Texas Community Banks Strong, Well-Capitalized
Cliff McCauley
2008 IBAT Chairman
I recently joined Texas Banking Commissioner Randall James at a State Capitol news conference called to discuss the financial turmoil created by the mortgage crisis and the strength of our state banking system.
Commissioner James called the times “stressful” due to the attention rightfully given to the failure of IndyMac Bank of California and reports of bank customers concerned about their bank’s financial health. He “stressed” the fact that deposits in Texas banks are safe.
My purpose was to bring some semblance of reason to what has become a frantic feeding frenzy in the press, and to let Texas consumers know the truth about what’s really happening in the Texas community banking world.
My official role in the news conference was that of Chairman of the Independent Bankers Association of Texas, which represents some 2,000 Texas-based banks and branches. However, I also spoke as a concerned member of the banking community. My day job is executive vice president of Frost Bank, based in San Antonio with 104 branches throughout the state.
There is no doubt that the financial sector is stressed. While there certainly are some exceptions, the root of the current problems stems from the mortgage mess and the greed and unrealistic expectations exhibited by virtually all of the parties involved throughout the chain — buyers looking to make a quick buck or purchase ‘more house’ than they could afford; Realtors wanting to close a sale; mortgage brokers steering a borrower into a less-than-optimal mortgage product; lenders making what in hindsight was a very imprudent loan decision; and, investment bankers offering aggressive, exotic and high-risk products to their investors. It’s not a pretty picture at all.
In his remarks, Commissioner James said the Texas banking system is strong and healthy and reflects the Texas economy in general. He “stressed” that Texas banks, as a whole, reflect higher capital levels, higher loan loss reserves, better earnings and better management experience compared to our past and compared to the rest of the country.
I offered a few observations of my own.
• Texas community banks did not participate in the exotic mortgage frenzy that created so much havoc when the bubble inevitably burst. We pretty much stayed with the types of lending we have done for years—to local consumers and small businesses. The mortgages we made and still make are the same mortgages we have made for years. I suppose being conservative may not be flashy, but it sure has been a good thing for the community banks of Texas.
• Texas bankers—especially those of us with some gray hair—survived some very difficult times in the late 1980s. None of us have any desire whatsoever to go through that again, and thus, have taken a very conservative—boring if you will— approach to the business of banking. I would point out that my bank, Frost, was the only one of the ten largest banks in Texas to remain autonomous through that very difficult period in our history.
• Our Texas economy remains strong. People want to be here. Job growth, tax revenues, new construction and home sales—while no doubt impacted by the overall slowdown in the national economy—continue at a pace to make the rest of the country quite envious.
• Texas real estate markets did not experience the ridiculous run up in market values that set up so many other parts of the country for a substantial correction and the ensuing pain of such a drastic decline in values.
• Community banks across the country, but especially in Texas, remain very well capitalized, in very good financial shape and doing business as they have always done it. Indeed, many of our members have seen an increase in business opportunities as consumers seek stability and the comfort of doing business with someone who knows them and actually cares about their financial well-being.
Particularly disturbing in some of the recent press reports is the recommendation that consumers shy away from smaller banks if they are concerned about the safety of their funds. In reality, nothing could be further from the truth.
The bottom line is Texas community banks are doing just fine. And, we intend to continue to serve our customers—and any new ones who happen to want to bank with someone committed to their community and financial future—just as we always have.
Bankers Digest has reported bank news in Texas and the Southwest during the boom and bust periods since June 15, 1942. During the current stressful times in the banking industry, we believe M. McCauley’s observations accurately reflect the thoughts of most community banks in our coverage area. Your comments are always appreciated.
