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Story Archives: Alexander cautious on bank bailout


Alexander cautious on bank bailout
posted Thursday, September 25th, 2008 @ 8:09 amE-mail Story E-mail Story | Print Story Print Story 
By Michael DeVault

Sentinel Writer

U.S. Rep. Rodney Alexander is cautiously optimistic a proposed $700-billion federal bailout for troubled banks will eventually be approved by Congress.

However, Alexander hedged his support for a bailout on a number of factors, including whether hurricane recovery funds are protected first.

"Right now, I'm not sure if our money that is needed for southern Louisiana for hurricane recovery will be in the mix," said Alexander, R-Quitman. "There are just a lot of questions that haven't been answered yet for me to be able to say what my position is going to be on it."

Alexander also said various proposals floating around Washington are, thus far, big on spending but short on details.

"I'm not real sure what all is going to be proposed yet," Alexander said. "There are just rumors flying around. I know what I've read and heard in committee meetings and so forth."

On Friday, President Bush proposed a $700-billion bailout plan to shore up banks and financial institutions hit hard by the sub-prime mortgage crisis.

Speaking from Washington, Bush called the current economic crisis one of the most pressing matters facing the nation. He said the nation might face an economic depression without federal intervention.

Concordia Bank and Trust's Johnny Taylor called the bailout a necessity for the large investment banks but said depositors of smaller, community banks should have confidence their money is in good hands.

"Most community banks have followed standard lending practices in mortgages," Taylor said.

That's in contrast to many of the larger banks, such as IndyMac, Fannie Mae and Freddie Mac, all of which practiced "sub-prime" lending.

In the mortgage industry, sub-prime lending was a way for many people to buy new homes. It also meant approving loans to individuals who might not be able to pay those loans back.

Taylor said because local banks avoided those practices, the smaller financial institutions are solvent today.

"Basically, a lot of this started years ago with sub-prime mortgage lending, which a lot of community banks were not into," Taylor said.

Concordia Bank and Trust was one of those community banks that avoided subprime lending, Taylor said.

Still, Taylor believes a federal bailout is necessary to maintain financial security throughout the banking industry.

Without the bailout, Taylor said even smaller banks could feel a pinch if big banks like Lehman Brothers and Goldman Sachs are allowed to fail.

"We'd be affected individually through a lack of confidence in the banking industry," Taylor said.

Cliff Merritt, President and CEO of Delta Bank echoed those statements.

"Community banks by and large are very safe," he said. "We take local deposits and lend those deposits out in the form of loans in our communities. Community banks do not as a group participate in the sub-prime markets."

"Deposits are insured by the FDIC and all investments community banks make are generally conservative in nature and focused on the markets we serve," Merritt continued. "We are products of the communities we serve and we are very proud of the contributions that community banks continue to make in our markets."

Tensas State Bank Senior Vice President and CEO Mark Miller stated, "The public should note that the financial services companies with the most severe problems currently are not community banks like the local banks that serve our community. Tensas State Bank has not strayed from its traditional credit underwriting procedures and investment policies."

"Community banks as a whole have not pursued the more aggressive lending and investment practices that have led to many of the current troubles," he said. "Our local community will more likely feel these problems through the stock based retirement accounts that many of them have and more stringent underwriting of long term mortage loans through mortgage companies than through their day-to-day dealings with their local community bank. For us, it has been largely business as usual."
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