Sun Biz: Where to put the money: Bankers claim safety with recent numbers

Pete Waller, the CEO and president of First National Bank of the Rockies, explains a chart that details how few banks have failed in 2008 compared to the early 1990s.

The IndyMac Bank savings and loan collapse started to become a distant memory, and even paled in comparison to the events that followed, as last week shook out as one of Wall Street’s worst ever.

In the aftermath of the financial chaos, people are still wondering where the safest place for their money is. 

“There’s an old saying that fear and greed drive the financial markets,” said Peter Waller, chairman, president and chief executive officer of First National Bank of the Rockies in Grand Junction and a board member of the
American Bankers Association and Colorado Bankers Association. “We’re in a fear phase that I’m hoping doesn’t get overblown. One of the biggest riffs right now is if fear takes over and we begin to see runs on banks and people stuffing money in a mattress.”

As a result, bankers are pointing to recent numbers and to history to show what they say is sound capital territory in commercial banking. Locally, bankers are answering questions from concerned customers about the differences between investment houses at the heart of recent reports and commercial banks, and they’re explaining why bankers think commercial banks are the safest place to keep money.

“Ninety-eight percent of the banks today are in the ‘well-capitalized’ category, which is the highest rating that regulators use,” Waller said, citing statistics from the American Bankers Association. “The (at-risk) number today is 117 banks on the FDIC list. That number was 1,496 in 1990. The commercial industry itself is far better equipped to survive the situation now than it was in the late ’80s. It is well-positioned to weather this credit market dislocation.”

Waller said the Federal Deposit Insurance Corporation (FDIC) was established as a result of the Great Depression, and he points to literature from the American Bankers Association that says: “Not one penny of insured savings has ever been lost by a customer of a federally insured bank.”

The Associated Press this summer reported about several bank failures reported by the FDIC, saying weak economic conditions forced many of the closures. Among the factors were layoffs of blue-collar workers.

The latest unemployment data released Friday showed Grand Junction’s unemployment rate dropped from 4.2 to 4 percent, while the nation and state averages increased.

“I don’t believe there is a correlation with blue-collar workers and bank failures,” Waller said. “However, the strong employment and good economy on the Western Slope is a strong positive for the financial health of our banks.”

Glen Jammaron, president of Alpine Bank, headquartered in Glenwood Springs, said he believes the weakness of the investment houses could start a reversal of declining bank deposits in Western Colorado this year.

“This is a good opportunity for banks to recapture some of those deposits.” Jammaron said. “The key is really going in and seeing your banker. Maybe their rate of returns is not going to be 20 percent if the market’s going crazy, but their principal will be there.”

Statewide figures show bank deposits are up, said Don Childears, president of the Colorado Bankers Association.

“Banks really are the safe haven where people move their money to,” Childears said. “The commercial banking industry, despite public perception, has been doing relatively well. Public and media tend to use the term bank for any financial institution, be it brokerage or investment house, as short-hand terminology. That creates public confusion.

“Last week only a bank could step up and buy Merrill Lynch. Only a bank could buy Bear Stearns earlier this year. They do have the capital to do that, in general.”

Consumers may see some fee hikes down the road because of the pressure on the FDIC to raise the insurance premiums they charge banks.

“All banks are likely to see their FDIC premiums increase over time,” Waller said. “At least initially, the banks are likely to have to absorb the extra cost. A sustained increase over time will be another cost of doing business, and only time will tell how the cost is spread.”

Childears urges consumers to split deposits in such a way that they remain under FDIC limits at various institutions, if they have more than the limited insured amount, which is generally $100,000 on accounts.

He advises prospective and current bank customers visit with people in bank management to talk about how well-capitalized they are, what reserves they have for losses and to address any other customer concerns. Informing the public is one of the issues banks are dealing with most today, as well as the fallout with Freddie Mac and Fannie Mae.

“The federal government action on Fannie Mae and Freddie Mac recently will have an impact on banks in that banks often own stock in those entities,” Childears said. “That’s going to have a very minor impact on some banks. That’s more of a technical issue.”


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