Local banks claim less need for buy-ins here

WATERLOO, Oct 16, 2008 (Waterloo-Cedar Falls Courier - McClatchy-Tribune Information Services via COMTEX) -- CNYL | Quote | Chart | News | PowerRating -- Local banks appear to be taking a cautious approach to Treasury Secretary Henry Paulson's plan for the federal government to inject $125 billion into the country's nine largest banks and $125 billion into others that may be in a similar capital crunch.

"It's way too soon to know the details of that," said Joe Vich, chief executive officer of Community National Bank.

Vich said his understanding is any U.S. bank or savings association or U.S. bank holding company or savings and loan company would be eligible.

Paulson also signed a systemic risk exception to the Federal Deposit Insurance Corporation Act, an independent agency created by Congress designed to maintain "the stability and public confidence in the nation's financial system," according to its Web site.

The move enables the agency temporarily to guarantee the senior debt of all FDIC-insured institutions and certain holding companies, as well as deposits in noninterest bearing deposit transaction accounts. Regulators will increase supervision to assure appropriate use.

Vich said the plan appears promising.

"That probably does help some businesses that do have larger payroll accounts," he said. "All banks and S&Ls are automatically covered under that program."

The nine big banks participating are Goldman Sachs, Morgan Stanley, Bank of America, Merrill Lynch, Citigroup, Wells Fargo, Bank of New York Mellon, State Street and J.P. Morgan Chase.

Vich said he needs to learn more about Paulson's capital-purchase plan before commenting on Community National's possible participation.

"They're still in the early phases of this," Vich said. "As all of these programs continue to develop. All financial institutions will keep an eye on it."

However, in his view the banking system in the Cedar Valley is strong enough to withstand current economic travails without any props from the outside.

"For the most part, I think, it's true across the nation," Vich added. "Banks are able to handle the downturn and are well capitalized."

Paulson said the plan is designed to induce banks to lend again, and -- eventually -- inject some energy into the U.S. economy. He described the move as a lesser of evils.

"We regret having to take these actions," Paulson said Tuesday in a prepared statement. "Today's actions are not what we ever wanted to do -- but today's actions are what we must do to restore confidence to our financial system."

Kathy Lee, president of the local Wells Fargo Bank, said the move would prove beneficial.

"In general, we do believe the Treasury's plan to provide much-needed capital for financial institutions that are in the best position to deploy it effectively and stimulate the U.S. economy and strengthen confidence in the U.S. banking system is a positive step," she said.

Wade Itzen, Black Hawk County market president of BankIowa, doesn't believe the plan would affect his institution.

"A lot of this is still new, but we have not indicated we'd have an interest in what ... they rolled out so far. We don't have a need at this point, based on our present situation, although we're looking at the details," he said

Itzen did say BankIowa is taking part in expanded FDIC insurance coverage for depositors, which guarantees non-interest bearing deposits above the $250,000 FDIC insurance level, "even though it will cost us a premium.

"We feel strongly that it will give our depositors the added comfort level, safety and security so many are concerned about at this time," Itzen said.

John Rathjen, Liberty Bank market president, described the financial situation in the Cedar Valley as "business as usual."

"Your local , community and Iowa-based banks still have ample dollars to lend," he said. "We really don't have any issues to lending money to customers that deserve it."

Contact Jim Offner at

(319) 291-1598 or

jim.offner@wcfcourier.com.

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