MOUNT VERNON — With nearly 40 years in the banking industry, Luther Proper, president and chief executive officer of The Killbuck Savings Bank, believes the current economic crisis is nothing which can’t be weathered as a nation, and that good things will come as a result.
“The positive thing the crisis will bring is to force needed reform on mortgage brokers and Wall Street,” said Proper. “In a crisis, Americans need to pull together because this, too, will pass.”
Proper, who has served as bank president for over 17 years, has seen how the country reacts in economic crisis, especially when financial institutions are involved.
“I remember the ’80s and the S&L crisis,” Proper said. “Most did not fail from credit issues. They failed because of panic and because everyone was withdrawing money.”
Proper said that because of the magnitude of the S&L failures, many changes and safeguards were implemented in the banking industry, many of which were handed down through acts of Congress.
“Mechanisms are in place today that were not there 20 or 30 years ago,” Proper said.
He credits these changes to those in power in the 1980s who had the ability to find solutions to practices that weren’t working.
He believes that just as regulations emerged back then, the same thing will happen now, and new securities will be put into place to correct the problems that plague the economy today.
Proper reminds consumers that not all banks and lending institutions were involved in the subprime lending practices of a few years ago. By-and-large, he said, community banks are just as strong as ever.
“You will find that 98 percent of banks are highly capitalized and are safe and sound,” he said.
Proper said Killbuck did not participate in subprime lending. In fact, he said, his institution took what many consider an ultraconservative stance.
Proper sees this as a time for banks to get back to the business of banking, the way lending used to be.
“I see lenders getting back to basics — sound banking,” Proper said. “A down payment is going to be required. You’ll have to verify your income, have a good credit score and not a lot of credit card debt.”
He believes this rejuvenation process of lending practices will help correct the financial industry and make the whole economy more stable and sound over time.
“I truly believe that times like these seem to be better after the washout,” Proper said.
When selecting a financial institution, Proper said it is important to look at a bank’s profits and make sure it has adequate assets and liquidity. Another indicator of whether or not a bank is sound financially is its ratings.
According to Proper, there is a Bauer rating and a LACE rating.
Banks are required to file four reports with the U.S. government each year. That information is shared with Bauer Financial.
“The quarterly data is subjected to a thorough analysis and is compared with historical data for consistency. Upon completion of the analysis, a star-rating is assigned based on a scale of zero to five stars, with five stars being the strongest,” states the Web site www.bauerfinancial.com.
Lace Financial ratings are based on analysis of a bank’s liquidity, asset quality, capital and earnings. These ratings are based on letters A through E, with A being the most sound.
These ratings, Proper said, although not always advertised by financial institutions, are typically good markers to help consumers determine where to keep their money.
“When you look at these ratings, you have to realize that there is nothing wrong with a ‘B’ or a ‘C’ rating. B is above adequate and ‘C’ is adequate,” Proper said.
The same holds true when comparing Bauer ratings.
“A five-star bank is sound in most all areas. A three-star bank is probably a safe place for your money,” he said.
Regardless of the ratings of a bank, Proper said, as long as it is insured with the Federal Deposit Insurance Corp., up to $100,000 of an individual account is safeguarded; up to $250,000 is insured through retirement accounts.
Even banks that have failed and have been purchased, rebound Proper said.
“On average, 87 percent of banks come back to health,” he said.
Even if a bank is bought out, Proper said, the best thing to do as a consumer is to remain calm.
“Once bought out, you are not losing money under the FDIC. Your service may change, but that’s the only thing you are going to notice,” he said.
