Executives at Baltimore's regional banks said they're hopeful that the federal government's plan to buy stakes in banks will help ease the economic crisis by stimulating lending and restoring consumer confidence in the financial system.
Under the voluntary plan announced yesterday, the U.S. Treasury Department will purchase as much as $250 billion of preferred stock in up to thousands of small to large banks and thrifts as a way to spur lending to consumers and businesses.
At a time of heightened anxiety about the stability of financial institutions, some banking officials and experts welcomed the action.
"It's given us some cause for optimism," said Edwin F. Hale, chairman of Baltimore-based First Mariner Bank, which has seen its profit pulled down by losses on bad real estate and construction loans. "We're going to go after it vigorously."
The worsening economic crisis has brought down investment banks, sent stocks plummeting and prompted many Baltimore-area banks to launch unprecedented campaigns to reassure customers about the safety of their deposits. Last week, the FDIC raised its cap on federally insured deposits to $250,000 from $100,000.
It's still unclear how much capital will be available for each financial institution based on yesterday's announcement by government officials, including Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke. But Joseph Cicero, First Mariner's chief operating office, said that such an infusion would help bolster capital ratios, and "you will be able to lend more comfortably."
Other banks said they were still digesting the details of the plan.
"From the bank's standpoint ... these dramatic steps were necessary to instill more confidence in the financial markets," said Vicki Cox, a spokeswoman for Provident Bank, the Baltimore area's largest Maryland-based bank. Provident executives will study the plan, she said, and decide whether the proposal makes sense for the bank.
A representative of The Columbia Bank said the institution has not decided whether to participate, although he said it was unlikely.
"We've been able to manage our way," said Mike Galeon, an executive vice president. But, he said, "I do believe this approach has to be done to right the ship [out] of the predicament we're in with the financial industry."
