Local bankers urge lawmakers to support bailout

McALLEN -- Local bank leaders warned South Texas lawmakers this week that failing to pass a bailout package to stabilize the nation's shaky financial system could jeopardize the state's strong economy.

Urging Democratic U.S. Rep. Henry Cuellar to ignore the public's overwhelming disapproval for the measure to rescue banks saddled by shaky mortgage assets, banking leaders said in a conference call with the lawmaker on Tuesday that they fear a collapse of the financial system if Congress fails to approve the measure.

"If as a result of this banking or this economic crisis, everybody runs to the bank to get their money, we could burn through all that cash pretty quickly if people really panic," said A. Jabier Rodriguez, president of Pharr-based Lone Star National Bank. "At the end of the day, after we've done that, the bank is through."

Rodriguez and other supporters of the bill argued that failing to stabilize the tumultuous stock market would lead to further uncertainty and make banks even more reluctant to extend credit. That could stop business growth, increase unemployment and bring the nation's economy to a screeching halt as people are unable to get loans or credit to pay for anything.

While banks are concerned about the future, their customers are similarly anxious. Banking officials said they have all heard stories of customers losing money on 401(k) investments. But at the same time, the bank leaders said, many customers appear to have a rather limited understanding of the crisis and seem to react only to the dollar figure attached to the bailout package.

"It puts a freeze on lending because everybody is paranoid," Rodriguez said of the situation. "We're toying with the very fiber of our economic community."

Carlos Garza, president and chief executive officer of McAllen-based Inter National Bank, echoed those concerns, adding that the collapse of the worldwide economy is possible without some form of government intervention.

"All of a sudden as a banker you start to think ... ‘Maybe I ought to curtail my lending,'" Garza said. "Once we all start to think that way, guess what. Our local economy can't continue to grow."

Bankers also said they're confident the U.S. government will get a good deal taking the bad mortgage assets from the banks and could turn a profit.

Banking officials are asking congressional leaders to swallow a bitter pill in an election year, however. Before South Texas lawmakers split on a failed $700 billion emergency bailout on Monday, dozens of locals had been urging them to vote no.

Cuellar, D-Laredo, and Rep. Solomon Ortiz, D-Corpus Christi, voted against the package earlier this week. U.S. Rep. Rubén Hinojosa, D-Mercedes, was the lone Valley congressman to support the measure.

Republican Sens. Kay Bailey Hutchison and John Cornyn, both R-Texas, approved a considerably sweetened $700 billion emergency bailout package late Wednesday during a 74-25 Senate vote in favor of the measure.

Both Cuellar and Ortiz indicated after the earlier measure was defeated that they would consider voting for a bailout package if it included protection for homeowners facing foreclosure and if it resembled a more comprehensive economic stimulus package.

"I think everybody realizes that we're trying to subsidize ineffective competitors (to the local banks) but they're also tied in together," Cuellar said. "I want to make this bill better. I certainly want to support it."

He added that he voted against the first package because of confusion over a passage concerning insurance for the federal government's purchase of the bad mortgage assets. The bill had a provision that basically said if the government lost money over five years and was unable to sell the mortgage assets for a profit, financial institutions would then compensate the government for the loss.

The bill did not specify if that would include banks that didn't receive the bailout money, such as local, Valley-based institutions.

"We've got a lot of banks in the Valley that have been doing a good job," Cuellar said. "We don't want them paying for the sins of bad companies on Wall Street."

Despite the nationwide economic crisis, local and regional Texas banks have largely escaped unscathed. Garza said Inter National Bank is expected to post record profits this year, and Laredo-based International Bank of Commerce's filings with the Federal Deposit Insurance Corp. reveal the bank has grown its capital and its asset base.

"The problem with not approving this bailout is our great Texas economy will be dragged down by national events," Garza said. "We cannot continue to think we'll be immune forever."

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Sean Gaffney covers business, the economy and general assignments for The Monitor. He can be reached at (956) 683-4434.