Bildsten: Market stabilizing for state financial institutions
By Brian E. Clark
Wisconsin’s banks and credit unions are “improving by the day and becoming more stable than we’ve seen in three years,” according to the head of the state agency that regulates them.
“It’s been a very difficult recession for all financial institutions, but less so in Wisconsin than in other parts of the country,” Peter Bildsten told WisBusiness in an interview.
Bildsten, secretary of the Wisconsin Department of Financial Institutions, said six banks have failed in the state during the recession dating back to 2009, with three coming in the first quarter of this year. He said the recent failures were due mainly to accumulated stress.
“Sometimes, they run out of time,” he said. “The last one was in March, though, so we’ve gone a good couple of months without any other bank failures.”
WisBusiness audioHe said his department also has helped facilitate five or six credit union mergers in recent months, but that not all of them were because of credit problems.
“I shouldn’t try to predict the future, but I think we are through the worst of it,” said Bildsten. “I won’t be surprised at all if there are additional bank failures or credit union mergers. But again, I see a much more stable market for our financial institutions.”
Bildsten, a former banking and credit union executive, said lenders are benefitting from an improving economy and “getting their arms around their credit problems.”
In addition, he said, classified (troubled or delinquent) loans are declining and lenders are “fighting and working their way through” the difficulties that have plagued them since 2009.
“No matter how good of a banker or credit union you are, when property values fall 20 to 30 percent on a home or a commercial property, it’s hard to underwrite that out of a loan. It ends up causing pain for the borrower and for the financial institution.”
Bildsten, a Baraboo resident, credits Wisconsin’s relatively conservative business culture for keeping the lending crisis here from being as bad as in other parts of the country.
“Historically, that’s been a positive reflection on our state’s economy,” he said. “We’ve rarely seen the peaks and valleys and speculating on real estate that other states have seen.
“At times when those curves were going up and people were seeing dramatically increasing property values in Arizona and Florida and hearing their friends and neighbors talking about their second homes doubling in value, we might have gotten jealous.
“But all in all, by missing out on some of those bubbles, that’s been a plus for Wisconsin’s economy.”
Bildsten said he turned down personal friends who wanted loans to invest in real estate projects outside Wisconsin. Some of them ended up going to other banks and then lost large amounts of money, he added.
“They thought they could do no wrong,” he said. “I cautioned them and refused to lend to customers and friends who wanted to buy more and more real estate in Florida and Arizona.”
Eventually, though, the real estate bubble burst and those investments turned out to be painful for both borrowers and the lenders, he said.
As a result of how lenders operate and are regulated here, he said Wisconsin’s financial institutions are stronger than their counterparts in nearly every other state.
"To put it into perspective, we've had a total of six banks fail in Wisconsin during the recession compared to more than 55 in Georgia, a state of similar size," he said.
Bildsten said some state banks still may be pulling back on business loans because of “shrinkage of capital ... because of loan problems.
“They need to reassess how they deploy that capital,” he said. “And that might mean in some situations – not across the board – they may have to be more selective and careful about their lending.
“But let’s remember that banks and credit unions don’t thrive and survive unless they do make loans, so they are looking for every opportunity to make good loans and do them properly and profitably.”
Bildsten said he remains somewhat worried about a possible double-dip recession due to continued uncertainty around the housing market.
“Foreclosures are down, but they are still at a high level and it is going to take a long time to work through all that,” he said. “I believe, though, that we have bottomed out.”