I must commend Dan DeLawder and Paul Thompson on how they have guided their institutions to safety during the rougher than normal economy.

September 25, 2008
Local banks: Wall Street to suffer more than Main Street
By ABBEY STIRGWOLTAdvocate Reporter

NEWARK -- Headlines and sound bytes across the nation have painted a bleak picture of the future of Uncle Sam and his pocketbook.
While $700 billion -- the cost of a bailout plan for financial institutions proposed earlier this week by President Bush -- might be a hard number for anyone to process, Americans without strong ties to belly-up financial institutions still are wondering where, exactly, they fit into the frenzy.
"I don't see a way out of it," said Dave Moran, of Newark, who has been out of a job since April. "It's going to get worse before it gets better."
David Gosnell, of Newark, who was with Moran, said a price freeze on goods would be a solution for America's economic woes but expressed doubts about the government's ability to work itself out of debt -- a sentiment also expressed by Moran.
"It's going to be so time-consuming for change, because we're so far in debt," he said.
One thing local financial institutions are confident of, however, is that Main Street and Wall Street are two very different scenes.
"It is so different in Newark, Ohio, as far as New York City," said Dan DeLawder, president of Park National Bank. "Community banking is not in any shape or form like an investment banking company."

INSTITUTION VERSUS COMMUNITY
Where investment banks, such as the collapsed Bear Stearns and Lehman Brothers -- which last week filed for Chapter 11 bankruptcy protection -- became caught up in subprime mortgage lending crises, local institutions such as Park National and First Federal Savings require extensive documentation before issuing a loan, DeLawder said.
Not only that, but community banks function on the principle of taking deposits and lending back to the neighborhoods and are FDIC-insured, offering protection of deposits in case in case of failure.
The crisis now facing the nation's financial markets can be traced largely to financial institutions lending without requiring proof that they will be repaid, and a resulting $1.5 trillion in subprime mortgages "made largely to people who couldn't pay it," DeLawder said.
On Sept. 7, the federal takeover of government-sponsored enterprises Fannie Mae and Freddie Mac -- the Federal National Mortgage Association and Federal Home Loan Mortgage Corp., respectively -- with intention to rein in the credit crisis was a necessary move by authorities, DeLawder said.
The two institutions were established to serve as conduits for mortgage loans, he said, buying loans from banks, repackaging them as mortgage backed securities and reselling them.
When the two became stockholder-owned, they kept as assets the loans they bought and had interest rates they didn't have before, DeLawder said.
"Freddie and Fannie were at one time as pure as Snow White. Then they drifted," he said.

A WAY OUT?
The Bush administration's proposed solution now under consideration by Congress would give administration officials broad authority to buy distressed assets from financial institutions in an attempt to keep credit flowing throughout the U.S. economy.
The assets would then be sold later, Treasury Secretary Henry Paulson said. Taxpayers will get most of their money back, he said, but he couldn't estimate how much would be lost.
Ohio Sen. Sherrod Brown said Tuesday that Congress should not be pressured or rushed into approving the plan.
"I'd like to know ... how will purchase decisions be made? Will it be an open and objective process like a reverse auction? Or will the price be determined at some higher level decided by Treasury? If so, does that thaw the credit market, or does everybody sit around waiting for Uncle Sam to pay an inflated price?" he said.
Despite the high price tag, the cost to taxpayers would be higher if administration officials did nothing and the economy slowed down dramatically and led to major job cuts and losses to Americans' portfolios, Paulson said.
"This troubled asset program on its own is the single most effective thing we can do to help homeowners, the American people and stimulate our economy," he said.

FROM WALL STREET TO MAIN STREET
Local banking representatives have a great degree of confidence in the ability of community banking to hold its own amid the turmoil surrounding Wall Street -- but that doesn't mean Main Street will be untouched, they said.
A key factor to take into consideration is consumer confidence, said First Federal Savings president Paul Thompson.
"We have been getting some calls from customers and potential customers alike, asking us where our deposits are," Thompson said. "I can assure you that First Federal is as strong as ever."
DeLawder offered a similar perspective.
"I've been here almost 38 years, and I know it intimately," DeLawder said. "We open our doors every day for business, looking for more."
He said the U.S. economy has seen hard times before and is well equipped to bounce back from its present struggle.
"This is not armageddon. The world has not ended," he said. "It's just in the money centers of the country, there's a price to pay."
Lin Ba, an economics lecturer at Ohio State University-Newark, estimated the housing market needs at least a year to bounce back.
"For the whole gigantic housing market to get healthy, that should take at least a year," Ba said.
But the situation is not a complete loss, either, he said -- there are lessons to be learned.
"On the positive side, we all learn big lessons," he said. "We cannot let this so-called free market run totally free."
The Associated Press contributed to this report.