Thursday, October 9, 2008

Your money is safer than you think

Your money is safer than you think
Sacramento Business Journal - by Owen Onsum
Friday, September 26, 2008

This summer has seen an endless flow of news stories across the state that may have given many Californians the mistaken impression that we are in the midst of a financial meltdown, centered on the faltering health of our banks. Headlines following an infrequent bank failure in California this summer asked readers, is your bank next? Is your money safe? While California’s economy is underperforming in part due to fallout related to failures from the subprime mortgage lending situation, the banking industry in California remains strong, safe and secure. In fact, capital levels at California banks are at or near all-time highs, with double the amount of capital today as compared to the last significant economic downturn in the early 1990s.

First and foremost, customers’ deposits at traditional banking institutions are protected by Federal Deposit Insurance Corp. insurance, up to $100,000, with additional protection for joint accounts and $250,000 on individual retirement accounts. The FDIC has more than $40 billion in assets available to protect depositors, and in the 75-year history of the FDIC, not one cent of customer money in an FDIC-insured bank account has been lost.

There has also been some confusion surrounding certain struggling financial companies that present themselves as if they are like a bank. It is important to note that there are many financial firms out there whose function, purpose and regulatory oversight differ vastly from traditional depository institutions.

By contrast, commercial banks and savings banks are among the most stringently regulated industries in the country. Bank performance data is collected quarterly and continually monitored by a primary regulator, which for a nationally chartered bank is the Office of the Comptroller of the Currency. On-site examinations are conducted every 12 months to 18 months, or more frequently if warranted. And in spite of elevated loan losses, available data show that more than 98 percent of banks, which hold more than 99 percent of the industry’s assets, are well-capitalized. In California, state-chartered banks are supervised by the California Department of Financial Institutions and the FDIC.

Additionally, banks have a demonstrated history of making well-underwritten residential home loans that take into consideration credit history and the borrower’s capacity to repay the debt. Banks, of course, are not in business for the purpose of owning homes and therefore want to help Californians purchase or refinance a home that they can afford to live in and, most important, afford to keep.

The California Bankers Association has supported legislative efforts to help homeowners at risk of losing their homes. This past July, California’s banks were proud to be a part of a bipartisan compromise on Senate Bill 1137, a collaborative and comprehensive measure that provides true relief to homeowners in trouble. This legislation requires lenders to contact homeowners and explore restructuring options with them before the foreclosure process is initiated. It strikes an important balance, providing relief to homeowners without limiting access to credit or causing market disruptions.

California banks have also been active supporting legislation that provides greater consumer protection, most significantly improving and increasing the structure over mortgage brokers to bring them closer to the high standards followed by other lenders, including banks. We have also been staunch supporters of legislation that deters fraud in the mortgage industry by individuals who may have been less than honest with borrowers.

As we have done in previous stressful times, California’s banks are weathering the current economic and financial storm and will continue to do so.

Owen J. “John” Onsum is president and chief executive officer of First Northern Bank