Cautious optimism: Banker predicts 18 more months of ‘local’ recession

July 2010 Posted in Business

By Kathy Cook HunterBill Humphreys, president and CEO of Citizens’ Bank in Silverton.

Oregon banker Bill Humphreys remains optimistic as he faces what he considers a continuing recession in this state.

“Here’s why I have come to this conclusion: Every recession has ended – name one that hasn’t ended,” Humphreys said. “We’re very good in this country at managing ourselves out of trouble. We’re creative, adaptive. We’re strong and we can do it.”

The president and chief executive officer of Citizens Bank in Silverton, one of 13 community bank branches of the Corvallis-based chain, was the guest speaker at the July luncheon meeting of the Silverton Chamber of Commerce. Using slides, he illustrated what has happened and is still happening to Oregon’s economy.

“Where we are today is in recession locally, although some economists say it ended last fall,” said Humphreys, whose opinion differs. He said the local recession will go on for 18 more months based on “unemployment is double its base and in double digits at 12 percent regionally.”

He noted employment figures in all other industries have decreased, but government employee numbers are holding and even growing. “But you can’t build growth on government alone,” he said.

People who owe mortgages on their homes have had their home equity “wiped out. It’s a reversal of the so-called ‘wealth effect.’”

Another slide addressed the debt a business faces when receipts drop at an extreme rate, which led to comments on the growing rate of national debt.

“It’s a troubling circumstance we’re in,” Humphreys said, “one that needs to be reversed.”

Although community banks like his are not in severe trouble, he said, large national banks are. The large bank industry is responsible for what has happened to the U.S. economy and its downward spiral in 2007. Now the large banks are losing money and are undercapitalized, and they’re getting pressure from the government to de-leverage their balance sheets, which they shrink (on paper) by not making loans. They are consolidating as a result, and there have been more bank failures.

In contrast, he said, stable community banks are well capitalized.

Humphreys explained savings earnings at most banks are so low – currently about 1 percent and lower – is a result of the Federal Bank paying 2.5 percent interest. His prediction? “Plan to see in the next five years interest rates stay down because they must stay down.”

Even so, “Small banks such as Citizens have a better position,” he said, partly because many community banks have made wiser loan decisions.

With a mission to promote economic growth and stability in the community, Humphreys’ bank is increasing its loans, as are other small banks.

“We want to be the best corporate citizen as we can possibly be,” Humphreys said.

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