I am struck by the irony of this announcement.  Is this not exactly what Treasury originally intended to do by creating the Troubled Asset Relief Program (TARP) late last year to clear the balance sheets of the too big to close?  That plan was abandoned almost immediately after its development for fear that purchasing troubled assets from banks would expose the Treasury and taxpayers to paying too low a price for their acquisition.  Instead they opted for direct investments in the banks themselves.

Now they design an almost identical plan with one exception…private investors will have skin in the game alongside the government and they have guaranteed a market price  by allowing for competitive bids by pension and hedge funds and other would be investors.

I commend the Treasury and Geithner for this initiative… in my view it was precisely what was needed all along, the way TARP was originally intended.  Apparently the Street likes it too.  Markets are wildly up in heavy trading today following the announcement.

Finally, we have an action by the Treasury that just might save (at least for now) the sinking ships.  And all along, all they needed to do was simply rearrange the deck chairs.

It is clear that Treasury will do everything in its power to save the too big too close banks.  And once it is evident that they have, let’s hope a future initiative will be to break those suckers up so they can never be too big to close again.

This morning I boarded a flight in Austin at 6:00 am en route to DC with several of IBAT’s executive committee members. There has been a lot of talk about zombie banks.  Those are the banks that have already failed but are too big to close. You know, banks like Citicorp. Why is it so hard for bank regulators and politicians to be honest?  To say that ‘Citi has failed, but we just can’t close them because of the “systemic risk” they would pose to the financial system?’ Systemic risk is a fancy phrase for hand grenade…pull the pin on that sucker and watch all  around it to go down. But I digress.

DC is not my favorite place in the world. Oh, I love the hustle and bustle of the city, but trying to get work done in this town is difficult at best. Whoever said “if you need a friend in Washington DC, get a dog,” got it right. This is no place to search for people that care about your problems or your industry’s problems, because solving your problem will likely create problems for someone else. But still, we plug along believing in what we know and have proof of…that government is run by the people that show up.

All community bankers throughout the country are still numb from the events of the past eight months. We watch as the Treasury and the Administration search for answers to the financial crisis, and hope that there is still a place for local community banks when all is said and done.

This latest tremor is one of seismic proportions, and the future of our community banks is at the epicenter. The Federal Deposit Insurance Corporation (FDIC) announced that the insurance fund was running out of money and it would need to tap all banks with an increase to 20 cents for every $100 of insured deposits to replenish. It didn’t take bankers long to do the math…  and for most it would hit their earnings this year anywhere from one-third to one-half. How smart is that at a time when we are trying to get banks to lend again? It is pretty hard to lend money when you have to cough it up to the government so they can bail out the very banks that have depleted the fund.

We’re wondering just how much thought was put into this interim ruling by the FDIC. There are so many other ways to replenish the fund without causing unfair hardship on the only banks that didn’t create this mess in the first place. Sure, bankers, not taxpayers should accept responsibility for replenishing the fund. And we shall. But let’s look at the dozens of alternatives that have already been suggested.  These alternatives would soften the earnings blow to our community banks, the only banks still lending money.  Our community banks played by the rules and made nice while the zombies succumbed to distortion and greed.  Makes us all wonder if there is some sinister plot to make all community banks zombie-like too.

So we shall walk the halls of the Congress spreading the word to anyone who will listen. Our message will be a simple one…yes we have a crisis, but don’t make the community banks irrelevant in the efforts to restore and rebuild the financial system. Small business and agriculture need community banks. Today our country needs them like never before.