By Staff
Kim West
Alabama banks remain stable despite the defeat of an unpopular bill by the U.S. House of Representatives Monday that would allow the government to spend up to $700 billion to relieve failed mortgage loans that have clogged the credit market.
The 228-205 vote against the measure caused the Dow Jones industrial average to plunge 777.68 points, or nearly 7 percent, on Monday afternoon in the largest decline since Sept. 12, 2001 before rebounding almost 500 points Tuesday.
"I think there is something that needs to be done to help the market but one of the problems with the proposed legislation is no one really understands what it was going to do and what the limits were going to be," said Dennis Upchurch, president and CEO of Russellville-based CB&S Bank. "It would have allowed the government to buy mortgage-backed securities, which every bank in the country holds. Right now there's a limited market for them because we don't really know their value, and the market value moves up and down.
"But the mortgage-backed securities our bank buys are guaranteed by (the government). The liquidity problems the larger banks are having aren't an issue with us, and we have money for loans."
Upchurch said the wavering market has caused people to question the safety of their personal deposits, which are federal insured.
"Right now the uncertainty in the markets is causing people to question if their money is safe in banks," he said. "Probably 95 percent or more of the money in most banks in Alabama have FDIC insurance and I think they're safe. I don't know of any banks that are in danger of failing (in this state).
"I think if a bill would pass, the markets would settle down. We don't need those uncertainties in our financial market, although the stock market rebounded today. It shows there's still confidence in the market."
The Alabama State Banking Department regulates 129 banks with over $257 billion in assets and $175 billion in deposits, according to John D. Harrison, superintendent of Alabama banks.
"No bank chartered by the Alabama State Banking Department has failed in over 21 years," said Harrison, who has served as superintendent since 2005 and is a former bank president and CEO. "Each person who has money in an Alabama state-chartered bank also has the full force and backing of the Federal Deposit Insurance Corportation."
The FDIC insures up to $100,000 per deposit and $250,00 per individual retirement account at insured banks.
Bruce Gordon, professor of finance and real estate at the University of North Alabama, said the market could recover without government assistance but the short-term effects might be painful.
"You can point fingers later and figure out why this has happened but the bottom line is there is a real clog in the market right," Gordon said. "If the government can pull the clog, then money can start flowing again. You can let the market work itself out but what price are you willing to pay over the next few years?
"My idea is that in the long run the government could actually end up getting that money back (from the bailout plan) because they're going to buy these securities and over time they are going to have cash flows on these mortgages. They might actually go up in value, which is a fairly likely scenario.
"With the intervention things could go back to normal, although normal will be different with lots of new regulations and oversight. The market will not be quite as free-wheeling, or least for a while."
The bill was proposed by the Bush Adminstration and sent to the House last week by Treasury Secretary Henry Paulson but a dozen more "yes" votes were needed to send the measure to the Senate. Congress will reconvene Thursday and is expected to vote again on a modified bill that could include raising the deposit amount insured by the FDIC to $250,000. The revision has already received support from presidential candidates, Democrat Barack Obama and Republican John McCain.
Sixty percent of House Democrats voted for the bill, compared to only 37 percent of the House Republicans.