The switch to the community bankers

Washington Post:

Joann Gaskins panicked. After absorbing a steady drumbeat of bad news about bank runs, bank collapses and bankruptcies, she arrived at a Manassas branch of faltering Wachovia Bank minutes before it opened Sept. 17, demanded her savings in cash and walked out the door. For eight days, she toted a metal box stuffed with $19,000 in a five-inch stack of $100 and $50 bills back and forth from work to home, while she tried to figure out what to do with it.

She picked Burke & Herbert, a family-owned Alexandria bank that takes pride not only in how boring its name sounds, but that the boring, conservative way it does business has kept it chugging steadily along since long before the Civil War. A few days later, Gaskins switched $23,000 -- in a cashier's check this time -- from her trucking business account to Burke & Herbert. Now she's just waiting for $200,000 in CDs to mature before she moves the rest.

"I feel a whole lot safer," Gaskins said. Plus, she gets to meet the bank president this week.

She knows, on some level, that her money would have been safe at Wachovia. FDIC insurance covers deposits up to $100,000, and Congress raised the limit to $250,000 because of the crisis. But her instinct was to flee. To seek comfort.

If anything, what the market meltdown has shown in sharp relief is that the global financial system runs as much on trust as on anything else. And now that that trust is shaken, the anxious and the nervous are draining bank and money market accounts by the millions from what they perceive to be unstable institutions and turning to something that feels more familiar.

Although exact numbers tracking the flow of this panic won't be available for a few more weeks, Chris Cole, spokesman and regulatory counsel for the Independent Community Bankers of America, said many of the 7,000 community banks in the country are reporting an influx of deposits. Indeed, Burke & Herbert, with $1.6 billion in assets, has seen a staggering $45 million in new deposits in the past two weeks. The draw of community banks, Cole said, is the relationship. "At times like this, people may feel it's time to shift to a bank that's nearby, where their neighbor may bank, where they may know the loan officer," he said, "a place that they know is safe."

Tellers at the Burke & Herbert main branch on King Street in Old Town Alexandria are poised behind a curving, polished, mahogany-and-green marble counter to greet depositors by name and offer bowls of lollipops for the kids and dog treats for the pets. They've been known to give a quick courtesy call to depositors who are about to overdraw their accounts. And the bank's mascot, a parrot, dates back to the days when a former bank president did business with a cranky one perched on his shoulder.

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As I have mentioned before, I switched to a local bank in Brenham about 10 years ago after my previous bank was acquired by Wells Fargo and changed the terms of my line of credit. Wells Fargo had every right to make the change, but so did I. One of my criteria when I went looking for a new bank was to find one that was not likely to accept an acquisition offer. For someone with a large business, the big banks may be the way to go, but I can understand why someone would want to assurance you get from conservative small bankers.

They may be counter intuitive. In the past many have thought the large institutions were the more secure. But, it turns out they were more secure when they were more conservative. When they became bigger risk takers, depositors figured out it was their deposits that facilitated that risk. Notwithstanding, the guarantees of the federal government, a better banking system is one in which we each decide the level of risk we are willing to take with our money.

One of the reasons the credit panic continues is that there is still great uncertainty about the value of some of the instruments used to provide "liquidity" to the mortgage market. Getting those instruments out of the credit market should be a top priority. It is the best way to restore confidence in the marketplace and in the housing market.