SOUTHFIELD, Mich., January 23, 2009 – Not too surprisingly, a vast majority of bankers (88%) in the Midwest have a pessimistic (very or somewhat) outlook for the national economy in 2009 – but 40 percent believe the credit crisis will abate and credit markets will become less volatile in the second half of the year, while 45 percent believe that will happen sometime in 2010.
The Midwest numbers above are almost identical to national survey results from Grant Thornton LLP’s 16th Bank Executive Survey, completed with Bank Director magazine.
When it comes to causes of the economic crisis, bankers nationwide let their true feelings be known. From options shown in the chart below, each respondent could select up to three reasons. The ranking is in order of national results, with the numbers in ( ) being Midwest replies:
- Lax underwriting standards 54% (49)
- Political emphasis on increasing home ownership 46% (50)
- Lack of oversight of the mortgage industry 44% (37)
- Inadequate understanding of risks 40% (29)
- Lack of oversight of Fannie Mae and Freddie Mac 39% (43)
- Credit default swaps 18% (21)
- Inappropriate or aggressive commissions for mortgage brokers 18% (27)
- Interest rates kept low for too long 18% (15)
- Use of the fair value accounting standard 15% (19)
- Mortgage fraud 11% (9)
- None of the above 1% (1)
Almost half (46.35) of Midwest bankers expressed an interest in participating in the U.S. Department of the Treasury’s Troubled Asset Relief Program (TARP) Capital Purchase Program (CPP) as a reaction to the credit crisis and subsequent consolidation in the financial services industry.
“While the government’s capital purchase program has generated a lot of interest in the banking industry, there still remains some uncertainty regarding restrictions that Congress may place on program participants retroactively,” said Todd Sprang, Grant Thornton’s Midwest Region Financial Institution practice leader. “Rep. Barney Frank, chairman of the House Financial Services Committee, has recently proposed legislation that would place restrictions on participant’s executive compensation and put limits on the payment of dividends. This may cause some banks to re-evaluate their interest in participating in the program.
“Many of the benefits associated with the current TARP CPP are difficult to quantify. The capital provided to the banks is expected to increase the stability of the financial system, and over time will undoubtedly allow the banks participating in the TARP CPP to originate or invest in loans at many multiples of the total capital received. It is difficult to ascertain which funds are used to fund new loans, pay operating expenses, pay dividends or fund new investments,” concluded Sprang.
Other survey highlights from the Midwest include:
- Local business outlook for banking in their respective local communities – 38 percent of bankers are pessimistic, 14 percent are somewhat optimistic.
- Local banks that will increase their share of deposits in local communities in 2009 – 43 percent said yes, 57 percent said no.
- Local banks which have made significant changes to it capital plans – 25 percent said yes, 75 percent said no.
For a copy of the full survey, which will be available the week of April 20th, please contact Grant Thornton’s Office of Financial Services at 877.835.1723 or FinancialServices@gt.com.
About the survey
Grant Thornton’s Bank Executives Survey provides a snapshot of the banking world, presenting a compilation of opinions of industry leaders on the current state and future direction of the industry. In early November 2008, Bank Director magazine mailed questionnaires to a national sample of 3,000 chief executive officers and other senior officers of banks and savings institutions. A total of 339 completed questionnaires were returned for a response rate of 11.3 percent. There were 96 respondents from the Midwest, the highest response rate of the five sections of the country.
About Grant Thornton LLP
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