Some community bankers cautious of Obama plan

One of the proposals in President Obama's State of the Union message is to send $30 billion in financial industry bailout funds, TARP funds, to community banks, to stimulate job growth.

The president wants to reach community banks that lend to small business, farmers and homeowners. Unlike Wall Street, with its credit default swaps and other financial exotica, community bankers say they still do business in a way that recalls a simpler time.

"The old handshake and promise," said Greg Peter, president of the Citizen's State Bank in Tyler in southwest Minnesota. "We still try to err on the side of caution in many ways here and try to keep the place healthy."

That caution also extends to the Obama plan. Peter is a little skeptical. Obama wants to send billions of dollars to small banks, hoping they'll lend the money to help businesses expand and create more jobs. Peter said he doubts there are many businesses in his area that want to borrow more money.

"At the present time most of them are stressed already with debt," Peter said. "I'm not so certain that more debt is the answer for them."

"At the present time most of them are stressed already with debt. I'm not so certain that more debt is the answer for them."

Peter said what's really needed is a boost in consumer spending. He said that would help businesses sell more products, allowing them to lower their debt load. But he said he doesn't see many signs it's happening.

"People aren't trading their cars in quite so quickly and they're not necessarily buying the toys that they did before," he said. "They're focusing more on getting their heat bill taken care of and the more primary things."

Peter said the general economy seems to be at a standstill in his area. He said that means there's very little demand for new loans either from consumers or businesses. He said he doubts he would take any of the federal money if the Obama idea actually becomes reality. That lack of demand is only one problem facing the Obama proposal, the other is the history of the TARP program.

"The original round of TARP money that went to banks left the industry with sort of a bad taste in our mouths," said Joe Witt, president of the Minnesota Bankers Association.

Witt said the Troubled Asset Relief Program was wrongly called a bank bailout. TARP money actually went to many banks that were in no danger of going under, but those banks also got labeled as needing a bailout, something Witt said they resented.

Some lenders were so upset with the bank bailout stigma that they tried to return the TARP money to the government as quickly as possible. Witt said the TARP's baggage could be hard to overcome.

"I think it might be difficult for the administration to get this sort of a program up and running unless there are some real strong assurances that that sort of negative connotation is not attached to this kind of money," Witt said.

Banks may also resist the Obama proposal on another front. Greg Peter with the bank in Tyler said small institutions like his are already paying big bills to the federal government. He said his FDIC fee for insurance and other services has doubled.

Many bankers feel that's unfair, since they believe small banks were not a major factor in the nation's financial problems. Peter said that legacy makes it less likely that banks will want to join another government program.