Banks might want to tweak Arby’s catch phrase.
Instead of “We have the meats,” they could be spreading their message of calm in the face of COVID-19-related economic downturn by saying “We have the money.”
While other companies were announcing layoffs and furloughs because of a sudden drop in economic activity, Tompkins Bank of Castile announced it is giving essential branch employees a 25 percent wage hike and providing a loan program for other costs they might be incurring due to the pandemic, such as loss of a spouse’s job. Buffalo-based M&T Bank this week also announced a 15 percent wage hike for its front-line employees for the duration of the health crisis.
With branches closed to walk-in business, you’d think banks would be laying people off, too, but they’re not, saying they’re an essential business and need their staff—while taking precautions—to continue to provide customers access to capital. Even though they’re not seeing as many people in person, they’re dealing with a crush of phone calls as people try to sort out payments and seek deferrals, say local bankers. And they continue to allow in-person visits, but only by appointment.
Virtually all local banks and credit unions have given the ax to customer fees, including those for late loan payments or bounced checks; promised quick $5,000 personal loans; agreed to defer loan and mortgage payments for those in need; and issued individual guidance for their wealth management clientele.
“If it’s a fee we’re waiving it. If it’s a deferment, we’re granting it,” said Frank H. Hamlin III, president and CEO of Canandaigua National Bank & Trust Co. “We’re deferring principal and interest on mortgage loans…to allow people to focus on what’s important.”
With fewer payments, and less interest coming in, how does a bank survive? The quick answer is reserves.
After the economic crisis of 2008 in which the federal government had to bail out banks (most local banks didn’t take the bailout), banking regulators started requiring even greater amounts of money held in reserve than ever before.
The same goes for federal credit unions.
“We have different charter, but we also maintain reserves,” said Faheem Masood, president of ESL Federal Credit Union. “We are extremely well capitalized, one of the best capitalized credit unions in the country.”
Besides the floor on reserves that the federal government requires, raised since 2008, ESL has always been conservative about its reserves, he said. As a result, “We are well, well, well above the reserves required by the regulators.”
So the banks and credit unions have the ability to take a hit caused by people failing to pay back loans on time or defaulting altogether.
“It makes sense that the entire community is going to have to grunt through this and we will too. That’s our role in this community,” Hamlin said. “Our income will go down and that’s OK.”
Financial institutions generally were in a better situation before this health crisis hit than before the lending crisis of 2008, said Martin K. Birmingham, president and CEO of Five Star Bank.
“Relative to 2008, the banks are all much stronger than they were,” Birmingham said. In fact, as they entered 2020, the outlook was really quite good, with reasonable growth. “We made plans for March that are no longer relevant.”
That was true for financial institutions generally, Hamlin said. “ For the most part, all banks are well positioned… to go ahead and blunt some of the effects of this.” Similar to Five Star, the bank has more reserves than required, owing to an adjustment they didn’t make when the corporate tax rate declined. “My team had our eyebrows raised on that. We didn’t restructure around the new tax requirement because we figured the new tax would be taken away.”
Unlike 2008, when a crash followed a mortgage crisis of Wall Street’s own making, this crisis is one that squarely hits Main Street, Birmingham noted. Efforts to avoid spreading the COVID-19 virus are causing businesses to close, lay off employees and potentially go out of business.
“It’s clear that our federal government is going to follow through with a program that is aimed to address the impacts,” Birmingham said. “We’re starting to receive guidance and communication from our regulators in terms of actions we can take to support and continue to support consumers and businesses.”
Indeed, the Federal Reserve has reduced interest rates on loans, and told banks they have the cash to back them if they need more liquidity.
Hamlin said, “The Federal Reserve and federal agencies that oversee us have pretty much been backing these plays.” They’ve said banks should offer deferments and the Fed will “do whatever is necessary for us to calm people down. We can bring down the noise level on that.” As for the accounting and the regulations, Hamlin said, “We’ll figure out the regulations. We’ll figure out that in the background.”
Masood added,”The Federal Reserve has been very aggressive in putting together actions that have worked in 2008, adding liquidity into the market to make sure the markets freely operate.”
To reassure customers, Hamlin made a video letting them know that the bank is there to help. It’s available on CNB’s website and has been airing on local television stations.
Birmingham said he hopes federal regulators will also allow more reporting flexibility for banks so they won’t get dinged at the regulatory level for allowing more customers than usual to be delinquent on their payments. If those changes aren’t made, ”that would mean the bank would take the loan and would have to increase its risk profile and therefore allocate more capital to it and potentially change its earnings or ability to earn interest revenue off of that loan.”
All three local bankers stressed it’s important for consumers to contact them if they are in financial distress.
“In the coming month as we cycle through payment dates, that will become more apparent,” said Masood. “We’re trying to encourage customers to let us know that and we’ll be taking action to defer payments.”
The bankers also noted the important role financial institutions play in local economies by keeping capital flowing even as the financial system stutters and slows. And while all sounded confident about this negative cycle being followed by a positive one just as has happened countless times before, they also said the depths of the financial crisis are still unknown. None wanted to make firm economic predictions, given the still-developing nature of the crisis.
“We’re as a society and as a country really in uncharted territory in terms of what can happen,” Birmingham said. “We are really in unprecedented territory. Not since World War II have we had such a dramatic need for collaboration.” Nevertheless, he said he could envision a turnaround by the end of the year, assuming the health crisis doesn’t last too long.
Masood offered, “Even in the worst of circumstances, I think through a number of cycles, we have shown our economy is pretty resilient to bounce back.”
Both Five Star and ESL have been around for generations, but Canandaigua National is the granddaddy of local banks.
“We’ve been in existence 135 years,” Hamlin said. “We’ve been through wars, the S&L crisis, every stock bust you can imagine. The fact is, there will be commerce. There are people who are buying things and people selling things.”
Even the plunging stock market, which has reduced the value of investment portfolios, now offers opportunities for those in a position to buy, his officers added.
Banks may actually grow during this time because of the calm stance they’re taking, offered Vincent K. Yacuzzo, chief financial officer at CNB.
“Long-term our organization will come out stronger,” Yacuzzo said. “We’re connected to the local community unlike some other larger institutions. By tripling down on communications, we’re strengthening relationships.”
Hamlin dismissed economic predictions in favor of focusing on the here and now of the crisis.
“Why don’t we calm down and let’s focus one step at a time: Make sure everyone gets fed and cared for,” he said. “If we all agree to do that, everything else will fall into place.”
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