State Banks Are Safe And Sound
While Massachusetts banks are not immune to bumps in the economy, the industry’s safety and soundness remain strong.
It is important to note that Massachusetts banks did not participate in subprime lending and exotic mortgage loans, which are the principal culprits of the nation’s mortgage crisis now affecting our capital markets. Wall Street may be struggling but Main Street is still doing well.
History Lessons
What has helped our local banks avoid most of the current problems was perhaps our Yankee conservatism and sound lending practices; our leadership that managed through the turbulent late ‘80s and early ‘90s; and our local slower growth economy which helped us avoid the “go-go” housing and construction development that crashed in other parts of the country.
Whatever the reason, market turbulence has actually stirred a “flight to quality” back to local, regional and community banks. Many local banks are experiencing solid gains in deposits and residential and small business loans, contrary to what you might hear in the news about a credit crunch. Remember, there are 8,500 banks in America and more than 200 here in the Bay State. There is still plenty of money to lend to qualified borrowers and, in most cases the lending standards have not changed.
There is no doubt that many consumers, and even some business people, are worried about the headlines they’re seeing about our economy. Part of the confusion stems from media reports that fail to differentiate between investment companies and deposit-taking, retail and commercial banks.
Bear Stearns, Lehman Brothers, Merrill Lynch, AIG and Fannie Mae and Freddie Mac were not banks. The deposit-taking institutions we represent in Massachusetts are closely monitored by state and federal regulators and are covered by FDIC insurance. As a result, banks have significant capital and reserves, that is, rainy-day funds for tough economic times. This is a bank’s first line of defense to cover any losses. In fact, in Massachusetts, our level of capital is at an all-time high. Banks are in much better shape during this downturn: reserves are three times higher and delinquencies are 90 percent lower than the 1990s.
Consumers should also be reassured that no one has ever lost a penny in FDIC insured deposits due to a bank failure. Remember, FDIC insurance coverage is $100,000 per depositor, per insured bank, plus up to $250,000 for retirement accounts. It’s also possible to have deposits of more than $100,000 at one insured bank and still be fully insured if the accounts are held in different categories of ownership. These categories include single accounts, retirement accounts, joint accounts and revocable trust accounts. A family of four with different combinations of account ownership could have up to $1.5 million in deposits fully insured by the FDIC.
In addition, local state-chartered savings and cooperative bank customers are offered unlimited coverage through the Depositor’s Insurance Fund and the Share Insurance Fund. Other banks can also provide additional private insurance.
Our economy may yet provide us with a few surprises locally and nationally. However, the overall Massachusetts banking industry remains strong. Whether you’re looking for a loan, struggling with your mortgage payment, or have questions about your deposit accounts, your local bank is there to work with you. It’s impossible to predict if the national economy is out of the woods yet, but good risk management and our Yankee conservatism have served us well, and will continue to serve bank customers for many years to come.
Daniel J. Forte is president and CEO of the Massachusetts Bankers Association.
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