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Wednesday, October 08, 2008
N.M. Bankers: Relax, Your Money Is Safe
By Winthrop Quigley
Journal Staff Writer
When it happens once, it sounds like the beginning of a bad joke: a guy walks into a local bank branch and withdraws $100,000 in cash. He wanted to take it home for the weekend to make sure his money was safe.
A few episodes like that and it sounds like the 1930s: a credit union customer in southern New Mexico demands to withdraw $200,000 in cash. He can't be dissuaded, so bank officials order up the money.
Another bank customer withdraws $80,000 in cash.
H. Patrick Dee, president of the New Mexico Bankers Association and chief operating officer of First State Bancorporation, which owns First Community Bank, said there are many such stories.
"What we're seeing is, I hesitate to use the word 'hysteria,' but it may be getting closer to that than I would like to see it amongst the general public about the conditions of banks in general," Dee said.
Public anxiety over New Mexico's banks is completely misplaced, said William J. Verant, director of the state Financial Institutions Division. Verant regulates state-chartered banks and credit unions.
First, federal deposit insurance has been increased .
And New Mexico banks are in a much stronger position than banks in many other parts the country.
"Our banks in the state are fine," Verant said. By many measures, New Mexico's banks are in much better shape than the nation's banks in general, and with new federal guarantees insuring bank deposits up to $250,000, banks are safer than ever, he said.
Withdrawing big chunks of cash is a terrible idea, Verant said. "There's a security problem. Taking $80,000 and walking out of a bank is not a good idea. There is no reason for anybody to do that. The banks are the safest place for anyone to have money right now."
Financial panic has gone global. The banking system in Iceland is collapsing. National governments are propping up banks everywhere from Ireland to Greece. The failure of big-name banks like Washington Mutual and IndyMac have shaken the confidence of American depositors.
As nervous as depositors are, banking is nowhere near as fragile as it was during the Great Depression. According to economist Irwin Kellner of Dowling College, writing for MarketWatch, "In the 1930s, more than 9,000 banks failed, compared with fewer than 20 over the past couple of years."
None of those was in New Mexico, where no bank is likely to fail, Verant said.
In fact, he said no New Mexico bank is on the federal watch list of 117 banks (out of 8,451 total) that federal officials say are in trouble nationally.
"The 37 banks I regulate are well-capitalized, well-managed," he said. "None is even close to failing. The New Mexico banking system is one of the healthiest systems in the country."
He offers several financial indicators of New Mexico's banking health, including state- and national-chartered banks:
â– Nationally, banks had a 0.37 percent return on assets. New Mexico banks had a 1.45 percent return.
â– Bank net worth as a percent of total assets was 7.89 percent. In New Mexico, it was 9.4 percent.
â– 2.04 percent of all loans nationally are not current — that is, payments are not up to date. Only 0.94 percent of New Mexico banks' loans are not current.
â– Net interest margin — the difference between what banks have to pay to get money and what they earn by lending money — was 3.35 percent nationally and 4.34 percent in New Mexico.
Much of the national banking turmoil was caused by real estate problems, and even there New Mexico has an advantage. Only 1.35 percent of New Mexico's homes are in foreclosure, compared with 2.75 percent of homes nationwide. Only 10 percent of New Mexico's mortgages are sub-prime, and only 15 percent of sub-prime loans in the state are delinquent, compared with 18 percent of the nation's sub-prime loans.
As healthy as local banks are, these are trying times, even in New Mexico, Dee said. That will translate into more difficulty in people getting loans.
"I can't speak for banks statewide, but in our case, it's more difficult for us to make a loan today because of some of the uncertainty at least in parts of this market, in particular construction loans, be it residential or commercial," he said.
Dee said commercial construction loans are available only when the borrower can show that 50 percent to 75 percent of the property is pre-leased. "Land development lending because of the over-supply of lots, there is absolutely no reason to do those loans right now," he said.
Consumer loans are easier to get, but banks are shying away from unsecured and second-mortgage loans, he said.
Dee sees other trouble ahead. "The concern from the regulators is what's going to happen in the next six or nine or 12 months," he said. "They want banks to be prepared for a possible downturn in the economy and potential loan losses that could result from that."
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