BERLIN – There is no need to withdraw your savings from your local bank and hide it under your bed, local bankers say, because commercial banks, at least those operating regionally, are safe.
People are concerned over their money in local commercial banks because of the high profile failure of several investment firms, or so called “Wall Street banks”
“This whole word ‘bank’ has been misused,” said Chris Davis, president of the Farmers’ Bank of Willards. “They’re lumping us in with Wall Street banks, which really aren’t banks, they’re investment firms.”
Hiding money under the bed is not necessary or smart, bankers say.
“That would be a big mistake for people and create a situation for people that’s much more scary than the economic issues today,” said Martin Neat, president of First Shore Federal. “We think it’s highly advisable to just deal with the bank you trust.”
Commercial banks do not typically invest in mortgage-backed securities, risky loans and other investments that have sunk so many Wall Street investment firms. The Federal Deposit Insurance Corporation, known to consumers as the FDIC, also insures commercial bank deposits up to $100,000.
If a customer does not think a deposit that is insured by the FDIC is safe, then putting dollar bills under their pillow is hardly safer, as the dollar bill is backed by the federal government as well, Neat said.
“The funds in local banks are very safe,” Davis said. “The integrity of the local banking system is still strong.”
Neat reiterated that, saying, “Most community banks right now are in terrific condition.”
Taylor Bank President Ray Thompson said the conservative nature of the local bank’s operations keeps it safe and secure.
“We’re a community bank which gets deposits from our community and lends it back to our community,” Thompson said. “We have no bad loans. We have no investments in mortgage-backed securities. We don’t take extra risks.”
Taylor Bank does what Thompson calls, “plain vanilla lending,” and makes. “plain vanilla investments,” in treasury bills and other federally-secured investments.
“We have no exotic loan products,” he said.
Davis said Farmers Bank uses tried and true lending standards that most banks have followed for a century, requiring a 20-percent down payment on a house; good credit; and that the borrower not be carrying too much debt already.
Local commercial banks rarely see a foreclosure, bankers agreed.
“We verify that our borrowers have the ability to repay our loans and we also require down payments on our loans,” said Thompson.
Delinquencies are up, Davis said, because of the economy, but the Farmers Bank helps struggling borrowers work out a way to pay their mortgages, rather than foreclosing on their property.
“We sit down with people to help them work it out, to help people instead of automatically foreclosing,” Davis said.
Out of 1,600 loans, First Shore Federal has had only one foreclosure this year, Neat said.
Taylor Bank’s Thompson pointed out, “It’s actually rare for us to have one.”
Few community banks got involved in subprime lending, said Neat, and that’s why they are not feeling the pinch.
“We didn’t do it. It’s not responsible lending,” he said.
The misconception over the Wall St. investment firms, characterized as banks, has caused panic in 80-year-old widows, Davis said.
“It’s guilt by association, which is unfair. We are not them. We don’t operate like them. We don’t loan like them,” said Davis.
Neat added, “We don’t play on the same field and in this case I’m glad we don’t.”
One consequence of the financial crisis that commercial banks are working to avoid is the imposition of more government regulations targeted to commercial banks instead of investment firms.
“We want to make sure the bad guys are the ones who pay the price,” Neat said.
Federal and state governments also regulate commercial banks, while the large investment firms, like Lehman Brothers, are not regulated. Nor does FDIC insure money deposited with those firms.
Commercial banks are required to reserve a minimum amount of capital, 10 percent of assets, for example. Commercial banks are also rigorously audited every year.
Customers with concerns over their accounts should speak to their banks, the local industry leaders said.
“We welcome the opportunity for anyone to come visit with us and talk to us about their accounts,” Thompson said.
Commercial banks have in some cases benefited from the financial panic, according to the bank presidents interviewed.
More deposits are coming in to local commercial banks, said Davis, now that people do not trust the Wall Street investment firms.
“People are coming to us because of our safety and soundness rating,” Thompson said.