Just 90 days ago, unprecedented levels of fear existed among businesses and consumers about the stability of the U.S. banking industry. Now,
strong banks are getting a boost from
the U.S. Treasury’s Capital Purchase
Plan (CPP), which is investing $250 billion in banks that have been approved to
participate in the program by primary
regulators and the U.S. Treasury. The
program has been successful in quelling
fears and restoring confidence and both
consumers and businesses will benefit
from banks’ strengthened balance
sheets, which frees up funds for lending.
“Anything the government can do to
add stability to the banking industry
overall is a good move,” says Brian
Keenan, president and CEO of Fifth
Third Bank, Tampa Bay. “We have been
making loans all along, but CPP will
allow us to be more flexible with strategic lending opportunities.”
Smart Business spoke with Keenan
about how consumers and businesses
will benefit from the Treasury’s investment in banks.
How does CPP enable banks to lend?
The CPP is part of the $700 billion
Emergency Economic Stabilization Act,
signed into law in October. Through the
CPP, the government will invest in senior
preferred shares of financial institutions,
and then encourage the banks to buy
back the shares from the government
when the markets stabilize. It is
designed to help strengthen the balance
sheets of many U.S. financial institutions
by helping them raise their capital levels.
This additional capital positions banks
to weather volatility in the economy and
to extend credit to qualified businesses
and consumers.
Is this program a bailout?
The term ‘bailout’ is not appropriate
for this program. It’s really intended to
be an investment in banks, which will
generate a return for U.S. taxpayers in
addition to stimulating the economy. The
CPP is designed to assist financial institutions in fulfilling their important economic role of making loans to businesses and consumers and getting all of us
closer to our goal of a stronger U.S.
economy. I realize that Americans aren’t
necessarily comfortable with their government investing in financial institutions, but keep in mind that these are
investments, which have to be paid back
when the economy rebounds.
How does the program restore confidence?
One benefit of the CPP is an increase in
confidence, and we have already sensed
greater calm among our customers
because they feel the U.S. banking system has stabilized. People were panicked to the point that they were considering withdrawing their money from
banks altogether, which is not the right
thing to do. As financial institutions, like
Fifth Third Bank, are approved for a
Treasury investment, it sends a signal of
strength to their customers, not only
because of a boost in capital levels but
because the Treasury has suggested that
it will only invest funds in healthy institutions. Also, the increased coverage
limits provided by the FDIC are helping
depositors feel reassured about the safety of their money.
How will the Treasury’s investment benefit
consumers and businesses?
When the CPP invests in strong banks,
it provides them with additional capital,
which increases their ability to extend
credit to qualified businesses and consumers. As barriers are removed, banks
will be better able to maintain and
increase lending levels to strong businesses to ensure their operations are
uninterrupted. This is designed to
increase economic activity and reduce
some of the negative impact of the current economic environment.
The additional capital should also
make it easier for qualified borrowers to
get mortgages and other types of loans,
and we’ve recently seen a drop in interest rates, which is helping homeowners
refinance to more affordable terms. The
CPP gives banks more flexibility to help
those who may be facing foreclosure or
having difficulty making payments on
other kinds of obligations.
What else can banks do to help customers
in these difficult economic times?
The economy is still highly volatile,
making it difficult to plan. We’re spending more time consulting with business
executives, helping them forecast for the
first quarter and budget for 2009 interest
expenses. We’re also working with consumers to reduce banking fees, evaluate
their portfolios and plan for their retirement. It’s important for businesses and
consumers to review their finances
proactively and initiate conversations
with their banker if there’s even the
slightest chance they might fall behind
on business loan or mortgage payments.
With strengthened balance sheets as a
result of CPP, your banker has more
options to help you get through these
turbulent economic times.
BRIAN KEENAN is president and CEO of Fifth Third Bank, Tampa Bay. Reach him at (813) 306-2453 or [email protected].
