Throwing a TARP (Troubled Asset Relief Program) Over It

By Joseph A. Wheeler, Plansmith

That’s a clever name for it. What started life known as a “bail-out” was renamed “stabilization” and has eventually been transformed into a program to relieve “troubled assets”. The finger pointing continues and all the while your bank is trying to survive.

Whatever they call it, today’s economic environment isn’t making it very easy for the typical banker to achieve their growth and performance targets. (That’s a bit of an understatement.) It probably isn’t going to get easier anytime soon.

While most community bankers stayed away from subprime lending activities they have still been caught up in the tornado that is this lending crisis. The federal government is infusing cash into national and regional banks establishing ownership positions, community bankers are now worried that this new found capital will be used for acquisitions, of them, and everyone is lining up to get their share of the $700 billion that’s been set aside by Congress.

Indy Mac, Lehman Brothers, Merrill Lynch, Wachovia and WAMU are all gone. Fed Funds are expected to go below 1.0%, great news for all of those positively gapped banks waiting for a rate increase, and regardless who wins the election, it seems that tax policy is going to change which is going to affect your bank and your customers.

All of this leads to a couple of things:

• Fear

• Uncertainty

• Belt Tightening (Both from a funding and underwriting perspective)  

So what’s the good news? What can you do, as a member of the board? 

Allow me to offer this advice:

• Stay Calm

  • Take the current economic situation seriously but don’t panic.  Make sure that cooler heads prevail.

• Remember your bank isn’t going through this alone

  • Reach out to others in your community

  • Stay up to speed on what’s happening

• Become educated on the risks that the bank faces:

  • Interest Rate Risk

  • Capital Position

  • Liquidity

  • Control

• Re-examine your bank’s business plan

  • Look for adherence to established policies/procedures, ask about exceptions

  • Identify where non-interest income is coming from and find opportunities to increase it

  • Verify the viability of sources of growth, lending and deposits

  • Rely on your business experience and expertise for guidance and direction and share this liberally

Through every stage of the current crisis from the special Federal Reserve funding, to the Bear Stearns assisted merger, the takeover of Freddie and Fannie, the nationalization of private companies (AIG) and all of the public failures, community banks have endured. 

While they aren’t immune from the economic fallout, they have less cleaning up to do then their larger brethren. The mortgage and broader economic events continue to unfold, as they will for months to come. The consensus seems to be that there will be very tepid growth, if not a loss, in the next three quarters and that unemployment will increase.

The latest data suggests that capital spending is weakening and that commercial construction, after many quarters of strength, appears set for a downturn. The other side of that coin is that new home sales increased more than expected in September, albeit because of lower prices, and oil is below $70 a barrel for first time in 18 months.

There are positive signs to cling to out there. (Some are easier to hold on to then others.) Rely on your instincts and ask questions when you need answers.

When you’re down and out, think about what’s ahead for the auto industry. 

<back to November  2008 Directors Digest>