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Smaller Banks Resist Federal Cash Infusions

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By Binyamin Appelbaum
Washington Post Staff Writer
Wednesday, October 15, 2008

Community banking executives around the country responded with anger yesterday to the Bush administration's strategy of investing $250 billion in financial firms, saying they don't need the money, resent the intrusion and feel it's unfair to rescue companies from their own mistakes.

But regulators said some banks will be pressed to take the taxpayer dollars anyway. Others banks judged too sick to save will be allowed to fail.

The government also said yesterday that it will guarantee up to $1.4 trillion of private investment in banks. The combination of public and private investment is intended to refill coffers emptied by losses on real estate lending. With the additional money, the government expects, banks would be able to start making additional loans, boosting the economy.

President Bush, in introducing the plan, described the interventions as "limited and temporary."

"These measures are not intended to take over the free market but to preserve it," Bush said.

On Capitol Hill, lawmakers from both parties praised the plan and scrambled to take credit for writing provisions into the law passed almost two weeks ago that allowed the government to switch from buying bad loans to buying ownership stakes in banks.

On Wall Street, bank stocks soared even as the broader market stayed flat while investors grappled with economic concerns. The Dow Jones industrial average was down 0.82 percent, or 76.62 points, to close at 9310.99 one day after its largest percentage gain in more than half a century.

And in offices around the country, bankers simmered.

Peter Fitzgerald, chairman of Chain Bridge Bank in McLean, said he was "much chagrined that we will be punished for behaving prudently by now having to face reckless competitors who all of a sudden are subsidized by the federal government."

At Evergreen Federal Bank in Grants Pass, Ore., chief executive Brady Adams said he has more than 2,000 loans outstanding and only three borrowers behind on payments. "We don't need a bailout, and if other banks had run their banks like we ran our bank, they wouldn't have needed a bailout, either," Adams said.

The opposition suggested that the government may have to continue to press banks to participate in the plan. The first $125 billion will be divided among nine of the largest U.S. banks, which were forced to accept the investment to help destigmatize the program in the eyes of other institutions.

In rolling out the program, Treasury said it would make the rest of the money available to banks that requested it. Officials said they expected thousands of banks to participate.


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