BCA

By Dennis Jacobe, Gallup Chief Economist

 As the Senate considers financial reform legislation, a new Gallup poll shows that Americans’ confidence in banks has not returned on Main Street as it has on Wall Street. The percentage of Americans saying they have a “great deal” or “quite a lot” of confidence in U.S. banks is now 20% — not much different from the 18% of a year ago or the 22% of last summer. Four in 10 Americans currently say they have “very little” confidence in U.S. financial institutions.

Gallup has measured banking confidence in various surveys dating to the late 1970s. Since the 2008-2009 financial crisis, Americans’ confidence has reached new lows, falling below the readings near 30% during the 1990-91 recession that reflected the fallout associated with the savings and loan debacle of the late 1980s.

Most Still Have Confidence in Their Main Bank

While most Americans profess comparatively little confidence in the banking industry, the majority continue to express confidence in their main or primary bank, where they do most of their banking business. As was the case last April, 58% say they have a great deal (31%) or quite a lot (27%) of confidence in their main bank. Only about 1 in 10 Americans express “very little” confidence in their primary bank.

For complete story, go to www.Gallup.com

By John Riley

 It wasn’t too long ago when a bank loan could be obtained by an individual demonstrating his ability to repay that loan. Then came the recession and the government began taking steps to shore up the financial system.  Now the rules have changed.

 Global cash flow analysis (GCF)  is the new mantra that bankers follow in analyzing a candidate’s loan worthiness. To most, it may seem an arcane process, but in fact it’s more of the same you’ve experienced in the past when applying for loans. It means all your debt instruments, rather than just the loan you are applying for, are reviewed and an assessment made of your ability to meet each of those obligations.

 Until now, lenders in the commercial market  have relied on cash flow from operating  businesses or income producing properties as their repayment  sources for a loan. With private bankers, an individual’s personal cash flow has been the measure. With individual loan requests, bankers prepare a cash flow statement  (PCF) which is widely used.

 Global cash flow is a modification of personal cash flow.  Business debt service and business income are added to personal cash flow creating a new instrument.

 According to Michael Sabetta, Senior Vice President, Goldwater Bank, a  family’s income and spending habits are detailed by the PCF, but does not take into account  how much the family takes in or how much it pays out. However, the GCF analysis considers all sources of cash flow and all debt service related to personal debt and debt that has been personally guaranteed by business holdings or investments in a Limited Liability Company (LLC).  It’s important that business cash flow represent the amount of money the family could have withdrawn, spent or transferred to their personal account. (Many bankers differ on this point)

“As a process, it is not much different from banking in the 70’s or 80’s,”Mr. Sabetta noted.

 The global cash flow analysis needs to be used when a borrower’s obligations include a company as lender and the person who owns that business as borrower or the other way around. In this situation, the PCF and business cash flow represent the two main repayment sources. This is essential because neither the PCF nor the business cash flow individually give a fair picture of the borrower’s ability to repay.

 More and more, banks are being required to adopt the GCF. No doubt this is being influenced by bank examiners who are looking at the GCF as the most reliable tool to gauge loan worthiness. Although the GCF process has not been universally adopted, it is receiving much more attention within the industry. That means, you can expect a broader and more thorough analysis of your next loan request.

By John Riley

 The word on the street has been confirmed: FDIC regulators are considering an increase in the capital reserve requirements for banks.  No effective date has been set yet.

 Currently, the reserve requirement is 12%. If the new regulations go into effect, the reserve requirement would move up to 12% and then a year or so later, it would go to 14%.

 Following the financial crisis of the past year or so, federal regulators seem intent on taking steps to tighten financial controls on banks. While the increase in the capital reserve requirement would normally seem appropriate,  these are not normal times and such a move can be a serious impediment to the economy’s recovery.  Banks will need to take more of their money that would normally go for loans and investments and set it aside in their reserve fund.