The shock waves roiling America's financial system make this a particularly important time for LBM executives to make sure they're taking steps to protect their bank deposits and foster strong bank relationships, several consultants and dealers told ProSales today. Their advice included spreading money between accounts, pursuing tough talk with lenders and dealing with more than one bank.
While most recent newspaper headlines have focused on such hobbled financial giants as Fannie Mae, Freddie Mac, Merrill Lynch, Lehman Brothers and AIG, concern continues about the state of America's small and regional banks. The Federal Deposit Insurance Corp. has closed 11 banks so far this year, and The Wall Street Journal reported today that small and midsize businesses can expect tighter credit and tougher borrowing standards as a result of the latest troubles.
"Unfortunately, the growth of these small financial institutions have been fueled by largely by lending money to builders and developers," said Blase Grady, president of Building Materials Consultants LLC. "With no immediate end to the construction slump in sight, patience by the lenders is running out and working on delaying payments is about over. Time is getting short for the banks so in turn they are tightening the noose on their borrowers."
Most reports to consumers about the banking crisis stresses that the FDIC insures deposits up to $100,000, but many LBM operations have far more than that in their accounts. That raises the possibility that dealers will lose some of their money if the bank that's holding it fails.
Among the experts' tips:
- Keep multiple bank accounts--as many as is legal and is practicable. For instance, the more tax ID numbers you have, the more insured accounts you can keep.
- "Whoever you are banking with, be up-front and forward with questions," Grady says. "The bankers won't admit if they are in trouble--that would just fuel a run on their deposits--but you might get some sense of confidence on their survival." But how can you tell when trouble is afoot? "The higher the CD rates the more I get concerned about the bank," said Wayne Carver, president of Stephens Inc. in Fuquay-Varina
- "My dad always believed in having accounts at several different banks: each bank would want more of his business and compete for it; no one bank would know too much about his business; and, he avoided the problem of uninsured deposits," Florida Building Material Association president Bill Tucker said.
- "While I am a big fan of sole affiliation with one buying co-op and using all of their programs ... I feel that banks are different," said Chris Rader, an LBM consultant based in Lafayette, La. "You should have more than one option. I like to see a general checking account with only one bank, and possibly payroll. This should be a bank that is convenient or one that has services like scan check deposits. But, move your loans around and, more so, move any idle cash among banks. In smaller communities, it does not hurt to put your money in different banks as they will likely reciprocate with you as they have building needs or they might recommend customers to your bank."
- Switch to a big, national bank that your research indicates will survive the storm or, alternatively, put some deposits into a local bank and see if you can get onto its board, said Jim Enter, founder of the American Association of Roundtables.
- Sites like bankrate.com provide services that allow you to see how your bank is rated in terms of its relative financial strength and stability. It's not the last word on a bank's status, but it does provide indications.
- Many credit unions have expanded their membership criteria to include any organization and person living within a designated area. In a sense, they're the successor to the local community banks of the last century. If you don't bank there now, the credit union might be worth visiting.