America’s Banks: Safe, Sound and Serving Their Communities

Headlines can be misleading, and in a time of financial crisis, that can make matters worse.

 

Pick up a paper, or listen to the quick bursts of news on TV or radio, and what you get are reports of a subprime crisis, a “banking” crisis and market turmoil.

 

Let’s set the record straight: There is no banking crisis. The banking industry is traditionally composed of federally insured and regulated depository institutions. Your local commercial and savings bank is safe and sound. There is no crisis there.

 

The challenge we are facing is that words matter. And when one word is used to mean several different things, it inevitably creates confusion. For example, we know what a bank is—or at least we think we do. Sometimes a business that wants to add status to its name will call itself a bank even though it is not an insured depository institution.

 

Bear Stearns was not a commercial bank. It was not an insured depository institution. It was an investment “bank.”

 

The word bank is also applied to mortgage firms. Their function, purpose and regulation differ from federally insured depository institutions. And in this time of market turmoil, it is worthwhile remembering that commercial banks, thrifts and savings banks carry FDIC insurance. So if there was a problem, it wouldn’t matter to depositors who are protected up to $100,000 for an account, with additional protection for joint accounts, and $250,000 for a retirement account.

 

Yes, there are challenges in today’s market economy. But having a safe and sound banking system to rely on shows the importance of the role banks play in our local communities and in our nation’s economy. They are a source of stability and growth. That is true regardless of their asset size, charter or business plan. And the vast majority of banks today hold more capital than the law requires.

 

Meanwhile, those headlines and news reports that keep repeating the word “crisis”  overlook the fact that the subprime lending crisis was caused by unregulated brokers and Wall Street institutions themselves, sometimes using the title “bank,” and not by regulated, insured banks.

 

Our banking system is strong. This crisis will pass, as have all the others, and the result will be a stronger financial system with fewer unregulated players.

 

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