Federal Reserve imposes restrictions on 2 banks
OMAHA, Neb. — The Federal Reserve has imposed restrictions on two correspondent banks in Nebraska and Missouri owned by Midwest Independent Bancshares Inc. of Jefferson City, Mo. because of concerns about the banks’ exposure to the commercial real estate market.
The agreements released Thursday put limits on the Nebraska Bankers’ Bank of Lincoln, Neb., and Midwest Independent Bank of Jefferson City, which together have about $400 million in assets.
Those banks provide banking services for roughly 550 financial institutions throughout the Midwest by helping community banks finance loans that exceed their lending limits and by lending banks money. Midwest Independent and Nebraska Bankers’ banks are two of about 20 so-called “bankers’ banks” nationwide.
Regulators want the banks to develop stronger credit risk standards, adopt comprehensive ethics policies, improve capital reserves and draft realistic budgets for 2009.
A Federal Reserve spokesman declined to comment on the restrictions.
L.D. McDonald, CEO of Midwest Independent Bancshares, said his banks are responding to the challenges of the recession and the delinquencies in commercial real estate loans. McDonald said many of the loans bankers’ banks help finance are commercial real estate loans, which is part of why regulators questioned MIB’s banks.
“We’ve been under increasing scrutiny at the national level because of our business model,” McDonald said.
FDIC officials have said commercial real estate loans could continue to be problematic for some time. Hundreds more banks are expected to fail in the next few years largely because of souring loans for commercial real estate. The number of banks on the FDIC’s confidential “problem list” jumped to 416 at the end of June from 305 in the first quarter.
McDonald said he believes his banks will be able to overcome the current challenges.
“We’re going to continue to serve our customers as we always have,” McDonald said.
John Munn, director of Nebraska’s Department of Banking and Finance, said regulators became worried about Nebraska Bankers’ Bank primarily because of the business model and not because of concerns about the way the bank has been run.
Bankers’ banks tend to deal with fewer, larger loans, so if there’s a problem with any loan it has a bigger impact on the overall portfolio, which tends to be less diversified than a conventional bank’s loan portfolio.
“There’s just special challenges to that business model right now,” Munn said.
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