Four Iowa banks take federal money

Tuesday, February 17, 2009

DES MOINES- Four Iowa banks have received almost $144 million in federal money, but leading banking officials say some are turning down the funds because they remain financially strong.

Some banking officials say they don't like the strings attached to the funds, including their cost and a lack of opportunity to generate new loans and deposits.

Iowa banking officials told legislators this week that most of the 51 banks who have applied for the federal money, meant to strengthen the financial sector, continue to wait for approval.

Lawmakers and banking officials have assured Iowans with deposits in banks that they have little to worry about because almost all of the banks in the state are financially strong.

In December, only 7 percent of small businesses reported problems in getting loans, according to a National Federation of Independent Businesses report that bank officials cited.

Total loans from Iowa's 322 banks increased last year by more than $2 billion, Iowa Superintendent of Banking Tom Gronstal told lawmakers.

However, he noted that consumer demand for loans has taken a hit recently.

"Iowans are generally financially responsible, so in times like these, they are reluctant to contract for more debt," he said. "In the immortal words of Yogi Berra, 'If people don't want to come to the ballpark, nobody's going to stop them.'"

Last year, the federal government created the Troubled Asset Relief Program, which allocated $250 billion to provide capital for banks deemed financially healthy. If a bank accepts the money, it must pay a 5 percent dividend to the federal government in addition to 3 percent in interest.

Some bank officials say accepting the money isn't profitable for their institutions.

"This is not a giveaway program. This is a program that will generate money for the federal government," said Tom Stanberry, chief executive officer of West Bank.

Lawmakers had a chance this week to ask questions of the banking officials, and their questions generally focused on how the Legislature can help in the financial recovery process.

"If there are things we can do, we will. We certainly want to get Iowa back to normal as quickly as we can," said Rep. Vicki Lensing, D-Iowa City and House chairwoman of the Government Oversight Committee.

Gronstal and Stanberry agreed that government assistance is necessary to get started, but building confidence among Iowans and creating jobs are among the most important ways to launch a financial recovery.

Rep. Clel Baudler, R-Greenfield, said the information confirmed for him that Iowa banks are safe.

"We are in very good shape as a state, especially our small rural banks," said Baudler, an oversight panel member.

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