WASHINGTON, D.C. — In Washington, you can't go a day without hearing the word "bailout." In fact, it's been used with such frequency, that it was named 2008's "Word of the Year" by Merriam-Webster's on-line dictionary.

For banks in Minnesota, words like "bailout" and "stress test" are almost as dangerous as a bad loan. It's language that can erode consumer confidence.

"When you say 'bank bailout,' every bank in Minnesota cringes," said Joe Witt, president and CEO of the Minnesota Bankers Association.

In reality, many banks in Minnesota have so far managed to ride-out the economic downturn; they've remained liquid, they've continued to make loans, and those loans are generally being repaid — all signs of a healthy bank, said Marshall MacKay, president and CEO of the Independent Community Bankers of Minnesota, an organization that represents banks that have $250 million or less in assets.

Certainly, the declining housing market has taken a toll on some banks, but "how Citigroup is doing doesn't necessarily reflect how community banks in Minnesota are doing," MacKay said.
 
It's a perception issue that Sen. Amy Klobuchar, D-Minn., tried to defuse earlier this week in an op-ed article in the Washington Post.

"Ultimately, the success of America's market economy depends on trust," she wrote. "This includes trust between buyers and sellers, between lenders and borrowers, and between investors and the companies in which they invest… It is wrong when we, in effect, throw safe and sound financial institutions into the same category with banks and lenders that climbed too far out on a limb with no way to return."

So, what do all these descriptors mean anyway?

The "stress test" Klobuchar refers to is part of an administration proposal meant to help regulators decide if the 19 largest banks in the United States can withstand further shake-ups in the economy. It's likely the banks under scrutiny will be much larger than those that MacKay represents.

Nationalization?
Another dreaded term: nationalization. It brings to mind Cold War Russia, but it actually means some form of government ownership of the banks that fail the stress test. At a House Financial Services hearing this week, U.S. Federal Reserve Chairman Ben Bernanke tried to dampen concerns about the prospect of nationalization, saying that any government ownership would likely be small and temporary.

There's nothing in the administration's proposal that would specifically disenfranchise smaller banks, but Witt and MacKay are anxious to sever the association nevertheless. And while both associations wait to get the year-end numbers from the FDIC — a report that will give more detail about the health of Minnesota's banking industry — MacKay is hoping his members can market their relative stability to bring in new customers.

In normal times, "there are a lot of brokers, and a transaction is a transaction," he said. "The current crisis has evolved back to making sure the relationship is best for the customer and the bank."