The world of banking has changed in ways that few anticipated or assumed could ever happen. Blame it on the economy, Congress, regulators, bad mortgage loans, greedy consumers. To be sure, there is plenty of blame to go around. And plenty more changes to come.
"Conditions in the financial markets in recent weeks have shaken the confidence of people around the world in their financial systems. Losses in the stock markets have reduced the valuations of publicly traded companies and have imposed losses on individual investors. Credit markets have not been functioning properly, threatening grave harm to the economy," said Sheila Bair, chairman of the Federal Deposit Insurance Corp., in testimony before one of the many Congressional hearing convened to discuss the situation.
One of the first moves that Bair made this month to boost confidence with consumers was to raise the insurance protection on bank deposits to $250,000 from the previous level of $100,000. This was designed to avoid runs by depositors like at IndyMac, the first high-profile institution taken over by the FDIC.
The other concerted effort to deal with the situation has been the massive infusion of funds to assist troubled banks and other institutions. The initial round of funding was directed toward the nine largest banks in the country in exchange for preferred stock. About half of the $250 billion investment has been allocated, and the rest will be committed by mid-November.
"Although no definitive plans were announced regarding specific names in the regional space that will benefit, we believe it is just a matter of time before we see announcements benefiting the regionals," said Keith Horowitz, analyst with Citigroup Global Markets.
Local and state officials cheered the early October passage of the Emergency Economic Stabilization Act of 2008 as a first step in the recovery process.
"Californians can be assured our banks are weathering the current economic storm and will continue to do so. Be assured that we have the necessary resources and capital to continue to serve the needs of our communities, and provide the same level of high-quality and trusted service that is a trademark of California banks," said Rodney Brown, president of the California Bankers Association.
Several San Diego County institutions to report quarterly results this month have also offer positive outlooks.
Coronado First Bank (OTC: CDFB) reported that total assets grew by 41 percent in the third quarter over the same period a year ago, and total deposits rose by 50 percent.
"In these tumultuous times in our industry, you can rest assured that we remain committed to consistent, steady growth with an emphasis on core fundamental lending practices. This will allow us to continue our outreach beyond Coronado to attract quality personal and business relationships that are not being serviced by their existing banks," said CEO Bruce Ives.
The Coronado bank is planning to open a branch in downtown San Diego.
Despite a drop in third-quarter earnings due to reorganization and other costs, PacWest Bancorp (Nasdaq: PACW), which operates 20 branches of Pacific Western Bank, was able to report an increase in capital.
In addition, CEO Matt Wagner reported, "Our balance sheet will be further strengthened by the equity infusion of $100 million from CapGen Financial announced on Sept. 2, 2008. This additional capital, combined with our focus on credit quality and cost control, positions us well to seek growth opportunities over the next 12 months."
Despite all of the turmoil in the financial industry, it seems logical that consumers may have lost confidence in their banks. However, a recent survey finds that is hardly the case.
A recent sentiment study by Nielsen Claritas finds that almost 70 percent of consumers remain highly concerned over the country's economic woes and 60 percent believe things will get even worse over the next six months. However, nearly 84 percent are just as confident, if not more so, in their primary financial institution as they were six months ago. In addition, 95 percent consider the financial assets at their primary bank to be relatively safe.
"This sentiment is encouraging and lends belief that consumers feel the economy tends to be cyclical and that markets will rebound," said Jane Crossan of Nielsen Claritas.