Community banks said solid, solvent

Local community banks are strong, and they’ll be punished for it, former Tri-Parish Bank president Warner Veillon told the Eunice Kiwanis Club last week.

Veillon, who has served on the Tri Parish Bank Board of Directors for over 40 years, was asked to speak about the current economic downturn and the state of the banking industry.

“I don’t know any of our banks that are in trouble,” Veillon said. “Most community banks are growing, profitable and seeking loans. The problems are with ‘too big to fail’ banks.”

‘Too big to fail’ banks are the top 20 banks which the government feels could cause an economic catastrophe if they were allowed to fail, Veillon said.

These banks are being bailed out by the Federal Deposit Insurance Corporation to the tune of an estimated 62 billion dollars.

Problem is, Veillon said, the FDIC only has $19 billion in reserve.

The answer? Increase the FDIC insurance premiums paid by banks.

Veillon said the increase in premiums will go up from $20,000 in 2008 to $130,000 this year.

With a one-time extra charge, the total cost of FDIC coverage to Tri Parish Bank this year will be $375,000 higher relative to last year, Veillon said.

“That’s how they’re going to recapitalize the FDIC,” Veillon explained, “on the backs of healthy banks.”

During the Great Depression, before the FDIC, many banks collapsed due to people withdrawing their money. That isn’t a problem this time, Veillon said.

“Instead of having a run on banks, what the banking industry has experienced...is there’s been a dramatic increase in bank deposits nationwide,” Veillon said.

The problem is that too many of the major banks own too many so-called ‘toxic assets’, sub-prime mortgage-backed securities which are currently worthless and for which there is no market, tying up lines of credit.

The top 20 banks currently hold $660 billion in ‘toxic assets’, Veillon said, “That’s 5.5 percent of their total assets.”

“They hold 62 percent more ‘toxic assets’ than they do tangible capital,” Veillon said.

Veillon said he believes that the solution to the current economic situation will have to start where the crisis began - in the housing industry.

“In my view, you’re going to have to solve the housing industry problems before you can solve the overall problems.”