Congressional panel comes to Greeley

GREELEY — It is a program “of unprecedented scope, scale, and complexity.”

That is how the Office of the Special Inspector General for the Troubled Assets Relief Program described TARP in its most recent quarterly update to Congress. TARP is such a massive undertaking that several oversight bodies have been assigned or created to keep watch. In addition to the Inspector General, the Government Office of Accountability has issued five reports. The Congressional Oversight Panel, which was formed for the specific purpose of reviewing TARP issues, produces reports monthly.

The COP convened a field hearing on July 7 in Greeley, the only such hearing it will hold focusing on the availability of credit to the agricultural markets and how — or if — institutions that have TARP funds might be meeting that need. Its report is due out July 21.

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“We came to Greeley because it’s a microcosm of the American agricultural community,´ said COP Chairwoman Elizabeth Warren. “We came to learn.”

Warren said that she was aware of the issues facing Greeley, such as the impact from the closure of New Frontier Bank, only from reading newspapers.

Warren, a Leo Gottlieb Professor of Law at Harvard University, is one of five appointees to the COP. The others are Congressman Jeb Hensarling, R-Texas; Richard Neiman, New York state’s superintendent of banks; Damon Silvers; associate counsel for the AFL-CIO; and former Sen. John Sununu, R-New Hampshire.

The group has published nine reports on topics ranging from basic accountability for the TARP program to the impact of bank stress-testing and, most recently, why Treasury has accepted TARP repayments at a discount. Field hearings have become an important aspect of getting a ground-floor view of the program.

“Most of the hearings have focused on credit constriction,” Warren said.

New perspective

In Greeley, the panel got an earful on that topic. Several local agricultural professionals, most former New Frontier Bank borrowers, described their plight. Official testimony came from both ag professionals and local ag lenders:

• Michael Scuse, USDA deputy undersecretary for farm and foreign agricultural services;

• Marc Arnusch, owner of Marc Arnusch Farms;

• Les Hardesty, owner of Painted Prairie Farm and the Cozy Cow Dairy;

• Mike Flesher, the executive vice president of Farm Credit Services of the Mountain Plains; and

• Lonnie Ochsner, senior vice president at New West Bank.

“In Greeley, we heard people talking about the importance of sustainable business models,” Warren said. “It was a new perspective.”

Both Arnusch and Ochsner dedicated part of their testimony to discussing the importance of prudence — in both ag business and lending practices. Darrell McAllister, president of Bank of Choice, spoke during the community comments and asked that TARP funds be given to local banks so they could lend it in the community.

“(TARP funds have) really not been made available to community banks,” McAllister said in an interview with the Business Report.

Bank of Choice originally applied to the Capital Purchase Program, but pulled the application as the conditions of the program became blurry. McAllister said that in light of the New Frontier closure, which left a $60 million capital gap, Bank of Choice resubmitted its application.

With TARP funds, Bank of Choice would have the option of looking at some bigger lending needs. As the market stands today, McAllister said the bank is not even able to consider larger deals.

“One of the repeated themes in the field hearings is that community banks feel that their access to (TARP) has been secondary to the larger financial institutions,” Warren said. “That’s a problem because community banks are the ones that provide most of the small business lending.”

Warren said that the COP asked the Treasury about the disparity, and the answers have changed repeatedly. First, it had to do with the backlog and that it was necessary to get funds out to the large banks first. Next, it was that a different setup was needed for smaller institutions.

“The Treasury has made it clear that only the largest financial institutions are too big to fail,” she said, while the small ones are left to flounder and die.

Capital Purchase Program

Some smaller banks have already taken part in the Capital Purchase Program. In Colorado, several that applied early saw the funds come early in the year (see chart above). Scott Wylie, president of First Western Trust Bank, explained that the Federal Reserve, which is one of the regulators First Western reports to, asked the bank to consider the program.

“We were told by the Fed that we were a perfect candidate for the program,” he said.

Wylie said that the Fed described the program as one designed for growing, sound banks to get access to low-cost capital with the aim of increasing amount of credit available.

First Western was approved quickly and received its funds in February. The $8.56 million it received translates into additional lending capacity of around $85 million.

Then the political climate changed as more programs were added to TARP, and Wylie felt that created a stigma.

“It’s created a real confusing situation,” Wylie said, adding that First Western is discussing early repayment to avoid it.

In order to repay the funds, banks must raise the same amount from other sources. That would mean a higher cost for capital, which in turn would translate to less lending capability and, according to Wylie, missed economic opportunities.

Charles Forster, president of Buena Vista-based Collegiate Peaks Bank, had a similar experience with applying for funds through the Capital Purchase Program.

“For us, the process itself was relatively easy,” he said. The bank started looking at the program in early December.

“We felt that, with some expansion we were looking at and opportunities to make additional loans, that it made sense to apply,” he said. “We decided we could live with the terms and conditions.”

Forster knew that the funds could be paid back early, although because of associated costs it’s not the best option and Collegiate Peaks is not currently mulling an early payback. Forster admits that the terms and conditions can be a bit of a moving target, now, and like Wiley, he feels that receiving the funds carries with it a stigma.

“At this point in time, we have no heartburn related to TARP,” Forster said. “We saw this as an opportunity to add dollars to equity, which allows us to increase our legal lending limit.”

Discouraged, frustrated

While a few have received funds others are still feeling discouraged, according to Barbara Walker, executive officer for the Independent Bankers of Colorado.

“For the community banks that want TARP, yes, they are frustrated,” she said.

For the community banks that do not want or need to participate in the program, they are not making loans because of regulatory landscape. Community bank regulators are having little or no tolerance for working with customers experiencing hard times, so loans are being classified as distressed before the banks and customers can find a reasonable solution. As a result, regulators are telling banks they need more capital.

“This is not new — it’s been going on for six months. It’s what we are calling regulatory double-speak,” Walker said. “From our point of view, the biggest thing the regulators could do for community banks is to show forbearance in their regulatory examinations.”