Banks That Had a Brain
I come from a state with many sound, responsible banks. To borrow from our unofficial poet laureate, Garrison Keillor, Minnesota is a place where all the women are strong, all the men are good-looking and all the bankers are above average.
From the largest entities, with tens of thousands of employees, to the small-town banks and credit unions, our financial institutions pretty much stayed away from the highflying, way-too-risky deals of the past decade. They made meat-and-potatoes loans to consumers and businesses in their communities. They did well, both for themselves and for the people they serve.
These Main Street banks did not dance down the yellow brick road to Wall Street dealmaking or Washington hobnobbing. When the pavement on Wall Street began to buckle and collapse, these banks did not panic and run to Washington with tin cups in outstretched hands. They continued to conduct their business, behaving the way, well, banks are supposed to.
Unfortunately, we now live in the cyclone of 24-7 financial news coverage. One pundit's idle chatter or a leader's words taken out of context can create a storm of controversy that wipes out stock prices in a whole sector of the economy.
This is the challenge confronting banks across America. Many banks have solid records, relatively little red ink and the prospect of long-term stability. But they are now grouped with the irresponsible highfliers that are about to crash and burn, if they haven't already.
I picture these bankers clutching their sensible briefcases, with debris swirling around them, trying to keep their feet planted in the heartland. All they can say is, "Toto, we're not in Kansas anymore." It's time to bring them home. This week, the Obama administration, which inherited this mess, has the opportunity to calm the storm.
Like many, I welcome the administration's approach to pushing the credit market: from offering incentives for investment and stemming foreclosures to demanding more transparency and accountability in the expenditure of funds. But the administration must make clear that, while some banks will require extraordinary help, there are plenty of banks that remain solid and will come out stronger in the end.
Ultimately, the success of America's market economy depends on trust. This includes trust between buyers and sellers, between lenders and borrowers, and between investors and the companies in which they invest. That trust has been sorely tested in the past several years.
As with any test, it is essential to distinguish between right and wrong answers. It is wrong when we, in effect, throw safe and sound financial institutions into the same category with banks and lenders that climbed too far out on a limb with no way to return.
If the government wants to apply a "stress test" to our large banks, it should announce the rules as soon as possible. This would provide much-needed clarity for the public, the banks and their investors. And however this test is administered, it should be set up in a way that allows for differentiation on the basis of performance. This is likely to require a more nuanced approach than simply pass/fail.
The threat of "nationalization," better described as temporary government receivership, has cast a shadow over all banks. The sooner the federal government can decide which, if any, banks will be subject to either this extreme measure or simply more capital infusion, the sooner banks that are better off can escape the shadow of suspicion and go ahead with their business.
This is not just about banks and their money. This is also about confidence: the confidence of consumers to spend, the confidence of investors to invest, the confidence of businesses to hire and the confidence of bankers to lend.
The confused situation in which we are mired hurts more than our banks. It hurts the home buyer who needs a mortgage. It hurts the homeowner who needs refinancing. It hurts the small-business owner who needs an extended line of credit. It hurts millions of Americans who need loans to buy cars or send their children to college. And it hurts everyone with a retirement fund that continues to decline as long as the financial markets are governed by fear and uncertainty.
In the midst of the financial turmoil, we must keep in mind that all banks are not created equal. Some banks chose not to go to the enchanting and, ultimately, illusory world of Oz. They acted sensibly and stayed home, keeping their promises to Auntie Em.
It is time for Uncle Sam to give due credit to their responsible behavior so that they may continue their business and help revive our economy.
The writer, a Democratic senator from Minnesota, is a member of the Senate Commerce and Joint Economic committees.