Don't bank on local banks

The contagion of bank failures is running high in the Northwest. Here's how tight money translates into local politics.
The contagion of bank failures is running high in the Northwest. Here's how tight money translates into local politics.

According to a Wall Street Journal report ($), Washington state's banks are very much on the national sick list. Already six have failed this year, following three in 2009, accounting for 10.5 percent of all banks in the state. Only Georgia and Florida have a higher percentage of bank failures, with California in fourth place a notch below Washington.

The more alarming figure in the story is that about one-quarter of Washington banks are now on the critical list, operating under cease-and-desist orders from regulators, which means toughened regulatory scrutiny. Another survey puts about 25 banks in Washington, Oregon, and Idaho on a list of high probability of failure.

Northwest banks are in trouble for all the usual reasons of too many dubious construction loans, but they also suffer from the historic way the local recovery lags the national pattern by a year or so. The effect on construction is severe, with anxious banks scurrying for more investment capital to shore up their balance sheets and being very careful about lending. The psychological impact of the massive WaMu failure may also play into these calculations.

One ricochet effect concerns the current skirmish over the deep-bore tunnel on Seattle's waterfront. Construction workers are desperate for jobs as the commercial, residential, and governmental work continues to be very slow. As Mayor Mike McGinn and others continue to raise doubts about the wisdom of the project, possibly delaying the start of the $1.1 billion dig and related work, local labor leaders are getting increasingly impatient with the mayor.

Another political implication will be the Dino Rossi race against Sen. Patty Murray. With Rossi playing anti-government cards and opposing earmarks for pet local projects, one wonders how well the business community will go along. (Or if they actually believe Rossi would honor such a pledge.) Around here, at least, you don't run against hard times by shutting down the government lending window.


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