Local community bank chiefs are generally a conservative lot.
But don’t expect a lot uncritical admiration for the way the nominally conservative Bush Administration has handled the financial crisis.
While the heads of our neighborhood and small-town banks believe action needed to be taken, some prominent local bankers are plainly mystified by the playbook Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson have been using.
The system has been stabilized, for now anyway, but not after some serious, and costly errors, local bankers contend. And there’s no time to take a breather, with a deepening recession to prepare for.
Nor is there any guarantee that another shoe or couple of shoes may drop in the months ahead in the global financial system.
“Unfortunately, I think it’s going to get worse before it gets better,” said Arthur Spears, chief executive of East Cambridge Savings Bank, said in a recent interview.
Local bankers give credit to the Fed and the Treasury for taking action, but they question whether there is a larger strategy at work.
At times, bank chiefs say, it has looked as if the Bernanke and Paulson have been trying to manage the crisis in a seat-of-the-pants fashion, making up policy on the run.
Gerald Mulligan, chief executive of River Bank in Lawrence, recalls how an initial plan to inject hundreds of billions of capital into banks overnight changed dramatically.
The plan was announced just as he was leaving for a trip to Prague to visit a relative, and, as Mulligan understood it at the time, it was to prop up troubled banks. By the time he got back a week later, the aim was to provide capital to a broad array of healthy financial institutions.
Clear Destination?
“As a taxpayer and a citizen I am hoping that they have a well thought out strategy to attack this problem,” Mulligan said. “The cohesiveness is just not there.”
Some local bank chiefs also believe the feds made a crucial error in refusing to bail out Lehman Brothers. The collapse of the Wall Street giant is now widely believed to have fueled the global financial market panic that governments around the world have now been battling for weeks to quell.
“I don’t know why the government allowed Lehman to fail,” said Spears of East Cambridge Savings Bank. “They seem to have bailed out all the other institutions that were going under.”
Said Richard Chapman, chief executive of Brookline Bancorp: “It’s a slow motion train wreck, AIG, Bear Stearns, Wachovia, it’s all has been a slow motion train wreck.”
The feds initial plan, presented to congress, to spend $750 billion buying up troubled, mortgage-backed securities also appears now to have been misguided, the bankers say.
Brookline Bancorp’s Chapman called it a “very cumbersome, slow process” at a time when more swift and decisive action was needed.
But local bank chiefs like Chapman have little time now to do Monday morning quarterbacking as they get ready to ride out the economic storm that is breaking over the nation.
Close Scrutiny
Brookline Bancorp is looking more carefully at would-be borrowers, especially when it comes to auto loans, Chapman said. That means scrutinizing the sources of income and verifying all the information on prospective borrowers sent to the bank by auto dealers.
“We are getting very selective on who we lend money to,” Chapman said. “The definition of credit worthy has changed.”
But there has been one side benefit to the current crisis.
Local community bankers were certainly not the stars of the late, great real estate boom.
That status belonged to the heads of the then filthy rich subprime mortgage companies and the Wall Street wheelers and dealers that took their questionable loans and turned them into fatally flawed investment products.
But now our local bankers are starting to reemerge to reclaim their rightful place as leaders in the local economy. And a welcome turn of events that is.
After the excesses of the boom years, some steady hands are needed at the financial controls.
