Local banks avoid crisis

Even after legislators approved a $700 billion financial bailout package to buy bad debt from struggling banks, experts predict many lending institutions will perish in the near future.

That’s not the case in southeast Nebraska.

“We don’t have the worry beads out,” said Stan Wirth, president of Pinnacle Bank in Beatrice. “We’re not to the point where we’re going to say there’s not going to be any credit to anybody, at this point that’s out of the question. There’s only one way we make money, when people have deposits here we pay them, when people have loans here, they pay us. In reality it’s pretty simple.”

Wirth explained that much of the credit crisis began when lenders loosened restrictions for home loans. Pinnacle Bank had no exposure to the sub-prime real estate market or any of the assets associated with the recently passed rescue plan, Wirth said.

The same is true for Security First Bank locally.

“We’re lending the way we’ve always made loans, under good solid underwriting standards,” said local Security First Bank president John Rypma. “We’re still doing house loans, business loans, car loans, all that. All community banks that use good solid underwriting standards don’t have anything to worry about.”

That’s not the norm nationally, where banks are now suffering huge losses due to defaulted loans, oftentimes a result of risky lending.

The banking industry is now on the shakiest ground since the early 1990s, when more than 800 federally insured institutions failed in a three-year period.

The government’s commitment to spend up to $700 billion buying bad debts from ailing banks is likely to save some institutions that would have otherwise died, but analysts doubt it will be enough to avert a major shakeout.

“It will help, but it’s not going to be the saving grace” because a lot of banks are holding construction loans and other types of deteriorating assets that the government won’t take off their books, predicted Stanford Financial analyst Jaret Seiberg. He expects more than 100 banks nationwide to fail next year.

The darkening clouds already have some depositors pondering a question that always seems to crop up in financial panics despite deposit insurance: Could it possibly make more sense to stash cash in a mattress than in a bank account?

That’s something Wirth assures his customers is not necessary in Nebraska.

“There’s a lot of national doom and gloom, I just hope that our customers and the general public glean through and just don’t lump everyone in the same category,” Wirth said. “Don’t lump every bank in the same category. It’s always a situation where you pay for the sins of a few. We don’t want depositors to stick money under their mattress, we want them to keep it where it’s safe and where it can be used in the local community.”

With more super-sized banks in business, fewer failures could still dump a big bill on the Federal Deposit Insurance Corp., the government agency that insures bank and Savings & Loan deposits. The FDIC’s potential liability is rising under a provision of the bailout that increases the deposit insurance limit to $250,000 per account, up from $100,000.

As of June 30, the FDIC had 117 insured banks and S&Ls on its problem list.

James Barth, who was chief economist of the regulatory agency that oversaw the S&L industry in the 1980s, doubts things will get as bad as they did then.

“It’s scary right now, but it’s not as scary as a lot of people are making it out to be,” said Barth, now a senior fellow at the Milken Institute, a think tank.

The Associated Press contributed to this report.