This summer there has been an endless flow of news stories across the state that may have given many Californians the mistaken impression that we are in the midst of a financial meltdown, centered on the faltering health of our banks. Headlines following an infrequent bank failure in California this summer asked readers, is your bank next? Is your money safe? While California’s economy is under-performing in part due to fall-out related to failures from the sub-prime mortgage lending situation, the banking industry in California remains strong, safe and secure. In fact, capital levels at California banks are at or near all-time highs, with double the amount of capital today as compared to the last significant economic downturn in the early 1990’s.
First and foremost, customers’ deposits at traditional banking institutions are protected by Federal Deposit Insurance Corporation (FDIC) insurance, up to $100,000 with additional protection for joint accounts and $250,000 on individual retirement accounts. The FDIC has more than $50 billion in assets available to protect depositors, and in the 75-year history of the FDIC, not one cent of customer money in an FDIC-insured bank account has been lost.
There has also been some confusion in the general public surrounding certain struggling financial companies that present themselves as if they are like a bank. There are many financial firms out there whose function, purpose and regulatory oversight differ vastly from traditional depository institutions.
Commercial banks and savings banks by contrast are among the most stringently regulated industries in the country. Nationally chartered bank performance data is collected quarterly and continually monitored by a primary regulator and the FDIC and then onsite examinations are conducted every 12 to 18 months or more frequently if warranted. State chartered banks in California are supervised by the Department of Financial Institutions along with the FDIC.
Additionally, banks have a demonstrated history of making well-underwritten residential home loans that take into consideration credit history and the borrower’s capacity to repay the debt. Banks, of course, are not in business for the purpose owning homes and therefore want to help Californians purchase or refinance a home that they can afford to live in, and most importantly, afford to keep.
Over the past year, California bankers have been actively involved in efforts to help at-risk homeowners stay in their homes. Our members have participated in dozens of foreclosure prevention workshops sponsored by Governor Schwarzenegger’s administration in regions all across California. These workshops are designed to provide valuable information and resources to homeowners who are having trouble making their mortgage payments. Many of our members are also members of the HOPE NOW Alliance, a broad-based coalition of credit counselors, lenders, investors and other industry participants whose top priority is to proactively reach out to and assist homeowners in trouble. We encourage anyone who is having difficulty making their mortgage payments to call their lender and discuss possible alternatives.
This past July, California’s banks were proud to be a part of a bi-partisan compromise on Senate Bill 1137, a collaborative and comprehensive measure that provides true relief to homeowners in trouble. This legislation requires lenders to contact homeowners and explore restructuring options with them before the foreclosure process is initiated. It strikes an important balance, providing relief to homeowners without limiting access to credit or causing market disruptions.
California banks have also been active supporting legislation that provides greater consumer protection, most significantly, improving and increasing the structure over mortgage brokers, to bring them closer to the high standards followed by other lenders, including banks. Banks have also been staunch supporters of legislation that deters fraud in the mortgage industry by individuals who may have been less than honest with borrowers.
As we have done in previous stressful times, California’s banks are weathering the current economic and financial storm and will continue to do so. Be assured that we have the necessary resources and capital to continue to serve the needs of our communities, and provide the same level of high quality and trusted service that is a trademark of California banks.