The state banking superintendent says Iowa banks are "safe and sound," but Iowans appear to be "hunkering down" and shying away from taking out new loans.
Iowa Banking Superintendent Thomas Gronstal testified this morning before the Legislative Oversight Committee at the statehouse. "Right now there are very few businesses trying to expand and most people are pretty concerned about the future," Gronstal says. "Iowans are generally financially responsible, so in times like these they are reluctant to contract for a lot more debt."
There are 319 state-chartered banks in Iowa and, according to Gronstal, just 15 of them are considered slightly troubled and are being monitored by state and federal regulators."At this point, it appears to me that they’ll all be able to work through their problems," Gronstal said.
Gronstal joked about his ability to predict the future, but he did offer this sober assessment. "I think we’re in for…a pretty long slog through this thing and I don’t know if it’s going to be a year or two years or three years," Gronstal said. "I do think that as you compare Iowa to the states around us and the rest of the states in the nation is probably as well positioned to deal with it as anyone, but if layoffs continue to increase, if crop prices decline, if people jsut hunker down and remain in a fearful state that they don’t want to do anything, it’s going to take us a long time to turn this thing around."
Fifty-one Iowa-based banks have applied for federal bailout bucks, including West Des Moines-based West Bank, which received $36 million. Tom Stanberry, West Bank’s chairman and C.E.O., is also chair of the Iowa Bankers Association. "I believe there are several elements that are going to be involved in our recovery from the economic recession that the country’s in right now., Government assistance is clearly going to be clearly needed and the primary source of that government assistance is going to have to come from the federal government and that’s going to be used to jump-start the economy," Stanberry said. "The ultimate recovery is going to come from the private sector and it’s going to come from private banks and private businesses that will generate employment and generate property taxes and get the economy back on its feet."
Stanberry talked in detail about the way his bank will be repaying the $36 million to the federal government with, essentially, five percent interest. "It was designed to be injected only into healthy banks," Stanberry said. "The scrutiny process that we had to go through to receive the money was a process that involved all of our state and federal regulators, very much like an examination."
In addition, Stanberry cited a National Federation of Independent Business survey which found just seven percent of small businesses had been turned down for loans last year, an indication credit is available, but no one’s taking out new loans. "We have to restore consumer confidence and get people to believe in the economy of the United States and believe that we do have a robust economy once it gets back up and running," Stanberry said.
Legislators had invited the leaders of two other Iowa banks which have received federal bailout money to testify, but neither showed up at the statehouse this morning. Stanberry suggested to legislators that he was speaking for a "collection" of banks in his role as chairman of the Iowa Bankers Association.