Perception problem: Minnesota banks cringe at ‘bank bailout’ talk

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.

Joe Witt
Joe Witt

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.

Marshall MacKay
Marshall MacKay

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.

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.”

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Comments (5)

  1. Submitted by Burton'Jon Blackwell on 02/26/2009 - 10:22 am.

    Wells Fargo and Braemer Bank, fouled their own nests…now they can just lie in them. Both arbitrarily, helped themselves to funds they were not entitled to from fixed-income working class ma and pa accounts. They steal $28 per check in overdraft fees, by entering the debits first, then crediting the deposits. These banks take in over $18,000,000 a year by doing this. The actual documented sequence of entry makes this bookkeeping practice look legitimate on a personal checking account statement. Braemer, Wells Fargo, and TCF, all employ temps in their bookkeeping departments from time to time. Several of their temps spilled the beans on them as to what they’re doing. “Quote”…TCF takes in over $12,000,000 just in fees charged to account owners. My opinion is that they should be crediting the deposits first, then the debits, so as to avoid falsely creating expensive overdrafts.
    Reader’s!…what do you think?

  2. Submitted by Dan Hoxworth on 02/26/2009 - 11:33 am.

    Let’s not oversimplify the situation. Instead provide the pertinent information. It would be helpful to list the problem banks identified in Minnesota by the Federal Reserve Bank in such a piece. I sure you will find that some are large and others are small. For example, Bank Cherokee has recently had a lot of press about being put on the watch list. I believe that fall into the small bank category.

  3. Submitted by Tom Poe on 02/26/2009 - 11:56 am.

    The FDIC worked for decades to keep our financial system operating. That wasn’t enough for Bush/Greenspan, and we now have to clean up Paulson’s demand for entitlement to Bush’s $1 trillion dollar going away present to his cronies.

    We need to proclaim a moratorium on foreclosures, stop the bleeding, and reinstitute the methods from the Great Depression. Banks that want to be known as “good” banks, need do no more than declare what regulations (in force, or not) they operate under, and depositors can decide who they want to deal with. If a bank goes under, let the FDIC do what it does best.

    Banks shouldn’t have it both ways. America does not tolerate corporate welfare, regardless of whether the Party of Corporate Welfare thinks so, or not.

  4. Submitted by William Levin on 02/26/2009 - 12:57 pm.

    Let’s straighten out a few things regarding the first two posts. And I’m not in the banking business. I have no axe to grind.
    1. Braemar is a golf course, Bremer is a bank.
    2. Every bank credits deposits before any debits. Banks also have the right to establish a daily cutoff time for transactions. Banks also have the right to place a hold on deposits in certain accounts at their discretion. This is something a person agrees to when opening an account. The reasons for putting a hold on deposits usually have to do with the account being very new, the deposit being larger than the balance in the account, and/or repeated overdrafts in the account.
    3. There is NO Federal Reserve list of problem banks. That is not the function of the Federal Reserve; it is the function of the FDIC and the Comptroller of the Currency. There also is no FDIC lists of problem banks. It is possible to use the FDIC website to analyze banks and to determine what banks might be problem banks. It is also possible to go into the “Regulations and Examinations” tab on the website, look under “Bank Examinations,” and find enforcement decisions (such as the cease-and-desist order against Bank Cherokee)on the website. If you really want to get into looking at a bank, check out their call report on the FDIC website. Most consumers simply don’t want to do this work.

  5. Submitted by Dan Hoxworth on 02/27/2009 - 08:54 pm.

    Thanks for the clarification bill. It so happens that Pioneer Press discussed this issue today. Here’s a link to check out your bank and problem banks. They also list there top 10 in the region.

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