Equal Protection

Stemming from the financial distress of our fellow Americans on the Gulf Coast, financial institutions are poised to absorb a significant share of the uninsured losses in real estate and business assets. Thus, the Independent Community Bankers of America (ICBA) has requested a bailout, suggesting that the federal government set up a special fund to purchase impaired loans of borrowers affected by the disaster -- purchased at above-market rates, I presume.

That's hardly fair. Consider two business owners who have been completely wiped out - one with no debt, and one with a bank loan. Why should the federal government play favorites between the 100-percent owner of the first business and a creditor of the second business? Why should taxpayers make the banks whole, but not local businessowners?

If containing the financial damage means that some banks fail and their investors lose out, so be it. The FDIC guarantee will cover most depositors, and the financial markets can handle a head-on hit. Municipalities, hospitals and small businesses cannot.

Scarce reconstruction funds have far better uses than to prop up banks with an undue concentration of geographic risk. Furthermore, there are plenty of other banks that can step in to finance the reconstruction, as well as hire all of the displaced bankers who know the area.

If a bank needs help to manage a liquidity crunch before insurance payments come in for reconstruction, that's one thing. But a taxpayer-financed bank bailout is too much. We live in a troubled age when disaster must be expected and planned for, not ignored or wished away. This does not bode well for the community-based financial institution, which, in terms of risk exposure, can no better withstand a large local disaster than can a family-owned restaurant or laundromat.

To be sure, the community banks were as capable as anyone of restoring service after the storms. But if banks in affected areas are going to need a federal bailout every time there's a hurricane, earthquake, plague, pestilence or dirty bomb, they're doing more harm than good.

Banking is a risky business -- take the hit and keep moving.

Ivan Schneider,
[email protected]