Changes in Attitude Inject Optimism into State Banking Industry / Says Evans

Article excerpt

The big surprises in Oklahoma banking appear to be behind us, and changes in attitude are beginning to inject optimism into the industry, according to William Evans, vice president and manager of the Oklahoma City branch of the Federal Reserve Bank of Kansas City.

"The part of the healing process is to decide you are going to get well," he told members of the Downtown Lions Club of Oklahoma City Tuesday. However, while the healing is underway, the entire industry in Oklahoma is not yet out of the woods, he said.

Over the last five "lean" years, credit sources have dried up for Oklahoma banks,and the Federal Reserve was left to provide funds to clear up short-term liquidity problems, Evans said.

Historically, the Federal Reserve Bank has played the role of "lender of last resort" when banks have nowhere else to turn for credit.

Oklahoma banks have found it more difficult to maintain liquidity because of the products of a sluggish economy, he said. Customers have been unable to meet their debt obligations and have fallen into "slow-pay situations," Evans said.

"A bank may be perfectly sound," Evans said, "with good credit, but it can run into liquidity problems. Banks have credit, but the cash flow of the customer has slowed down. This condition has continued longer than we would have guessed."

Outside of Oklahoma, where banks here could normally turn for loans, the sources have dried up, because of the perception of the Oklahoma economy, Evans said.

"Because of that impression, it is easy to red line all Oklahoma financial institutions," he said. However, the fact that a bank is unable to obtain credit from other institutions may have nothing to do with its credit-worthiness.

"It has to do with the perception of Oklahoma - it's not worth the risk," Evans said.

The Federal Reserve Bank loans money to depository institutions in exchange for assets as collateral. If the institution fails before the loan is paid off, the insurance funds buy back the assets which are more valuable than the loans. …