I went to an interesting City Club meeting earlier today at Bellingham’s Northwood Hall, featuring Brad Williamson, director of Washington Department of Financial Institution’s Division of Banks. He talked about the banking industry in this state and its future. Here’s the (link) to the article.
Because I write for both the print and the online editions, the article has to be a certain length. I wanted to add some other ideas expressed at the meeting that I couldn’t fit into the story:
– Williamson talked about why construction loans (which has gotten quite a few banks in trouble) are much riskier than many other types of loans. When a bank lends out money for a construction project, it could be years before it starts getting paid back because the project needs to be built, then leased. So unbuilt/undeveloped projects mean the bank usually has to write off most or the entire loan.
– Why are banks attracted to construction loans? While riskier, they are also hugely profitable, Williamson said. They have a high return with less work than some other types of loans.
– There could have been less bank failures if more private equity investment was allowed, but government regulators were wary because that was part of the problem with the savings and loan crisis in the late 1980s and early 1990s. Private equity is generally involved for short-term profits, and banks need longer term solutions.
– Bruce Clawson of Banner Bank was also a speaker at City Club, and he provided some insight about the Whatcom County. In addressing a question about the lack of lending taking place right now, he said it boils down to three issues:
1. Standards are tighter to get a loan;
2. Applicants are less credit-worthy because the recession has brought down credit scores in a variety of ways;
3. Businesses that are eligible for a loan are reluctant to take on more debt for expansion until they have more confidence in the economy.
I’ll post more information about the meeting (including some stats) in future posts.