Local banks, including those in Durango, have a marketing problem on their hands, says one of Colorado's top banking officials: Much of the public is categorizing them with their leverage-happy, bailout-taking cousins on Wall Street.
"When you talk investments, there are brokerage houses or investment companies, and they are all called banks by the media and the public," said Don Childears, president and chief executive officer of the Colorado Bankers Association. "But they're not banks. Banks are well-regulated, and they have the word 'bank' in their name."
Beyond besmirching the good name of local banks, investment-house problems may cause many people to hold the mistaken view that local banks have scaled back their loan operations, Childears said.
Credit is tighter today than two years ago, he said, but that is because the investment houses, such as JPMorgan Chase & Co.; mortgage companies, such as Countrywide; and hedge funds, three nonbanking entities, have virtually stopped issuing credit.
At the height of the housing bubble, nonbanking entities were making 70 percent of all loans in the U.S., said Childers. Currently, he estimates nonbanks are making only one-fifth to a quarter of the loans they were making 18 months ago.
"One message I'm trying to get out is: Banks are lending," he said. "We're holding our own. Last year, bank loans were up 0.4 percent, but in Colorado they were up 11.7 percent."
Overall, nationwide loan numbers are down, but only because banks have not been able to fill in the void from the almost-complete collapse of nonbanks from the issuance of credit.
Art Chase, president and chief executive officer of Bank of the San Juans, agrees local banks have been lumped in with Wall Street firms by many but points out they are treated differently by regulators.
"There is a huge difference between what is known as an investment bank, which is what Goldman Sachs and Morgan Stanley are to a community bank," he said. "We are completely different. Community banks are heavily regulated, and we're held accountable to safety and soundness standards by our regulators. The community banking system, especially in Southwest Colorado is in great shape."
Chase said his bank's loans are up 20 percent compared with this point in 2008. Refinancing of mortgages is the major driver of loans currently, and Chase said fixed-rate, 30-year mortgages below 5 percent are as low as he can remember.
However, the recession is hitting home with commercial loans. Chase said demand for commercial loans is down, a situation reported by other bankers in Durango.
Bruce Alexander, president and chief executive officer of Vectra Bank of Colorado, said, "Businesses are not committing to new loans, new enterprises or new debt until they see how the economy shakes out."
Like Chase, he says interest in mortgage refinancing is "through the roof."
However, the recession's effects can't help but be noticed by local bankers.
Mike Burns, regional president for Alpine Bank who oversees the two Durango-area banks, said the bank saw unusual growth in savings deposits last fall. Chase reported a similar spike at Bank of the San Juans in the summer of 2008.
Both thought some of the growth was caused as investors fled stocks. But both bankers were unsure just how much of their deposit growth could be attributed to people fleeing investments. However, investment pain has been severe: The Dow Jones Industrial Average contracted 52 percent from its high of 14,154.86 on Oct. 11, 2007, to its low of 6,776.44 on March 6.
Another sign of the recession hitting home in Durango and La Plata County is a decrease in loans going to build new homes as opposed to refinancing, Burns said. The housing bust and recession, Burns said, has been particularly fierce in some of Durango's feeder markets, especially Phoenix.
"A lot of the capital that comes to Durango for projects or homes comes from (feeder) markets. As their markets decline they have less capital to invest in Durango," he said.
As the recession causes damage outside Durango, Burns said, it can't help but be absorbed locally.
"If people in Phoenix see a lot of problems happening there, they have less confidence to come and do things in Durango," he said.
Steve Short, president of First National Bank of Colorado, said the recession is hitting Colorado less severely than many areas of the country, and Southwest Colorado is better of than most of Colorado. Still, he said tough times can't be ignored.
"We are seeing increased stress on both our individual and business customers. Banks aren't any different than any other business. Our success and profitability is tied to the success of businesses and individuals in our community."