Pioneer Valley banks are safe and secure
By Debbie Gardner
GREATER SPRINGFIELD Every day, the national media broadcasts stories highlighting the fallout of the current economic crisis.
It's told us how big banks -- Wachovia and Washington Mutual -- have failed.
It's shown us that car dealerships and other small companies across the country are finding it increasingly difficult to secure loans and lines of credit.
And its highlighted the fact that, in many states, the man on the street now can't get a mortgage or a car loan or a home equity line of credit.
Here at Reminder Publications, we began to wonder if these same scenarios are beginning to play out in Western Massachusetts.
So we started asking questions such as: are our locally-owned banks healthy and stable? Can a small business still get a loan from these institutions? Are these banks still writing mortgages, car loans, equity home loans and other types of consumer borrowing here?
The answers we found were surprising, enlightening, and fortunately, reassuring.
Mass banks relatively strong
"The headlines are full of comments about a credit crunch, but we really haven't seen that yet," Bruce Spitzer, director of communications for the Massachusetts Bankers Association (MBA) told Reminder Publications. "We have 200 banks in Massachusetts and what we're hearing from our members is that there is money to lend to qualified borrowers."
Spitzer said the Bankers' Association membership includes "all banks that do business in Massachusetts, from Bank of America to institutions that have only one building."
"They are all doing pretty well," he said. "Many are experiencing solid gains in small business loans and deposits and residential mortgages. They are actually growing as there is a flight to quality as people have concerns about investments."
He attributed this growth and stability to the conservative approach to banking and lending practiced by the MBA membership.
"In Massachusetts, our banks never relaxed their lending standards to begin with, they never participated in sub-prime lending or in the offering of exotic mortgage loans," he explained.
However, Spitzer didn't rule out some hurdles "down the road," pointing out that "our business, just like other businesses, is affected by the broader economy."
"But our managers have been through this before, in most cases having worked through the last crisis in 1989-90-91," he said.
In that crisis, Spitzer said there were "some 1,500 banks that failed . so far there have been a dozen [nationwide]."
And he added that, on average, banks in Massachusetts now have "three times more capital in reserve than we did back then."
"If you are a bank customer, you have to realize that your money is safe as long as you make sure your accounts are structured correctly," Spitzer said."No one has ever lost a penny in an FDIC (Federal Deposit Insurance Corporation) insured account."
Yet despite the strength of Massachusetts banking, Spitzer said the MBA still supports passage of the $700 billion federal bailout plan.
"We support it because we believe it will give emotional confidence to consumers both on Wall Street and on Main Street," he said.
Local banks thriving
Despite the doom and gloom in the national headlines, according to Rick DeBonis, senior vice president of marketing for Hampden Bank, the credit market in Western Massachusetts is in pretty good shape.
Local banks are lending money for small business loans, car loans, mortgages, student loans, home equity loans and other consumer credit needs.
"From our perspective, and that of a lot of the local community banks, there is no credit crunch," DeBonis told Reminder Publications. "There is money to lend."
Dina Hall, vice president of marketing for United Bank, echoed the same sentiment.
"I can tell you for certain that credit at United Bank is still good. I'm working on a print ad with our agency [that says] we're still here and we're still lending," she said.
Both DeBonis and Hall credited the conservative underwriting practices followed by Hampden, United and most other local community banks for keeping the banking economy healthy in our area.
"It may be that we can't assist a certain borrower," Hall said. "But that would be because of our underwriting guidelines."
"Clearly, I think lending is our vote of confidence in the local economy," said Doug Bowen, president and CEO of PeoplesBank, the largest community bank in Western Massachusetts. "The [credit] market is still active, though at a slower rate."
Tom Burton, president of Hampden Bank, said he's actually seen the national attention to the credit crisis result in a positive rather than negative effect for local banks.
"We're seeing an increase in deposits. In September, Hampden Bank had over $6 million in deposits," he said.
Burton attributed this deposit uptick to nervous investors moving money from brokerage houses to banks, which all offer federal deposit insurance. In the case of state-chartered banks such as Peoples and Hampden banks, depositors also receive additional state-sponsored insurance on their accounts.
According to DeBonis, that secondary insurance, called the Depositer's Insurance Fund, actually predates the FDIC insurance. It covers deposits beginning at the FDIC limit of $100,00. There is no upper limit to the coverage.
"That gives people some assurance that their money is safe," Burton said.
In terms of local banks liquidity -- or availability of funds -- Burton emphasized that our area is "very safe."
"In the Springfield area we are fortunate that most of the banks, Chicopee, United, ourselves, recently issued stock, and in this case are over-capitalized."
"That's a good thing," Burton continued. "[Banks] in this area have more cash than they need. Banks here are very solid."
Bowen said that Peoples, which is a mutual bank and does not issue stock, is also very well capitalized.
"Commerce continues," Bowen said. "It's at a lower level than it has been in many years."
Banks, Bowen said, are still competing to issue commercial loans, and Burton said that Hampden and other banks are still writing participation loans where more than one bank secures the loan to cover the needs of larger local businesses.
"There really shouldn't be an issue of 'I'm too big for a local bank,'" Burton said.
"We have a strong base . Massachusetts has always had a strong base of local banks and a diverse economy, which is helpful," Burton said.
Bowen of PeoplesBank agreed.
"We don't usually hit the [economic] highs and generally don't drop as low as some of the other states do nationally," he said. "What has to be overcome now is that people have to regain their confidence. I think the liquidity question will be addressed by the federal reserve and the rescue package. The long-term goal will be to restore consumer confidence."
Protecting you accounts
If you have concerns about the safety of your deposits in a locally-owned bank, Dina Hall of United Bank suggested you talk to your banker about how your accounts are structured.
"We definitely are fielding a lot of questions about FDIC coverage, about structuring accounts so [customers] receive the maximum coverage they are eligible for," she said.
According to a brochure provided by the American Bankers Association, each depositor at a FDIC-insured bank is covers up to $100,000 per ownership category.
That means that a man or woman can have an account insured up to $100,000, his or her spouse can have an account insured up to $100,000 and the two can have a joint account insured up to $100,000. More coverage may be available depending upon how accounts are structured and the number of members of a family. Certain retirement accounts are covered to a value of $250,000 per account.
On Oct. 3, President George W. Bush signed a law increasing the amount of FDIC insurance coverage to $250,000 per each individual deposit account. This new coverage limit will be in effect until Dec. 31, 2009.
Hall said there is an electronic estimator on the FDIC Web site (www.fdic.gov) called the Electronic Deposit Insurance Estimator (EDIE) that allows consumers to "go in and plug in your information and [let] it tell you how much FDIC insurance you have."
It also gives suggestions on how to structure accounts to obtain maximum insurance protection.
For consumers who have deposits at a state-chartered bank, there is additional protection from the Depositer's insurance Fund, which covers all deposits in excess of the $100,000 FDIC limit.
"There are very few states that offer that," DeBonis of Hampden Bank said.