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Local banks holding strong during financial crisis
The bankruptcy and sale of some investment banks have sent shock waves through the financial credit markets, leaving consumers questioning the stability of all banks nationwide.But local community banks in Loudoun, Fairfax and Fauquier counties say they are still doing well and have money to lend.
“This started on Wall Street with investment banks and now the finger is pointed at commercial banks. This is not our problem,” said Bernard Clineburg, chief executive officer of Cardinal Bank, which is headquartered in McLean.
Investment banks -- such as Wells Fargo & Co., Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. -- are financial institutions that deal with buying and selling of stocks.
Commercial banks like BB&T, Chevy Chase and Commerce Bank deal with deposits in checking and savings accounts.
The financial crisis the nation is grappling with right now began with the subprime mortgage fallout, which came about through bad practices in investment banking. Most commercial banks, especially community banks, were never involved in subprime mortgages.
“What commercial bank was in trouble?” Clineburg asks. He added that this year, fewer commercial banks failed than in previous years.
“All the government had to do to end the fear was to guarantee all deposits of all banks [what the overseas banks did],” Clineburg said, “and then focus on taking care of the bad assets that commercial banks never had.”
Regardless of what type of bank is to blame, all banks are left to tackle the effects of the financial fallout. Each bank will have to decide whether it wants to get involved in the government's Troubled Asset Relief Program, or TARP, a voluntary program put together by the Treasury Department to build capital in banks and increase the flow of money throughout the market. It does this by buying mortgages and other troubled assets from financial institutions. TARP falls under the Emergency Economic Stabilization Act of 2008, the plan widely known as the $700 billion bailout.
“We are still very well capitalized,” said Gary Shook, president of Middleburg Bank. The bank reported Oct. 20 a $1.6 million net income in the third quarter, ending Sept. 30.
Shook said the government is pressuring banks to get involved in the TARP program, but it is not a program most community banks need.
He said his bank is still determining "if we would use it," adding that the government is marketing the program as a “patriotic duty.”
The benefit Shook sees for the program is that it would level the playing field, and if all banks got involved, it would not leave a stigma on banks that choose to accept the government help. But, he added, Middleburg Bank is not in need of capital.
Most community banks are are still profitable companies because they did not get involved in the subprime mortgage market – the main cause of the financial troubles.
“This all started with the subprimes,” said Randy Ferrell, president of The Fauquier Bank. “We never participated in the subprime market, in general because we knew it wasn't the thing to do.”
While Fauquier Bank does not expect to release its third quarter earnings report until next week, Ferrell said the bank is “well capitalized” and it has money to loan.
Ferrell's thoughts on the TARP program: “If a bank needs to raise capital, this is an alternative. I'm glad to see the government step up in a way that supports the system.”
Clineburg, though, sees both sides of the debate, especially when it comes to the stigma factor.
“If a bank takes [the help], the public will see it as a government stamp of approval -- if they don't, then there is no government stamp of approval,” he said.
The problem lies in the fact that banks that choose not to get involved in the program are doing well on their own and have the capital already available.
“It would take a lot to knock us down,” he added. “Cardinal Bank doesn't need capital; we have more capital than we ever need.”
Peter Fitzgerald, chairman of Chain Bridge Bank in McLean, also stated his bank is doing well and is not in favor of the TARP program, under most circumstances. Fitzgerald opened his bank in August 2007, well after the subprime mortgage market fell, and says his bank is “benefiting from the crisis” by seeing an influx of inquiries and deposits.
He states that the conservative practice this bank follows – not lending out more than 50 percent of deposits – has allowed Chain Bridge Bank to have a lot of liquidity and it is in a strong position to lend.
Fitzgerald said Chain Bridge Bank, whose unaudited numbers show total capital and assets of the bank at more than $145 million, would get involved in the TARP program only if it were to acquire a failing bank. Other than that, “We don't want it,” he said.
“Government interference in the free market is benefiting the sick banks and actually deterring the migration of deposits into quality banks,” Fitzgerald said.
As bailout plans begin to develop more, capital is beginning to flow again.
“Every bank is waiting to see what the other banks are going to do,” Clineburg said. “We are all trying to sort through it.”
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