October 15, 2008 in Business

Area bankers hopeful about federal initiative

By The Spokesman-Review

Inland Northwest bankers Tuesday praised a new federal initiative to restore confidence in the banking system with expanded deposit guarantees and new capital.

They said the programs developed by the U.S. Treasury, Federal Reserve Bank and Federal Deposit Insurance Corp. should ease customer concerns that their money, or their bank, was at risk because of the global credit crunch.

Even those who said their own banks were not in need of additional capital supported the $250 billion plan to assist any of the 8,500 banks and savings and loans that might benefit.

“It doesn’t do anybody any good to see a bank fail,” said Inland Northwest Bank President Randy Fewel. “We need to rekindle confidence.”

Fewel said a month ago small banks still seemed to be able to tap additional credit. More recently, he said, larger banks have cut off some credit lines to small banks, hampering their efforts to make loans.

Inland, he said, probably will not apply for Treasury capital in part because the government would be earning more on its money – 5 percent – than Inland parent Northwest Bancorporation pays long-standing shareholders. “We’re not in a position where we need capital,” he said.

AmericanWest Bank does, and President Patrick Rusnak indicated the Spokane bank will strongly consider taking Treasury up on its offer.

He said AmericanWest could qualify for up to $60 million in federal money, well in excess of the $30 million in equity and debt the bank has been looking for to help cover steep losses from contractor loan defaults.

But Rusnak said whatever money AmericanWest might seek from Treasury would be coupled with funds from private investors who have been sitting on the sidelines as they awaited signs financial markets would stabilize.

He said an infusion of federal investment into the nation’s banks, which can make $8 in loans for every $1 in capital, would provide a better economic spark than simply buying problem loans, the original thrust of the $700 billion bailout plan proposed last month.

The growth federal money would support is also attractive to Sterling Financial Corp., Chairman Harold Gilkey said.

Sterling, which reported assets of $12.7 billion as of June 30, is the largest financial institution based in Spokane, but it has not been immune from losses in construction and residential lending.

Gilkey said Sterling could apply for $100 million to $300 million in capital, which would provide a cushion against additional problem loans as well as a foundation for more growth. Raising that money on Wall Street would be much more expensive, he said.

How much Sterling might seek depends on loan demand, he said, and how much the bank can manage wisely. “This is not a minor decision,” he said.

Gilkey was enthusiastic about new FDIC insurance for business accounts, which he said will allow owners to focus on managing their businesses instead of worrying about their cash. “That’s a very major element,” he said.

Idaho Independent Bank President Jack Gustavel said his bank will probably pass on the Treasury money. And he expressed misgivings about the possibility some banks might use the relatively cheap federal capital to offer loans or other products at rates non-participating banks might not be able to match. IIB loan officers are saying “no” more than they used to, he said.

Still, Gustavel was optimistic the federal initiatives will take some of the confusion and fear out of the banking industry.

“It’s a calming thing for those who are really worried about their bank,” he said.

Contact Bert Caldwell at (509) 459-5450 or bertc@spokesman.com.

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