Money Management - September 2008

Uncertainty in the Banking Sector

Controlling Your Reactions

by Dallas Haun

Recent news about the banking industry is causing concern across the country, including here in Nevada, where our economy is facing more challenges than we have seen in many years.

Such concerns are understandable. But, as is often the case with complicated financial issues that garner sudden and widespread media coverage, it is important to keep this in perspective.

Many Nevadans are alarmed by recent news involving IndyMac Bancorp Inc., a large mortgage lender based in California that was taken over in July by the FDIC. A similar situation has occurred recently with First National Bank here in Nevada.

Since this is one of the largest financial institutions ever to fail, some members of the media and the public are questioning how sound the banking industry as a whole really is today.

These concerns are understandable, given all of the other gloomy economic news we are facing these days.

Again, this calls for a little perspective. First of all, Nevada banking customers should know that their money is safe. The FDIC insurance fund is huge, with more than $52 billion in assets to protect bank depositors. In this year alone, the fund will add an additional $5 billion from assessments on banks and interest earnings.

Second, the banking industry as a whole remains highly capitalized and well prepared for any economic weakness. At the end of the first quarter of this year, only 90 banks out of nearly 8,500 nationwide were on the FDIC “troubled-bank” list. Despite the turmoil in the financial markets, 99 percent of all U.S. banks are currently classified by federal regulator as “well capitalized.”

Banks are acutely aware of these concerns and are working aggressively to reassure their customers, employees, investors and fellow Nevadans that the bank, the nation’s financial foundation – and the long-term prospects for our local economy – are as solid as ever.

It is good to be cautious and to stay informed of the latest financial news. But, before you read the next alarming headline and put your life savings under your mattress, consider a few important points about established banks.

Make sure your bank is affiliated with an established company that is considered well-capitalized by regulatory standards.

Find a bank that has not and does not engage in originating or buying subprime mortgage loans, meaning they will have essentially no direct exposure to these loans or any securities backed by these types of loans.

As for the tough times we are seeing in the local real estate market, residential real estate construction loans comprise only about 10 percent of our total loans, and only about half of these are located in California, Arizona and Nevada.

This is certainly a difficult and challenging economic environment. Still, we know that our sound underwriting, conservative lending practices and geographic diversity will see us through this current cycle.

Dallas Haun
Dallas Haun is President and CEO of Nevada State Bank.