MOUNT VERNON — As far as commercial banking goes, Knox County is sound, solid and thriving, according to a panel of local financial experts who addressed the public during the Mount Vernon News-sponsored Financial Information Session, Tuesday night, on the campus of Mount Vernon Nazarene University.
“There is a lot of optimism available to you right now,” said Kelly Schermerhorn, president of CES Credit Union. “We are really here as a united voice in saying that our community has strong institutions that are well capitalized. We’re still lending. The credit crunch has not hit Mount Vernon. I encourage you to encourage your friends, encourage your family, not to worry too much about ‘what sort of announcement am I going to get tomorrow.’”
In addition to Schermerhorn, those seated on the panel included Gordon Yance, president of First-Knox National Bank; Gene Jackson, area president of National City Bank; Jeff Arnette, a representative from Edward Jones; William Melick, Kenyon College economics professor; and David Skinner, finance professor from MVNU.
While subprime lending helped shove the United States into an economic free-for-all, local banks and credit unions did not participate in predatory lending, and therefore continue to be safe, trustworthy institutions. This sentiment was prevalent throughout the evening, regardless of which representative had the floor.
“The problem was with the subprime lending. This didn’t happen by community banks,” said Yance. “The majority of community banks [across the country] are profitable; their capital is strong. At this stage, I am not at all worried about the continued success of community banks.”
It is the investment banks, however, which seem to be giving financial institutions as a whole a bad rap. Not realizing the difference between investment and commercial banks can lead to a lot of confusion for consumers.
“It’s quite troubling because that distinction isn’t made. Commercial banks, many of us, anyway, offer installment loans, home loans, small-business loans. It’s the key reason why our economy functions in normal times,” Yance said.
There is a fundamental difference between the two. Investment banks generate funds from the buying and selling of securities. Commercial banks accept deposits from consumers to help build their assets and liquidity.
Jackson took the opportunity to discuss the buyout of National City Bank by PNC.
“We will not be leaving Mount Vernon. Our intent is to remain in business in Knox County,” he told those in attendance.
Jackson went on to explain the history of FDIC and its roots in the Franklin D. Roosevelt presidency. Since its inception in 1934, “no depositor has lost a single cent of insured funds from a failed bank,” he said.
FDIC is a government entity to which participating banks pay a premium to ensure deposits are guaranteed up to a certain amount.
With the recent economic bailout, the limit on individual accounts, in one bank, has risen from $100,000 to $250,000, according to Jackson. This measure, he said, is a temporary effort good through 2009, to keep Americans from panicking and pulling their money out of the banks.
Credit unions work in much the same way, although their deposits are insured through the National Credit Union Association, said Schermerhorn.
“Knox County is not immune from this whole situation that we are facing. In the banking industry you have growth markets and mature markets. I feel very strongly, and I think most people would agree, that Knox County and Mount Vernon is a very mature market,” said Jackson.
The savings and loan fiasco in the 1970s and ’80s brought to light a whole new set of worries and fears to the American people and its leaders. Unfortunately, banking troubles have not only plagued this country’s history, but also those around the world.
“Banking crises are not rare. They happen all over the globe,” said Melick. “Cleaning it up takes 5 percent of the [gross domestic product]. The U.S. GDP is $14 trillion, times that by 5 percent and that equals $700 billion. Does that number sound familiar?”
The $700 billion bailout plan approved in Washington late last month is consistent, Melick said, with the rough rule of thumb used worldwide. Part of the plan will be “directly injecting capital into the institutions, boosting capital to keep it from having negative capital.”
The economic crisis and subsequent bailout plan has taken Wall Street, and American stomachs, on a roller-coaster ride over the last couple of months. Skinner said this has more to do with what’s to come than the here and now.
“When the stock market goes down, it reflects the future and uncertainty,” Skinner said.
Part of that, he believes, is due to next week’s presidential election.
Although the Dow jumped over 800 points on Tuesday, Skinner doesn’t get excited because he believes that’s not what people should be watching as a measure for the stability of Wall Street.
“The Dow is a lousy measure of the stock market. It only includes 30 companies. Thirty mature companies,” Skinner said. “You need to look at your younger companies for a better measure of the stock market.”
He also cautions consumers to not be so quick to jump with every story found in the media. He went on to demonstrate how the simple cropping of a graphic can distort the information and create fear.
“Fear gives you the fight or flight natural defenses. When fear leaks from one to another, it creates panic,” he said.
Arnette told the audience that now is the time to be patient with investments and not make hasty decisions.
“If you own quality investments, please sit tight,” he said. “[When stock prices are down] capital gains are low, so now is a good time to diversify a little.”
Most people, Arnette explained, make investments for the long term. With that in mind, he said it really doesn’t matter who’s in power, the stock market continues to make money.
John Holland, vice president of commercial lending for Home Loan Savings Bank, was in the audience.
“I agree with the entire panel, especially about community banks,” he said. “There is a lot of hype and concern and we need to stay calm until things blow over.”
The night concluded with a question-answer period.
Joan Clipse asked the panel what stocks were good options in which to invest.
“I just invested in an index fund,” said Skinner. “If you are betting on American economy, that’s a safer bet than an individual fund.”
One member of the audience asked if short selling had anything to do with the nation’s economic woes.
“Short sellers borrow stock and then sell it. You can’t sell unless someone wants to buy. You sell high and buy low,” Skinner said.
He compared short selling stocks with selling a used car. Although he sold a truck because it had little value to him, it was of great significance to someone else.
“There is enough uncertainty. Short selling is not driving volatility, it can’t be,” Melick said.
About 50 people attended the forum. News Editor Cheryl Splain, moderator of the event, was pleased with event’s success.
“We had a number of good comments from those in attendance following the forum,” she said. “Good information was presented, and good questions asked. And although not every issue relating to the current financial situation was able to be addressed, hopefully the forum gave community members some solid information about the state of banking in Knox County.”
