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Bill Freehling is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Bill Freehling.
Q&A from banking speech
I’ll have an article in tomorrow’s FLS Business section about a speech given today in Fredericksburg by Arrington Hearn Mixon, a senior vice president with Bank of America. Mixon was at the University of Mary Washington the past two days for the school’s Executive-in-Residence Program, and as part of that she gave a speech today to area business leaders at the Jepson Alumni Executive Center.
Mixon has been at BofA for the past 27 years. She spoke about the changes in the banking industry over that time and gave her thoughts about what the future holds. I’ll recap the speech in tomorrow’s FLS, but here are some excerpts of what she said during the Q&A after the speech.
Question: Have banks gotten too big?
Answer: It makes sense for banks to have many sources of earnings coming from diverse places.
Question: Did Congressional mandates that banks loan money to people with less-than-stellar credit ratings lead to the bust?
Answer: It’s right for banks to help develop their communities by lending. But many of the people who received loans couldn’t afford the homes. So the legislation did lead banks to make some loans they shouldn’t have.
Question: What are your thoughts about the Treasury Department’s plan to have investors buy up the "toxic assets" that banks hold on their balance sheets?
Answer: The idea is a good one, and it’s important to unclog the system so banks can lend more. But it remains unclear exactly how the prices will be set. That’s what’s causing some of the volatile swings in the stock market.
Question: Should Lehman Brothers have been allowed to fail?
Answer: After Bear Stearns was saved by federal aid, there was the thought that a firm should be allowed to fail. But banking has gotten so interconnected that many banks got hurt when Lehman failed. Fear has swept through the market since then.
Question: What are the positives and negatives of getting TARP money from the federal government?
Answer: "I’m trying to think of the positives" was Mixon’s immediate answer. She said BofA has gotten $45 billion in TARP funds and recently paid the federal government $402 million in preferred dividends. BofA CEO Ken Lewis has said he’d like to pay the funds back ASAP. The difficult part of TARP is that the rules seem to keep changing, so banks want to pay the money back.
Question: Your thoughts on mark-to-market accounting (which requires banks to peg assets at current prices)?
Answer: Mark to market is usually good, as it allows balance sheets to reflect real prices. But now it’s tough because there is no market for many assets, so banks are having to mark their assets down to firesale prices.
Question: Your thoughts on the repeal of the Glass-Steagall Act (which forbade banks from being both commercial and investment banks)?
Answer: Banks should be allowed to have both commercial and investment wings, because it allows them to better serve clients. "I would hate to see that reversed," she said. But she did say that some banks took it too far.
Question: How to restore confidence?
Answer: BofA trying to help consumers benefit from saving, modifying hundreds of thousands of loans, lending billions of dollars, developed hotline for customers to manage debt. "We have to lend," she said. "That’s how we stay in business."
Question: What does your crystal ball say about the economic future?
Answer: We are seeing some improvements–in commercial paper, money market funds, high-grade companies having access to capital markets. Now need to unclog other parts of the credit markets. Sees a light at the end of the tunnel by year-end, but doesn’t see fast growth after that. "You’re not going to see a V-shaped recovery," she said. Consumer spending has dropped, saving is up and only slowly will people increase spending. Doesn’t think housing will hit bottom until mid-2010 nationwide, although some local markets will rebound before that. She said the U.S. government is "throwing the kitchen sink" at the recession.
Here is a photo of Mixon sent to us from BofA.