The Catch-22 of Accepting Fed Money

[Dover]

'Need' Becomes Relative with Treasury Cash in Play
American Banker | Monday, November 3, 2008

By Alan Kline

Like hundreds of other banks, International Bancshares Corp. in Laredo, Tex., is weighing whether to apply for the Treasury Department's Capital Purchase Program.

The $11.5 billion-asset company is concerned that, if it does not bid for the $200 million of Treasury money for which it is eligible, it could lose business to banks that do.

"Even though we don't need the capital, all these other banks are going to be that much better capitalized," said Jonathan Nixon, International's general counsel. "Bank of America is taking it, and now they are going to be supercapitalized, and we are competing against them every day."

Competition is just one issue that executives at small and regional banks are mulling as they assess the pros and cons of seeking a share of the $250 billion the government is investing in exchange for preferred shares.

Daniel Blanton, the president and chief executive of the $1.4 billion-asset Southeastern Bank Financial Corp. in Augusta, Ga., said he worries that if his two-bank holding company — which is already well-capitalized — decides against accepting Treasury money, its capital ratios will look artificially low in relation to peers', and examiners will take notice.

"If regulators encourage you to take it and you don't, how are they going to view it?" he asked. "Are they going to redefine what 'capital adequacy' means?"

Customer reaction is also on his mind. "They might say, 'If you take the capital, that means you're all in trouble,' " he said. "Or, they might say, 'If you don't take it, you're all in trouble.' It's a Catch-22."

cont'd
http://www.americanbanker.com/printthis.html?id=200810317X74Q4Q8