By Bernard Condon and Stevenson Jacobs, AP Business Writers
NEW YORK (AP) — Unlike big-city bankers, Stan Wilmoth didn't make lots of dumb loans during the boom. After the crash, he accepted not a dime of taxpayer money for his bank. His salary? "Substantially less" than the $1 million the former head of Merrill Lynch spent remodeling his office, he says. He credits his grandfather, a Protestant minister, with giving him "moral fiber."
But judging from the rhetoric coming out of the Obama administration, Wilmoth, the folksy 58-year-old president of Heritage Bank of Reno, Nev., should be scorned, not praised.
His sin? He's shirking his patriotic duty by not lending enough money to his community.
It's easy to hate bankers right now, but is it possible that on the issue of lending they're getting a bum rap? After all, it's not just "fat cats" with multimillion-dollar bonuses who aren't lending much money. It's small fry like Wilmoth, too. His bank, owned by 352 Nevada families, has just $393 million in assets versus $1.5 trillion at Bank of America.Everybody agrees lending is down in the past year, despite a government infusion of hundreds of billions of dollars to prop up banks, unfreeze the credit market and get institutions to start making loans again. As in past recessions, though, the drop seems to reflect more a lack of demand from would-be borrowers than any stinginess on the part of bankers.
"We really haven't changed our lending criteria in the last five years," Wilmoth says. "The only thing that has changed is the number of qualified borrowers."
Critics complain banks are using deposits to buy securities, like government bonds, instead of lending the money to consumers and small businesses. But bankers and analysts say the industry is just following a familiar, and healthy, playbook on how to manage its finances early in a recovery when the risk of borrowers defaulting is still high. It's a playbook pretty much written by the Federal Reserve: Borrow for themselves at near-zero short-term interest rates set by the central bank to buy higher-yielding securities, such as Treasurys, while waiting for creditworthy borrowers to return.Bankers call it playing the yield curve, or the carry trade, and it can be a tonic for the industry. While waiting for the economy to get back on its feet, banks make profits on the difference between the rate they're paying to borrow and the rate they're receiving on the securities. They use the profits to plug holes in their balance sheets.