Federal bailout helping Georgia community banks

The federal rescue of America’s banks is helping restore depositor confidence in Georgia’s dozens of community banks, but it’s not a quick-fix for the banks’ bad-loan problems.

The biggest benefit for community banks is that the FDIC will now insure non-interest-bearing checking accounts no matter how large, said Joe Brannen, president of the Georgia Bankers Association.

With that guarantee in place, small businesses need not worry about spreading their money among several banks or shifting their funds to one big bank, experts say.

“There’s just a general calming effect in the whole small-business community,” Brannen said.

“It levels the playing field,” said Cornerstone Bank CEO Chris Burnett, “because if a business owner is concerned about banking with a small bank, he now doesn’t have that concern.”

Georgia has more than 300 community banks. Many freely made loans to local home builders and developers before the housing market collapsed, and now they’re stuck with so-called toxic assets.

“That’s what is hurting community banks,” Brannen said.

The federal government has given itself permission to buy bad mortgages and inject capital into banks, but it’s too early to tell what effect those measures will have on Georgia’s small banks.

“There’s a lot of interest in at least investigating the asset-purchase program,” said Steve Bridges, president and CEO of the Community Bankers Association of Georgia.

If the government buys mortgages, that “establishes a floor and competition for private-sector buyers” and should help rejuvenate the market, said Tom Bryan, president and CEO of Atlanta-based Silverton Bank, a correspondent bank that facilitates bank-to-bank lending.

But how aggressive the government will be in buying mortgages is unknown after the Bush administration introduced a new measure this week — purchasing shares in banks.

Brannen said the vast majority of Georgia’s community banks are well-capitalized, so the capital-injection offer may not be enticing.

When the government buys into a bank “that dilutes existing shareholders ownership. Is that something you want to do or not?” Bridges asked.

However, if a bank wants to grow or pursue a business opportunity, a government infusion might be desirable.

Half of the $250 billion allotted to buy bank shares is going to the country’s nine biggest banks. The rest will be doled out to banks of all sizes.

Banks with serious loan problems might not be eligible for government help, said Rob Braswell, the state banking commissioner. Regulators will be consulted about where the government’s money will do the most good, he said.

“It’s not a panacea or cure-all for the distressed institutions with lots of problem credit on their books,” Braswell said.

The rescue also guarantees bank-to-bank short-term lending. Those transactions are particularly popular with large banks, but community banks also participate to a lesser degree.

Silverton’s Bryan said publicity about at-risk banks hurt interbank business.

Worried depositors withdrew funds, so banks grew fearful about lending overnight to other banks that “might be shut down by a liquidity run,” Bryan said. With the rescue “that problem has been solved at the stroke of a pen.”

Bank deposits at Silverton are up 15 percent from last week because of the government guarantee, he said.