Menomonie, they will have some real estate, they’ll have some consumer, they will have some business, and they will have some agriculture. There is no one player that says, ‘You know what, I’m just into residential real estate.’ It is about having some diversity in your loan portfolio.”
And it is this diversity, Frey pointe out, that protects the local banks from the risk of the lopsided niche banks.
Brush is too broad
In addition to diverse portfolios, Kalscheur said, “Most banks around here look at the customer to determine if they have the cash flow, what is their credit situation, what is their job situation, the same things we have been looking for over the years. These banks are not the ones in trouble right now — the ones that went with the high-flying. They made a ton of money for three or four years, but boy, they are paying the price now.
“What is frustrating right now is that the media is painting the situation with a broad brush. They are saying, ‘There is no credit available — don’t even apply for a mortgage or home-equity loan,’” Kalscheur concluded. “The truth is there are programs that have gone by the wayside ... that should have gone by the way-side, such as 100 percent financing. If somebody still has good credit, they are looking to buy a house, and they are strong from the credit and financial side, they can still get a mortgage just like last year, or two years ago.”
Frey added, “The general public could use a little increase in their financial IQ. I have been in banking for 28 years, and it is probably at the lowest I have ever seen it. Most borrowers won’t read their loan documents, [or] their new account booklet for the rules. Most can’t even figure their return. So I think that having some ownership with their finances will make better investors.”
Bruce Dybvik can be reached at bruce.dybvik@lee.net |
Archives