Local bankers unsure how to react to failure of bailout package
Western New York bankers said they were surprised by the House of Representatives’ rejection Monday of the $700 billion bailout proposal, and wondered if lawmakers might have to modify it further before it can gets passed.
The narrow 228-205 vote Monday afternoon sent shock waves through Wall Street almost immediately, as stocks fell 777 points in reaction to the vote — the biggest one-day point drop ever.
But while investors expressed their views on the vote, bankers locally held back, still unsure what it would mean.
“The first proposed bill was terrible. The one just defeated was much better but still way too expensive,” said Peter Forrestel, president and CEO of Bank of Akron. “I believe they’ll eventually pass some kind of bill, and it will then be better for Main Street and tougher on those on Wall Street that took on unwise risk for their firms.”
Banks in Western New York have generally not been affected by the mortgage and credit crisis. The Buffalo Niagara housing market never soared as it did in California, Arizona and Florida, where home buyers speculated that prices would continue to rise. Many used complex and risky mortgages to finance the purchases. Those types of mortgages, for the most part, never took root here. Indeed, local banks said they didn’t expect to take advantage of the bailout terms.
Still, in the days and hours prior to the vote, bank executives locally and nationally almost unanimously have expressed support for the bailout package, saying it was necessary to restore confidence and liquidity to the capital markets so credit would start flowing freely again.
“We have very limited exposure to these high-risk assets, so with or without this legislation, M&T Bank remains strong and steady,” said M&T Bank spokesman
C. Michael Zabel. “More than anything else, we’re hopeful that they do something to stabilize the financial markets.”
Trade groups like the New York Bankers Association as well as national organizations have also expressed support and lobbied for quick passage.
“A healthy economy requires continuous flow of credit to both the business sector and to certainly consumers,” said Bank of America Corp. spokesman Joseph Goode, who said the banking giant was considering participating in the asset purchase program envisioned in the bailout bill. “The proposed legislation, in combination with other recent policy actions, we believe will address the current blockages in the financial markets that threaten our economic vitality.”
Even local community banks, who have generally not suffered any losses and expect no direct benefit from the bailout, backed the proposal and called for lawmakers to act.
“The Treasury needs to provide some liquidity in the mortgage and mortgage-backed securities market and this bill appears to be focused on doing that,” said William Wagner, CEO of Northwest Bancorp in Warren, Pa., parent of Northwest Savings Bank. “There is certainly a lack of liquidity in the system now.”
House leaders expect to try again on Thursday, but some are still skeptical. “I have to believe that Congress is concerned about what they are giving the Treasury and the Fed the power to do,” Wagner said. “Until everyone, including the public, has a better understanding of the process, the bill is going to struggle.”
“I don’t think we’ll know for years whether this works exactly as it’s planned. . . . But I think it’s a step in the right direction,” said David Nasca, CEO of Evans Bancorp in Angola. “I think it’s gotta happen.”
