Published: Monday, 07 December 2009 17:34
Looking at the State Of Banking in Montana
By Evelyn Pyburn
Despite a tumultuous year in the banking industry, Montana’s banks are sound and looking for business; but that doesn’t mean they don’t have worries.
The biggest concern is the prospect of new regulations. New regulations could push more banks into marginal positions, weakening the industry rather than improving the situation, worries Bill Coffee, President of Stockman Bank of Montana. Additionally, new regulations restrict customer choice and flexibility, Coffee added.
“We are afraid the regulatory burden is going to increase. These increased costs of compliance, along with more taxes, have to come off the bottom line. You can’t always pass it on, which of course pushes some banks out of business and weakens the rest,” explained Coffee.
Coffee is also apprehensive about the FDIC mandate that banks pay insurance premiums three years in advance, with no guarantee that they won’t have to pay more, in order to bailout the bad actors of the industry. The requirement is reducing the capacity of sound banks to lend, he says – exactly the opposite of what is needed to help turn the current economic crisis around.
When it comes to the issue of regulation, it’s not as though the banks aren’t already heavily regulated. In fact, enforcing existing regulations in an equitable manner is what Coffee recommends; pointing out that it was lax enforcement of existing rules that partially led to this financial crisis. Furthermore, many experts blame non-regulated entities for a large role in our current problems and suggest widening the regulatory umbrella to include them is a better solution.
While closer scrutiny and tighter standards are being pursued, many banks are quite interested in lending. Stockman Bank is, in fact, ratcheting up advertising and marketing efforts to attract new customers and is very active throughout the state, said Coffee.
Even with the economic downturn nationally, and a flattening in some local markets, these are times in which new entrepreneurs emerge. “This will create new opportunities,” said Coffee.
Coffee said that he is uncertain about the future when looking at the national level – “not because of the American people, but because of the direction of our leadership.” But, Coffee is optimistic about Montana. “We didn’t do all the crazy things that happened nationally. Montanans are more responsible and harder working,” he said. Given Montana’s relatively better economy, Coffee said, “I don’t see any reason it would fall – especially not in Billings and surrounding communities.”
Coffee’s optimism about Montana is well founded given a report from the Ninth District of the Federal Reserve. As was evident early-on, Montana’s banking business was “largely unaffected by the so-called toxic asset controversy surrounding subprime mortgages,” and over time, while the fallout undermined profitability for banks in many parts of the country, Montana banks have held steady.
Said Ronald A. Wirtz, Editor of the Federal Reserve’s fedgazette, in July, even though “2008 will go down as a scarlet-red-letter year for banks across the country and the Ninth District,…most district banks today still appear healthy.”
“…although health indicators have worsened considerably in the past 18 months or so, and appear likely to decline further, banks in the Ninth District have some financial strength remaining to help them withstand this bout of economic flu,” said Wirtz —especially so in Montana and North Dakota.
As one indicator of that strength Wirtz sited the level of past due loans that banks have had to write off as uncollectible. While the rate “rose steeply” in all district states, he said, “certain states like Montana still have rates for these important measures that are relatively low, although double what they were a year ago.”
“Banks in North Dakota and Montana have performed comparatively well to this point. Net income has dropped less than 10 percent since 2006 in the Peace Garden state, and the number of unprofitable banks remained in single digits in 2008 for both states. Banks in each state continue to have low levels of noncurrent loans and net charge-offs, probably due in part to the outsized effects of strong farm and energy sectors in both states last year,” said Wirtz. He did warn, however, that it has been demonstrated over the past year that conditions can change quickly.
The report further noted, that when looking at such data as “return on assets” “net investment margin” or “nonperforming assets,” while the trend is downward, the levels at which they sit for the region are no where near as low as in the 1980s – another era of economic turmoil.
But there is some fallout in the state. Coffee said that over the past three months he has heard from five banks who are interested in selling. While circumstances vary, at least three are concerned about having profit margins too narrow to afford hiring more staff to deal with anticipated additional regulation. In a couple cases, the owners are close enough to retirement that they lack the incentive to adapt to a new regulatory regime.
