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Bailout a boon for small banks: NYBA

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The recovery package approved by Congress Friday is targeted at some of the nation’s largest financial industry players, but it will also create positive economic ripples for community banks in Queens, banking executives say.

Mike Smith, president of the New York Bankers Association, welcomed the passage of the $700 billion rescue plan because it should help to alleviate some of the credit issues that could pose long−term problems for local institutions.

Whether or not the banks issued subprime loans or invested in institutions such as Fannie Mae or Freddie Mac, all were all in danger of being forced to shut out their clients from loans.

“What we were seeing was that our banks were making credit available, their deposits were safe, but they were seeing the real potential for credit restriction down the line,” Smith said.

In addition to the economic guarantees provided by Washington, the bailout measure has aided community banks at a more psychological level, Smith said. An increase in the FDIC’s insurance level for bank deposits to $250,000 from $100,000 along with the slated improvements to the credit system should give consumers more confidence to save their money and take out loans.

“There was a concern that without action, we’d see this confidence erode,” he said.

Bill McGarry, president and chief executive officer of Ridgewood Savings Bank, agreed. He said his bank has been reassuring its clients for the last two weeks that their money is secure and for good reason.

Ridgewood did not issue subprime loans or invest in the faltering lending institutions and did not raise money in the public markets, he said.

“When you get into these situations, the public becomes frightened. There is a tendency to rise to fear when they see large banks close,” McGarry said.

Although he said he was still trying to go over the 330−page rescue plan, the head of the 87−year−old bank said he has faith that local institutions will play it smart with their clients’ money.

“I think community banks have taken the high road. This is Wall Street, mainly,” he said, referring to the crisis unleashed by the country’s investment banking giants. “They are the ones that got into marketing these toxic things and selling them around the world.”

Reach reporter Ivan Pereira by e−mail at ipereira@timesledger.com or by phone at 718−229−0300, Ext. 146.

Posted 6:38 pm, October 10, 2011
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