Small banks look to fight perception problemsby Russ Wiles on Feb. 17, 2009, under Edge
The credit crisis has opened a rift in the financial industry, as bankers at small community institutions try to convince a skeptical public that they’re still viable and open for business despite numbing losses for some of the biggest players.
Community bankers who serve small geographic areas say they’re suffering from an image problem hastened by tottering giants like Citigroup and Bank of America, and nonbank financial firms such as Bear Stearns, Lehman Brothers and AIG.
“There’s a big difference between the bankers in this room and Wall Street,” Edward Yingling, president and CEO of the American Bankers Association, said during a conference in Phoenix with roughly 1,000 community bankers on Monday. Perceptions that most or all commercial banks are nearing bankruptcy “are simply not true.”
Nor did most firms engage in heavy subprime lending, derivative investments or other strategies that deviated from traditional banking, Yingling said, adding that community bankers also are battling misconceptions that most received federal bailout money and have stopped lending.
“In 2008, despite the recession, bank lending actually increased, but you wouldn’t know it,” he said.
Bankers at the conference didn’t express many expectations for a quick recovery for the industry or economy.
Elizabeth Duke, a member of the Federal Reserve board of governors, predicted foreclosures will remain “elevated for some time” and urged bankers to make efforts to work with borrowers to modify loans on easier terms.
Duke noted foreclosures have spread to rental homes, often resulting in evictions for tenants.
“One in five foreclosures is affecting rent-occupied units,” she said.
Bankers also expressed frustration with government regulators who have tightened underwriting standards. This effort, designed to avoid bank failures, has had the effect of constricting credit.
“Banks are lending, yet regulators are clamping down, telling us not to lend,” said Diane Casey-Landry, ABA senior executive vice president and chief operating officer.
Community bankers expressed frustration at accounting rules that require assets to be valued at current prices.
These “mark-to-market” rules don’t work well at times like now, when financial markets have seized up, forcing banks to take huge asset write-downs that crimp profits, net worth and lending activity, they said.
“(The government) is trying to push capital out to banks, but the accountants are burying it just about as fast,” said William Grant, chairman and CEO at Maryland-based First United Bank & Trust.
Duke said she’s frustrated by all the “grim” news, but she hopes the worst for sluggish existing-home sales may be over.
Mortgage-interest rates have trended lower, and loan applications have picked up for refinancings.
“The commercial (lending) market is working better,” Duke said. “Maybe we’ll see some pickup in housing demand as we enter the spring selling season.”