Nagging questions about New Frontier Bank
New Frontier Bank made the front page of yesterday’s Wall Street Journal with an article titled “Town’s Friendly Bank Left Nasty Mess.”
What is left out of the article is just how bad the economic impact will be. Good and bad loans will be packaged and sold for pennies on the dollar to large investment firms or hedge funds. According to the FDIC, the terms of the original loan remain in place unless borrowers are as little as one day late on one payment. That note may get called in. Can’t pay? Tough. You aren’t negotiating with your local banker anymore. Loan managers may begin foreclosure and sell off the assets. From what I understand sale of bundled loans will begin later this summer. We will begin to see the fallout by the end of 2009. So much for our late year recovery.
Denver gets our water. We get property devaluations, dried up farm land, double digit unemployment and a depressed tax base. Despite how bleak that picture looks, we will recover. It may take 3 to 5 years but we will recover.
Something to keep in mind, bank regulators audited NFB loans every six months and never found a problem with them until the end of 2007 when the economy was headed south. NFB complied with new regulations but the economy continued to tank.
According to bank insiders, at the end of 2008 NFB applied for $42 million in TARP funds but Governor Bill Ritter would not sign a letter of recommendation so FDIC Chair Shelia Bair wouldn’t approve the request. A request to Ken Salazar to intervene got little response during last fall’s busy campaign season.
Also according to those involved in negotiations, the FDIC nixed a plan that would have brought in much needed capital from an investment group out of Boulder. News reports say that the deal “fell through” but some of parties involved insist that is not the case claiming the FDIC targeted NFB for closure.
Question number one: If NFB had been approved for the TARP funds, would that have improved the bank’s balance sheet enough to weather the current recession? In other words, would $42 million in taxpayer dollars have saved the $670 million that it now is costing to fix the mess?
Question number two: If the FDIC hadn’t stopped the sale of NFB to the Boulder group, would NFB have been able to survive — saving taxpayers millions and Northern Colorado from the pending economic devastation.
I do not support bailouts. The worst thing about them, is that the government gets to pick winners and losers. Clearly, Northern Colorado has been tagged a loser. It’s also clear that those in charge underestimated the pain of closing NFB versus keeping it afloat with TARP money. We are in uncharted waters. In my opinion, neither the FDIC, Governor Ritter (he signed the closure order), nor our congressional delegation (Congresswoman Markey and Senators Benett and Udall) ever grasped the magnitude of the situation. The economic multiplier effect will be in the billions of dollars. This is our economic tsunami.
The collapse of NFB will be the biggest issue in Northern Colorado (especially the 4th CD) of the 2010 election.
For those who want to skewer NFB management, I understand your anger but I don’t want to use them as a poster child for why the FDIC should shutter all community banks. NFB isn’t the only one (and there will be more). Community banks are imperative to economic growth in small communities that don’t have connections to national financial institutions. I think this quote from Windsor Mayor John Vazquez sums it up perfectly, ”At community banks it’s not all about performance and projections…It’s about belief in the individual, the guy you sit next to in church.”