“There‘s been discussion about a new regulatory protection agency for consumers,” said Coffee, adding one more to the number of agencies which regulate banking in the US. Depending on whether they are a private or public company, banks are regulated by several agencies of state and federal governments, as well as by the Security Exchange Commission and the Internal Revenue Service.
“More agencies increase the chance for conflicting direction,” said Coffee. Such conflicts already exist. “Sometimes you have to prioritize which rules to comply with,” explained Coffee, “there’s a cost to doing that.”
The idea of a “super agency” of some sort prompts even more concern. “There’s the worry,” said Coffee, “that their goal will be based upon achieving some social agenda, rather than sound banking” – which is what helped lead to the mortgage crisis, as politicians championed loans for unqualified people.
Regulations threaten the well-being of community banks, which Coffee believes are going to be more important to local economic growth than ever before. “They aren’t the engines of growth, they are the conduits,” he said. “If you continue to over regulate and over burden them, they can’t survive.”
Adding to the burdens being faced by Montana banks who played by the rules is having to pick up the tab for those who didn’t. There’s a perception that the cost of bailing out commercial banks is falling directly to US taxpayers, but that’s not the case, explained Coffee. The FDIC is bearing the cost. The FDIC is the Federal Deposit Insurance Corporation funded by premiums of member banks. In order to meet the current extraordinary drain on reserves, they have required that members pay premiums three years in advance, removing capital from banks that could otherwise be used for loans.
Since “banking is all about leverage,” said Coffee, the upfront premium payments could remove $40-50 million from a typical bank’s lending capacity, at a time when economic recovery requires an increase in lending to small businesses.
Coffee believes it would be better for the FDIC to borrow the needed reserves from the FDIC’s already established credit line with the US Treasury and pay it back from future premium payments. Member banks will have increased capacity to pay larger premiums as the overall economy improves, which will lead to better loan quality and higher earnings.
Coffee predicts that people are going to save more in the future – going back to more traditional financial practices. However, he warns, “there are going to be more bank failures” — it’s not over, yet.
Published: Friday, 07 August 2009 09:06
Written by Press Room
The Energy & Environmental Research Center (EERC) at the University of North Dakota has been awarded a subcontract by Science Applications International Corporation (SAIC), a Fortune 500 scientific, engineering, and technology applications company based in San Diego, California, to help produce jet fuel from algae. As an example of its potential, just one acre of algae produces between 5,000 and 15,000 gallons of fuel, compared to only 50 gallons from 1 acre of soybeans.
The effort is being funded by the U.S. Department of Defense’s (DoD’s) Defense Advanced Research Projects Agency (DARPA) and is a continuation of the world’s first successful production of 100% renewable fuel for the U.S. military by the EERC.
“The EERC provides real-world solutions to our nation’s mounting economic, environmental, and security challenges,” said EERC Director Gerald Groenewold.
Under a previous DARPA contract, the EERC advanced the development of a feedstock-flexible process that can utilize various crop oil feedstocks to produce combinations of renewable jet fuel, diesel, and naphtha (a constituent used to create chemicals and gasoline) that are essentially identical to their petroleum-derived counterparts.
The EERC will utilize the same proprietary technology to produce jet fuel from algae oils. Working with SAIC to produce the fuels from algae enhances the EERC’s capabilities for commercial production of economically viable renewable fuels that are fully interchangeable with existing fuels and distribution networks, do not negatively impact the world’s food supply, and are environmentally benign.
Together, SAIC and the EERC will produce fuel samples for government test and evaluation. Sample production will be performed in the EERC’s liquid fuel demonstration facilities.
Information generated during this effort will support development of a design for a pilot test facility with the flexibility to produce either diesel or jet fuel in response to market demand. This effort will advance the research and allow for a detailed assessment of the economic viability of the EERC’s renewable oil-refining technology.