Money still is flowing, albeit more cautiously, according to three local bankers.
The Business Journal asked executives from local financial institutions about their lending to borrowers and other banks.
The executives are a cross section of locally based institutions.
One, Ray Dellerba, represents the largest homegrown bank here, Costa Mesa’s Pacific Mercantile Bank, which lends to local businesses and for real estate.
Another, Tom Meyer, represents a small bank serving businesses and retail customers, Fullerton Community Bank.
The third, Mark Holbrook, is from Brea’s Evangelical Christian Credit Union, which provides banking services to churches.
Local banks and credit unions represent financial stability in a tough time for the financial sector, they said.
“Cash is king,” Dellerba said, as local lenders look to cushion against fewer loans and the prospect of loans going bad during the tough economy.
Have banks, thrifts and credit unions that raise money through deposits,and not securitizations,emerged as the model for financial stability?
Mark Holbrook
chief executive,
Evangelical Christian
Credit Union
Brea
Banks, thrifts and credit unions have always been the model for stability.
They represent the core of the banking system. They generally are not highly leveraged or leveraged at all, operate conservatively and are highly capitalized.
Even going back 25 years ago, banks and credit unions are far more capitalized.
The minimum capital requirement a quarter century ago was 4% to 5%. At credit unions today, the minimum is closer to 7%, even sometimes 8%.
Credit unions tend to be far more capitalized averaging more like 11% or 12% in capitalization.
Now you have federal insurance backing up deposits up to $250,000.
Banks, credit unions and thrifts are really the core of the financial system and really the frontlines facing most businesses and consumers for their banking needs.
So by all means, I don’t think it is new. I just think their roles are going to be more important in the days to come. Securitizations and investment banking are going to be far different.
Tom Meyer
president, chief operating officer,
Fullerton Community Bank
Raising “core deposits” from customers is absolutely critical toward building long-term franchise value in the financial services business.
As a side note, the Wall Street firms that financed themselves primarily with short-term wholesale (meaning not directly from their customer base) money have always been vulnerable to a “run” on the bank at the first sign of distress.
Raymond Dellerba
chief executive,
Pacific Mercantile Bank
Costa Mesa
Securitizations won’t go away completely. The model will still work for people who have commodity type loans.
Pacific Mercantile doesn’t make money from securitizations.
We go to money markets and other certificates of deposits.
When we make loans, we like to have the borrower have at least a quarter of its value in deposits with us.
Are you lending money to other financial institutions? Why or why not?
Dellerba of Pacific Mercantile Bank:
We’re lending to a few banks. But most of our money goes into federal accounts.
Cash is king. We’re sitting on $60 billion to $80 billion in our accounts that we don’t want to move because we don’t know what to expect down the road.
If suddenly we’re to have trouble funding our checking accounts, regulators would shut us down.
Meyer of Fullerton Community Bank:
Most small and midsize banks do not lend directly to other banks.
However, many of the major or money center banks provide additional liquidity to us midsize banks through their correspondent lending functions.
Holbrook of Evangelical Christian Credit Union:
Credit unions don’t usually lend money directly to each other very often.
We go through our corporate credit union system. (Western Corporate Federal Credit Union, or WestCorp) here on the West Coast is a $27 billion dollar institution, a credit union’s credit union, that takes profits from credit unions and in turn makes those available to other credit unions.
So it serves most of our liquidity needs.
Credit unions generally have plenty of cash available.
But, as you know, with the tighter money in the whole market, they’re holding on to more cash right now.
Are you still lending to businesses and individual borrowers?
Meyer of Fullerton Community Bank:
We absolutely are continuing to lend to our customer base and are absolutely continuing to seek additional lending opportunities right here in our primary market.
Holbrook of Evangelical Christian Credit Union:
We are, but our credit union does not do consumer retail banking in the traditional credit union sense.
We provide commercial banking services to ministries across the country.
We are still lending, but not at the same volume.
We have reduced our lending because some portion of our funding comes through participation with other institutions, both banks and credit unions, and as those institutions have reduced their lending accordingly.
We have reduced our lending to our client base. We are still doing a good book of business. But it is not as much as we were doing a year ago.
Dellerba of Pacific Mercantile Bank:
We’re still lending to businesses, but less so to individuals.
