Wednesday, June 22, 2011

Good Ol' Boy Handshake Loans/Help Me!!

Our blog yesterday focused on the indictment of Dwayne Charles Holcombe, former vice president of the Farmer and Merchants Bank of Waterloo. Several readers responded with their take on the case, many blaming newer banking rules for forcing Holcombe to falsify records in order to accommodate long-time customers who were behind on their repayment schedule. Sadly, the days of the Jimmy Stewart type banker are over. Still, if this is indeed what happened with Mr. Holcombe, he deprived other investors of profit in his attempt to save a chosen few.

Others wanted to know more about the small Waterloo bank where Holcombe wore many hats. The bank was established in 1914 by Buck Sharp. Tom D. Ray is the current president. Mr. Ray is known as a supporter of small town banks and has taken an active stand against standardization of banking policy without regard to size of the institution.

In his own words:

Community banks fund their operations by taking deposits and holding loans for the long term. Many of our financial instruments are not readily marketable.

We oppose the proposed accounting treatment for core deposits. The calculations would be expensive and time consuming, particularly for smaller banks like ours that have limited staff resources.

We oppose requiring institutions to record demand deposits at fair value. We also oppose requiring fair value calculations for loans that are held for the long-term to collect cash flows.

Fair value measurements will not provide a better understanding of the values of illiquid agricultural loans held by small banks in rural areas such as this bank.

Community banks such as this bank create and hold small business loans for which there is no active market; it would be very difficult and costly to mark them to market.

Did this policy influence Dwayne Holcombe's actions? It should be an interesting trial.


We obviously read a lot of local, state, and national blogs--both just for fun and to prepare for our commentaries. The following is one of the most profound and astute local observations we've read in quite some time:

Yesterday at 12:16 p.m. was the Summer Solstice, but only for purists. The rest of you Druids may continue to celebrate today as well since it is only two seconds longer than yesterday. So by request...