Most Valley banks staying healthy

By Jimmy LaRoue

Published: October 1, 2008

Despite the plunge in financial markets, area businesses are buoyed by Shenandoah Valley banks, which are on more solid footing than national institutions such as Wachovia, experts said Wednesday.

“It doesn’t impact us as much as it does other places,” said Ben Carter, president of the Greater Augusta Regional Chamber of Commerce. “Yes, you do have a slowdown. Yes, credit is getting tighter. But it hasn’t shut off completely. You can still get credit. ... You still have banks making loans.”

Most area banks are faring well amid the crisis, said economist Pamela Drake, the head of the Department of Finance and Business Law at James Madison University in Harrisonburg.

“We have some very healthy banks in the Shenandoah Valley,” Drake said. “Most banks are quite healthy right now. We hear about all the ones that are in ill health, but truly, most are doing quite well.”

Credit, however, is tighter than before.

Tim Spears has seen the impact, though indirectly, on Spears Ross River City Realty, a real estate business he operates with Mike Ross. He said he is finding it more difficult to sell homes.

“From what I’m seeing out there, you have as many buyers, but they’re not able to secure financing,” Spears said.

In one instance, Spears said, he had six contracts on a home but none of the potential buyers could secure mortgages. 

Spears’ other enterprise, Tim Spears Music City in Waynesboro, has been unaffected because his business operates off money it has on hand and doesn’t have to borrow.

“I do think it’ll affect some small businesses that borrow money,” Spears said. He said that if a business had to borrow money on a month-to-month basis, “it would be tough times.”

Drake said those small businesses could be in trouble for the short-term due to seasonal fluctuations.

“They could find themselves having difficulty getting cash and stocking the shelves,” Drake said.

Those businesses, she said, count on being able to alter their cash flow throughout the year. For small businesses to receive credit, she said it would depend on the type of business, the amount of money they need and their credit-worthiness. The most credit-worthy businesses, she added, would get money first.

“Unfortunately, when Wall Street has this problem, we all feel it,” Drake said. “The small businesses feel it. They have trouble getting funds right now.”

Carter said the talk of people not being able to get different type of loans, or mortgages, is “a worst-case scenario.”

“It’s too sensationalized,” Carter said. “There is a problem; there is a crisis. But there are things that can be done to get us out of it.”

Reo Hatfield, president of Reo Distribution in Waynesboro, said the crisis is as much political as it is economic.

“[The] problem starts from government officials more worried about being elected than telling the citizens the truth about asking for things we cannot afford and building government payroll,” Hatfield wrote in an e-mail. “Business in this country cannot carry this burden and will not continue to invest in high-risk ventures.”

Hatfield said government must act as a business, “but with heart.”

Blame for the crisis can be spread wide and far, Drake said, to businesses, politicians, people buying homes they couldn’t afford, speculators who treated real estate as a short-term investment and investment bankers.

“This problem that we’re having has so many bad players,” Drake said. “So many people made bad decisions.”

She said the root of the crisis will have to be addressed soon after Congress passes a bailout bill. There needs to be a “super-regulator,” Drake said.

Among the culprits cited by Drake was the 1998 Financial Modernization Act signed by President Clinton. It brought down barriers between commercial banks, investment banks and insurance companies, allowing each to delve into the other’s business, Drake said. Each one, she said, has different regulators, “but you didn’t have anybody looking at the whole picture.”

Some of those companies, she said, were taking on too much risk. She called for tighter and more comprehensive regulation. She said laws are needed “to prevent people from making stupid decisions.”

Meanwhile, community banks like those in the Valley that have withstood the crisis should be protected, the National Federation of Independent Businesses said in a statement issued last week. Those banks, according to NFIB Executive Vice President Dan Danner, “have managed their balance sheets more responsibly than the large institutions at the center of the crisis.”

Drake said it will take “awhile” to fix what has happened.

“Then we’ll have to go into an era of regulations to make sure it doesn’t happen again,” she said.

Businesses are more cautious than before about spending, Carter said.