'Bailout' to healthy banks questioned

The Timberland Bank in Hoquiam, Wash.

TEXT OF STORY

TESS VIGELAND: There are signs the Obama Adminstration will be modifying the goals and conditions of the government's $700 billion bailout package. It could spell change for banks that assumed they'd get a second slice of that pie. Many got a first slice despite being relatively healthy. And critics want to know why they got the cash, and what they're doing with it.

Tom Banse posed those questions to some regional banks in the Pacific Northwest.


TOM BANSE: You can look up the list of bailout recipients on the U.S. Treasury website. On top are struggling behemoths such as Citigroup, Morgan Stanley and Merrill Lynch. But as you move down the list, you find solid upstanding community bankers, people you might know from some place like Rotary Club.

Take Michael Sand. He runs Timberland Bank, headquartered in the mill town of Hoquiam, Wash.

MICHAEL SAND: We felt it was just a good time to add capital to the balance sheet, given the uncertainty in the economy.

Banse: Did you need a bailout?

Sand: Oh, absolutely we did not need a bailout. We're very strongly capitalized as a company, one of the more highly-capitalized companies in Washington State.

So why, then, is this healthy bank and dozens like it getting federal cash?

Sand: It's likely that banks will increase their lending based on their confidence that they have the capital to adequately support the lending.

This is a typical story of the over 250 American banks that got Treasury cash in exchange for preferred stock. The Treasury Department quickly abandoned its initial idea to buy troubled assets from struggling banks. Treasury says the revised approach primes the pump quicker.

RAY DAVIS: They're buying into institutions that are strong. So it's really not a bailout. What it is, is a buy-in.

Ray Davis is CEO of a regional bank out of Portland called Umpqua Bank. You're right if you hear a little frustration there with how the bailout -- or "buy-in" -- has been run and spun. Davis hears people accuse banks of just hoarding their federal infusions to bolster their bottom lines.

Davis: No, we're not sitting on it. We're trying like crazy to get it loaned out. It's in our best interest to loan it out. I mean . . . banks make money by loaning money out at a rate that is higher than what they're paying out.

Umpqua and other banks have to pay out a 5 percent dividend on the Treasury money. But bailout watchdogs are troubled with how little else the contract demands.

RYAN ALEXANDER: We don't think there were enough strings on the money that went out in the first $350 billion.

Ryan Alexander is president of the group Taxpayers for Common Sense.

Alexander: We have no benchmarks where we're saying, "We gave you $40 billion, so we want to make sure that you continue to lend to small businesses, that you continue to make sure that your commercial paper is moving." I think it's very hard to tell if the bailout is working.

Patience, says the bank president in Oregon. He says credits markets are slowly getting unstuck. He prepared to report he's making all his standard loans, including mortgages.

Davis: Banks are still required by the same regulators to make sure that they're loaning the money in a safe and sound manner, responsibly. They're not just throwing money out the car window as they drive by on the street.

Davis is pretty sure that we taxpayers will profit from the bank investments. He notes the government bought its bank stakes when prices were depressed. The stakes will presumably be worth considerably more when they're redeemed in better times.

In Olympia, Wash., I'm Tom Banse from Marketplace.

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