By Brian E. Clark
WisBusiness.com
MADISON – More than 40 state banks may end up applying for aid under the U.S. Treasury Department’s Capital Purchase Program, part of the federal government’s Troubled Asset Relief Program, according to Wisconsin Bankers Association CEO Kurt Bauer.
“We are anticipating that anywhere from 10 to 15 percent of the total 300 Wisconsin banks may decide to apply for the program,” he said. “We have certainly encouraged all of our member institutions to at least take a look at it and see if it would be a benefit to them.”
Bauer scoffed at calling TARP a “bailout.”
“It has been billed by some as that, but I disagree,” he said. “I think it’s actually not a bailout. I think it’s financial institutions taking advantage of below-market cost of capital that is being offered by the government.
“I think it will help the … banking industry depart from this downturn in the economy and (emerge) stronger than ever,” said Bauer.
To date, Associated Bank, Anchor Bank and M&I bank have gone public on their plans to apply for TARP funds.
But Bauer said he is sure more will investigate the program and he stressed that TARP is only for strong banks.
“This is something that may not fit with every financial institution’s growth plans, but it clearly does for some, including Associated, Anchor, M&I and perhaps many others.”
Bauer, stressed, however, that those three banks are not in any kind of trouble.
“Not at all,” he said.
And despite the turmoil in the nation’s financial system, a tumbling stock market, and falling real estate sales and values, Bauer said the state’s banks are in good shape.
“Given all the negative media attention, you might be surprised to hear that they are pretty strong,” explained Bauer, who said no Wisconsin banks will fail.
He also noted that Wisconsin Physicians Service Insurance Corp. will open WPS Community Bank in Monona in January. He predicted other start-ups will follow.
“Certainly we are not immune to what is taking place in the financial markets and the broader economy, but I think Wisconsin banks are handling the downturn better than their peers in other states and certainly other entities in the financial sector.”
Bauer said Wisconsin banks have reputation for being conservative and “boring,” which is paying off now. He also said they are “generally” well-capitalized and are continuing to make loans.
Because of the flight of money from the stock market, he said deposits are rising because investors see banks as more secure than equities.
“That translates into liquidity so banks can make more loans and meet the economic needs of their communities,” he said, noting that banks have money to lend “cautiously and responsibly” to qualified customers.
Bauer said it was mortgage brokers and not highly regulated Wisconsin banks that made subprime loans to borrowers with few assets, a practice that has been blamed in part for the housing downturn.
He said mortgage brokers are much less regulated, without strong enforcement or the same penalties for non-compliance. But he said the public does not understand the difference.
Bauer said Wisconsin is fortunate it did not take part in the rampant real estate speculation that hit states such as California, Nevada, Arizona and Florida.
“We’re in better shape now and the Wisconsin economy is stronger than many other states than even the upper Midwest where Ohio, Indiana and Michigan are having troubles,” he said.
He said Wisconsin isn’t immune to the downturn however, citing the state’s looming multi-billion dollar deficit.
“But Wisconsin banks are the envy of the nation for their safety and soundness,” he said.
Bauer said he would not support new rules for the banking industry, but he said he favors them for mortgage brokers. Mortgage brokers face little scrutiny, he complained.
“There needs to be the same level of consumer protections for mortgage brokers as there are for depository banks and other lenders,” he said.
Bauer said he has no idea when the economy will rebound and consumers will open their wallets to spend more freely again.
“We do a survey of our bank CEOs twice a year and we’ll be sending one out shortly so I will have a better sense of that soon,” he said. “Bankers are very good barometers of economic activity in the communities where they operate. They have their fingers on the pulse of their retail and mortgage customers.
“I’d like to believe things are stabilizing,” said Bauer, whose group is hosting the Wisconsin Economic Forecast Luncheon on Jan. 15 at the Monona Terrace Convention Center in Madison. (See http://www.wisbank.com/forecast for details) The gathering will feature a talk by Charles L. Evans, president and CEO of the Federal Reserve Bank of Chicago and a Federal Open Market Comittee member.
“There is a little uncertainty with the new Obama administration, but as he begins to announce his cabinet and his key economic advisors, I hope we will begin to see a recovery in the near term of 2009,” Bauer said.
“That may be too optimistic on my part, but if so, I’m guilty as charged,” he quipped.
Returning to the state’s deficit, Bauer said he hopes that legislators will consider raising taxes on the state’s credit unions – which compete with banks for customers.
“With a $5 billion shortfall in Wisconsin, we would certainly say that a $40 million in uncollected, untapped credit union corporate taxes might be an attractive opportunity,” he said.
“We think that financial institutions that act the same and offer the same services to the same customer base should have the same regulatory and tax treatment,” he said.
