September 27, 2022
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Area banks welcome chance at capital

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For months the frozen credit markets have dominated headlines. And the hastily enacted banking bailout plan loomed over the Nov. 4 election.
But in the Tri-Counties, the implications of the plan and its $750 billion in potential new capital for the banking industry remain far from clear.

 

In a series of interviews, some of the top banking chief executives from across the region gave their perspectives on this landmark legislation. The bottom line is that most community banks think it is a good idea and are weighing the option of accepting some Troubled Asset Relief Program , or TARP, funds.

“It’s really not a bailout,” said Larry Ward, president and chief executive officer of Paso Robles-based Heritage Oaks Bancorp. “It’s a recapitalization of the banking industry. That’s different from a giveaway.”

The recently passed TARP, part of the Emergency Economic Stabilization Act of 2008, is a $700 billion fund set aside for the Secretary of the Treasury to buy bad assets, mortgages and debts that are making it difficult for financial institutions to issue credit, something vital to a strong and stable economy.

“It’s a really good structure for the disbursement of funds,” Ward said. “They’re not giving the money away; it’s a loan. The way the program was envisioned, all publicly traded banks are able to participate. I don’t think there is any bank in the country that has too much capital.”

Other community bank presidents agree with Ward, calling the program a wise investment on the part of the government.

During brief comments at the opening of the new headquarters for First California Bank in Westlake Village,

President and Chief Executive C.G. Kum said his company was looking forward to learning more about TARP.
“It’s an investment for the government, and it’s a darn good one,” agreed Brad Lyon, president and CEO of San Luis Trust Bank.

Congress summarized TARP as a program that would “provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers.”

William “Butch” Phillips, president of Harrington West Financial Group, said he and his bank are weighing the pros and cons of TARP, as are Lyon and Ward.

“Having lost a lot of capital in the last year, banks now have the opportunity to get reasonably priced equity if they participate in TARP,” Phillips said. “That should really help credit lines open up. With excess capital, lending will become more available.”

Which, according to some experts, is exactly what the economy needs.

“The treasury envisioned this as a method to help strong banks acquire unhealthy banks,” Ward said. “But this is not a quick fix. It will take time.”

There has been some speculation that TARP will lead to rescued big banks buying up smaller rivals, but none of the bank executives the Business Times interviewed seemed bothered by that prospect.

“The nine banks initially identified by the treasury acquired other large banks and are currently working their way through those acquisitions,” Ward said. “Eventually, TARP will result in fewer banks. I can’t say at this time how many, but that’s my prediction.”

Lyon agreed, adding that “if there’s any purchasing activity it’ll be small bank A buying small bank B. We community banks are just too small for the big guys to look at, really.”

Government officials and bank representatives alike seem to be a bit nervous about how banks’ responses to TARP will be perceived by the public.

“The government was concerned that banks who took the money would be seen as banks that were struggling,” Lyon said. “And now the big misconception here is that people might assume the bank is struggling if they don’t get the money. A reasonable explanation can be made for taking it or not, but a healthy bank with weak capital would be a fool not to do it. There isn’t a community bank in San Luis Obispo County that doesn’t qualify for TARP.”

Like Lyon, Ward said his customers sometimes mention the bailout to him, but he’s not sure whether they truly understand the situation.

“It’s a double-edged sword, almost a damned-if-you-do, damned-if-you-don’t kind of situation,” Ward said. “You have to look at how the community perceives you. On one hand, taking the money might look like you’re trying to boost a struggling bank. But on the other hand, not taking it might make it seem like you didn’t qualify, since the money is only being invested in healthy banks. The banks that get the money are generally well-managed.”

Whatever decision these regional banks make, Ward maintains that it is imperative that the customer feels secure.

“Once clients see that banks are able to support the economy the way banks are meant to, they’ll have a good feeling about us again,” Ward said.

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