Web posted
Tuesday, September 16, 2008
Local bankers react to news about economy
From STAFF REPORTS
Local bankers said there may be some fallout for area people who are heavily invested in the stock market, but they said they believe banks and people here will be able to weather the storm.
John Sturd, president of Union State Bank said that the debacle on Wall Street will have an effect on Main Street here in Ark City. But he was reassuring in his stance. He said that the next couple of years are going to be rough for some, and that are people who are going to lose money, but that basic economic fundamentals are strong enough that the storm can be weathered.
Sturd also said there is a huge difference between major financial institutions such as Lehman Brothers Bank, and local banks like the ones in Arkansas City.
Home National Bank president Dave Schaller said he believes Cowley County is in a good position to weather the potential economic storm.
"I'm not aware of any Cowley County Banks that are involved in sub prime mortgages which is a very positive testimonial for locally owned and managed banks," Schaller said in an email response asking for comment.
Schaller said that while Cowley County is blessed with a very diverse economic base, it may take six to eighteen months until the economy turns around.
"However, if every consumer spends their disposable dollars locally we can help insure a stronger local economy to support, maintain and grow the retail sector in Cowley County," he said.
Sturd's observation is that much of what we are seeing is the result of bad business practices by investment companies, and national mortgage lenders, coming home to roost. Solid lending fundamentals have been ignored, exotic mortgage products have been sold to borrowers that were not qualified, and unsound, unsafe investments have been made by speculators.
Sturd said, "We'll have some bumps the next couple of years, and it won't be pretty!" It'll be a roller coaster ride for people who are invested in the stock market." He stressed that individuals who invest in the market know (or should know) that what they are participating in is a long term investment strategy, and that eventually, the market will revive.
He said that what has come about as a result of the current situation is that a greater scrutiny will be imposed on those who want credit. Credit will be harder to come by. Lending requirements will be tougher, and it is possible that more money down will be necessary to secure a mortgage.
Sturd drew a sharp distinction between gigantic investment banks like Lehman Brothers that specialize in mergers and acquisitions, and international investment, and the commercial banks that are the foundation of communities like Ark City. Sturd stressed that community banks had not been participants in the sub-prime lending market.
Schaller also said "Lower interest rates set by the Federal Reserve tend to spark the overall economy and consumers tend to increase their spending, however, with higher fuel prices decreasing the spendable income available to purchase other consumer items and until the fuel prices are manageable for the consumer, the National and Local Economies will tend to be slower than normal."
Regarding the stability of FDIC insured bank deposits John Sturd, from Union State questioned current tales of the imminent demise of the deposit insurance system that is being touted by some of the more alarmist elements of the media.
His observation paralleled that of Fed Chairman, Ben Bernanke, and Secretary of the Treasury, Henry Paulson. The system is sound. A total depletion of the money in reserve to cover bank deposits would require that every bank in the country fail. That isn't going to happen. There are a lot of sound banks out there. Bernake and the Federal Reserve Board are meeting today to discuss a reduction in the prime interest rate.
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