All eyes are on regional banks as one of the biggest hits to the financial industry since the Great Depression landed close to home Sept. 15 when Bank of America announced it would purchase Merrill Lynch for $50 billion. As of 2007, the failing company had four branches and 75 employees in the Tri-Counties.

In recent months, the merciless economy has crippled much of the financial sector, leaving even the most goliath institutions on the brink of collapse, including Calabasas-based Countrywide Financial, Pasadena-based IndyMac and more recently, federal insurers Freddie Mac and Fannie Mae.

In response, Santa Barbara-based Montecito Bank & Trust has set a presentation to quell dubious notions about the state of the banking industry. “Fact, Fiction and Reality: What You Really Need to Know about Banks” was scheduled Sept. 17 at the Lobero Theatre in Santa Barbara.

“There was so much confusion and misinformation in the marketplace – consumers were confused, businesses were confused, the general public,” said Montecito Bank & Trust President and Chief Executive Officer Janet Garufis. “There’s an array of information from lots of different sources and they needed some straight facts about how to make good decisions about what’s going on, how do they know if their bank is really safe?”

Bill Watkins, executive director of the University of California, Santa Barbara Economic Forecast Project, and Edward Carpenter, chairman and chief executive officer of investment bank and consulting firm Carpenter and Co. in Irvine, were chosen as the featured speakers at the event.
“Most of the failures we’ve seen … have been brokerage houses and mortgage houses – something aside from the traditional bank,” Watkins said in an interview with the Business Times.

Garufis said a recent article written by Watkins that highlighted misleading news headlines on the economy made him a perfect candidate to lead the presentation.

“We’re such a sound bite kind of nation, there’s so much coming at us at such a high frequency of speed, we don’t have the time or tools to drill down and figure out, ‘What does this mean to me?’” Garufis said.

One problem, Garufis said, is the media tends to lump smaller banks into the same category as all financial institutions. Though many of the institutions that recently have failed include a banking division, they failed because of other aspects of the company, like subprime mortgage lending, she said.

Watkins said most of the small, regional banks, or “places you and I might have deposits,” don’t face the same risks as other kinds of financial institutions. “Small banks are pretty simple institutions and their exposure to these subprimes are pretty small.”

Since the Federal Reserve System was established in 1914, the country’s financial structure has become much more complex, Watkins said, adding that if the fed plans to insure very large financial institutions, it needs to put explicit regulations in place to limit what they can do.

“The financial structure has become much more complicated and the regulatory environment hasn’t matched the growth and complexity of the financial sector and institutions,” he said.

Larry Ward, president of Paso Robles-based heritage Oaks Bank, said individuals should be aware that their deposits, up to certain limits, are insured by the Federal Deposit Insurance Corp., or FDIC.

“There is safety with the fact that the FDIC approves insurance to people who deposit money with financial institutions – that doesn’t distinguish between large or small banks,” Ward said. “What we’re hearing on Wall Street, this is a phenomenon that is leverage-based and strictly a phenomenon with large financial institutions.”

Although Watkins said there are a few bank failures every year and the number of banks has been declining over the last decade, he also said that the amount of money the average person keeps in the bank would likely be insured. In addition, he said a small bank that failed would likely be taken over as a subsidiary of a larger institution and operation would continue uninterrupted.

“People are changing their behaviors, they’re moving money from one bank to another bank … making choices about what they do with their money that are different from what they would’ve made before,” Garufis said. “The headlines have made us think about something they don’t normally. We’re paying more attention to it as consumers and that’s a good thing – people will know more tomorrow than they did yesterday.”

The one-hour event has been scheduled to air on Cox 8 at 7 p.m. Sept. 21, 22, 24 and 26.