71 Minnesota banks closely watched
ST. PAUL -- Regulators are working with 71 of 426 Minnesota-based banks to make sure they do not fail, but bank and credit union officials say they are not risking customers' money.
"It's just a matter of prudent lending and risk management," Noah Wilcox Tuesday told the state Senate Commerce and Consumer Protection Committee.
Wilcox and other bankers told senators that the media is feeding a frenzy by reporting about "risking loans" being made by American banks. But, he said, he does not want to risk Grand Rapids State Bank money "because it's my family's money."
The fourth-generation banker told of the owner of a company that depended upon the now-closed Ainsworth lumber mill for business. The family-owned business would have trouble repaying a loan because of the circumstances, Wilcox said.
"They were factors essentially out of their control," he added.
Bankers said that is an example of what appeared to be a good loan when it was made, but unforeseeable circumstances turned it sour.
Regardless of the reasons, Deputy Commerce Commissioner Kevin Murphy said that state and federal regulators are watching banks and credit unions to make sure they are financially sound, "keeping in mind that these are private institutions that rise and fall on their own."
Regulators check each institution every year or year and a half, although quarterly reports sometimes tip them off to problems even quicker.
Four Minnesota banks have failed this year, the most recent of which was Jennings State Bank in Spring Grove and Stillwater last weekend. A Federal Deposit Insurance Corporation official said customers barely noticed a difference because the bank closed Friday night, changed owners and reopened Saturday morning.
"You can buy a bank over a weekend with minimal paper work," Murphy said, adding that only larger, stable banks can purchase failing ones.
Murphy said that of the 71 banks regulators are watching, 30 are in a more serious category. However, he added, in most cases bankers and regulators work together and avoid closures.
A year ago, regulators were concerned about 50 banks.
Loans banks buy from other lending institutions seems to be one of the major problems, Murphy said, because the loan originator may not have done a good job of checking out the borrowers.
"If the bank doesn't take a good look at it, they could be buying a pig in a poke," he said.
Across the country, 416 banks have serious problems, the FDIC's James LePierre said. Of those, 98 have closed. That compares with 25 that closed last year, three in 2007 and none in the two previous years.
Nationally, many of the troubled banks are in metropolitan areas, unlike 25 years ago when most were in rural areas. Murphy said that this year about half of Minnesota's problem banks are in urban and half in rural areas.
A solid farm economy is credited for the improved story from the 1980s, when 46 Minnesota banks failed.
"We are very blessed to be agriculture-based," said Marshall MacKay of the Independent Community Bankers of Minnesota.
Bankers said their business trails the economy as a whole, so any recover will take some time for them.
"I would venture to guess it might be a bit bumpy," Murphy said.