State official: Banking system is sound

Greg Gonzales, Tennessee Commissioner of Financial Institutions, speaks to a packed house Friday at the Hall of Fame Club. (T-G Photo by John Philleo) [Click to enlarge] [Order this photo]

Tennessee Commissioner of Financial Institutions Greg Gonzales told a Shelbyville audience on Friday that the state's banking system is fundamentally sound and that Tennessee's state-chartered banks have better capital rates, asset quality and earnings than the national average.

Gonzales was the guest speaker at a luncheon hosted by First Community Bank of Bedford County for its customers and community leaders. The luncheon, held at the Hall of Fame Club on the Celebration grounds, was well-attended, a fact not lost on Gonzales.

"Apparently, there's issues you'd like to hear about," he said.

Both state-chartered and federally-chartered banks operate in Tennessee; Gonzales' department supervises the former, as well as a variety of other financial institutions ranging from mortgage companies to check-cashing and title-pawn lenders.

One proposal recently made by Treasury Secretary Henry Paulson would all but eliminate state-chartered banks by requiring that banks have a federal charter in order to obtain Federal Depost Insurance Corporation protection for its depositors. Gonzales opposes that proposal.

"States have an interest in regulating their own financial institutions," said Gonzales.

"I believe most people ... probably take our state banks for granted," he said, "and that's not necessarily a bad thing." He said it means that people have a basic level of trust in those institutions.

Gonzales said his department is prohibited by law from commenting on the soundness of any specific financial institution. But it monitors those institutions, both with periodic bank examinations and with regular collection of information between those examinations. If the state determines a bank to be insolvent, it can take over to protect the customers.

The state has not had to take over an insolvent financial institution since 1986, said Gonzales, although a federally-chartered bank had to be taken over by FDIC in 2001.

Unless Paulson's change take effect, both state and federal banks are eligible for FDIC insurance. That means that any account holder has been federally protected up to $100,000 per person per financial institution. For example, said First Community Bank CEO Donna Stone, an account jointly owned by two people is protected up to $200,000 -- $100,000 for each owner of the account.

The bailout legislation approved Friday raises that limit to $250,000.

In the past, investors with more than the FDIC limit would divide their savings among more than one institution in order to make sure that they had no more than the insured amount in any one place, thus guaranteeing the entire amount of their savings. But that led to the inconvenience of dealing with multiple accounts.

A new program called CDARS allows a customer to deal with one bank but have his certificates of deposit distributed among several banks in order to fall within the FDIC limit at any given bank. The CDARS program can guarantee CDs totalling up to $50 million, said Stone.

A housing reform bill passed last July mandates the states to work together to develop a national system of mortgage licensing. If the states do not do so, the federal government will take over.

Gonzales said the current financial crisis has not kept banks in Tennessee from doing business.

"Loans are being made," he said. "Loans are being sought."

"We're all facing this challenge together," said Stone. "The only one saying the sky is falling is the helmet-maker."

Stone recalled that the founders of FCB first dealt with Gonzales when he was a young lawyer working for the state at the time the bank was being formed and chartered 20 years ago.

"I appreciate this institution and what it does for this community," said Gonzales. "I can tell you that."