Obama reassures U.S. small banks

— President Barack Obama on Tuesday said the White House will seek to cut bureaucratic restrictions so that the nation’s smaller banks can help businesses seize “enormous opportunities” for growth after bleak times.

“We feel very optimistic that the worst is behind us,” the president declared afterthe Washington, D.C., meeting with heads of a dozen small and community banks.

The event, among the final acts of business for Obama before he leaves for a Christmas vacation in Hawaii, follows a similar meeting the president held at the White House with some of the nation’s top bankers. But the tone was different this time.

Obama had implored national bankers to help keep the fragile recovery from faltering by increasing lending to small businesses and supporting a rewrite of financial regulations. With the smaller lenders, he rallied behind them.

Larry Bauer, president of Planters & Merchants Bank in Gillett, was one of the 12 bankers who met with the president and his economic team.

While much of Obama’s pitch was for increased small business lending, Bauer said his own role was primarily to urge Obama to do what he can to ensure small banks like his are regulated equally with heavy-hitting banks and other lenders.

“Small banks like us to are too small to save, as opposed to too big to fail,” Bauer saidin a phone interview as he made his way to Reagan National Airport to return home. He said nonbank lenders unfairly enjoy a longer regulatory leash, and that Bauer and the rest of the visiting bankers urged Obama to rein them in. “We’d like to see our regulations apply to them also.”

Bauer, whose $30 million bank has seven employees and is primarily a farm lender, called the day an “unbelievable experience.” But he added that time will tell if it will pay off.

One area where Bauer already expects disappointment: The group opposed promised consumer-protection changes that could clamp down on some banking and lending practices.

“We expressed that we thought there was plenty [already],” he said. “But he made his point that they were probably going to come anyway.”

Smaller banks have generally backed the administration’s financial regulatory package and have received kinder treatment in the House version of the legislation. For example, banks with assets of less than $10 billion will not have to undergo a separate bank examination by a proposed consumer protection agency. Large banks would have to submit to such a review.

Smaller banks are especially vulnerable. Commercial real estate lending conditions got worse for these banks in the third quarter. They have been hit by bank failures and banking experts fear it could get worse.

A growing number of community banks that got federal bailouts are failing to pay quarterly dividends they owe to the government, according to the Treasury Department.

Fifty-five failed to make dividend payments in November, a 67 percent jump over the number of delinquent banks three months earlier.

The missed payments reflect the struggles of many community banks, which have not benefited from the Wall Street windfalls that have helped return the largest banks to profitability. Many smaller banks focused their lending on real estate development in recent years, particularly in the suburbs of sprawling Sun Belt cities. The banks now are losing money as developers default on those loans. The Treasury Department has invested more than $200 billion in almost 650 banks under its Troubled Asset Relief Program. Many of the largest banks have repaid the government, but almost 600 banks still hold federal aid. Under the program, most of those banks agreed to pay the government an annual 5 percent dividend in quarterly installments. In most cases, if a bank misses payments, it must make them up later.

Of the 12 Arkansas banks that have received money from the program, all but Little Rock-based Metropolitan National Bank are up-to-date on their dividend or interest payments.

Owned by privately held Rogers Bancshares, the bank got $25 million from the government after suffering heavily from defaulting real estate loans in Northwest Arkansas.

As part of the deal, the bank made dividend payments in May and August. But it failed to pay a roughly $300,000 dividend as scheduled last month. Its next payment is due in February.

The dividend failure followed another in a string of quarters in which the bank posted a multimillion-dollar loss. Through September, Metropolitan National Bank has lost nearly $55 million, and its parent company has been sanctioned by the Federal Reserve.

Part of that sanction included an agreement that the bank, which had more than $1.5 billion in assets on June 30, could no longer pay dividends, increase its debt or sell stock without approval from the Federal Reserve.

“We are deferring our payment until we do have an improvement in our asset quality,” Metropolitan spokesman Barry Jackson said Tuesday.

“We’re working in conjunction with the Federal Reserve, and they are aware of our actions.” The government collected about $1.2 billion in dividend payments from banks in November. But that was about $60 million less than it was owed, a shortfall of about 5 percent.

“Treasury does not force institutions to pay dividends,” said Meg Reilly, a department spokesman. “Institutions must make their own determination about whether to declare, and therefore pay, a dividend.”

Obama said his administration does not have direct influence over regulators but would still seek to spotlight cases in which restrictions may have become too tight on community banks, causing the pendulum to swing too far in the direction of not lending.

There are about 8,000 small and community banks with assets of less than $5 billion, most of them with assets of no more than $1 billion. They are important to the Obama administration because they make more than 50 percent of small-business loans under $100,000.

Information for this article was provided by Darlene Superville, Ben Feller and Jim Kuhnhenn of The Associated Press, Matthew S.L. Cate of the Arkansas Democrat-Gazette and Binyamin Appelbaum of The Washington Post.

Business, Pages 27 on 12/23/2009

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