Indiana banker meets with Obama, Geithner

Opportunities don’t get much rarer than face time with President Obama and Treasury Secretary Timothy Geithner. Yesterday morning, German American Bancorp CEO Mark Schroeder got 90 minutes.

Schroeder was one of just 12 community bankers from across the country invited to meet Obama for a friendly discussion about how the one-two punch of the recession and bank regulation drags down local lending.

“I was thankful for the opportunity,” Schroeder said. “It was, I’m certain, a once-in-a-lifetime experience.”

Jasper-based German American is exactly the type of community bank that Obama wants to support. With $1.2 billion in assets and 29 branches, German American hasn’t asked for or received any bailout money from the federal Troubled Asset Relief Program.

It’s a tiny institution compared to bank giants like JPMorgan Chase, Wells Fargo and American Express. Obama famously called top mega-bankers “fat cats” in a television interview last week and told them in a White House meeting that they have a responsibility to make “an extraordinary commitment” to help rebuild the economy.

According to the FDIC, German American holds 1.02 percent of Indiana’s deposits, meaning 21 other banks have greater Hoosier market share. But it’s a stalwart of its community and a key source of capital for small businesses there.

“It’s fair to say that most of these community banks were not engaged in some of the hugely risky activities that helped to precipitate the financial crisis,” the Associated Press quoted Obama as saying after Tuesday’s meeting.

The Washington D.C.-based trade group Independent Community Bankers of America tapped Schroeder for the Obama meeting. Schroeder is ICBA’s Indiana state director. Earlier this month, Schroeder said, the White House called ICBA asking it to suggest local bankers for a presidential meeting, including one from Indiana. On Dec. 11, ICBA submitted Schroeder’s name and supporting data, which the White House and Treasury Department used for a background check.

Two feet of snow fell on the nation’s capital over the weekend, so Schroeder flew to Washington, D.C., early Monday morning. Upon entering the White House on Tuesday, Schroeder said he went through three separate checkpoints before being ushered into the Roosevelt Room, directly adjacent to the Oval Office.

Schroeder chatted briefly with Karen Mills, administrator of the U.S. Small Business Administration, until Geithner entered, followed five minutes later by Obama. The president circled the room and met each of the community bankers individually, asking them each to explain the challenges their banks and states face.

It was Schroeder’s first visit to the White House. The Democrat said he’s never met Obama or been a contributor to political campaigns before, but was immediately impressed with the president’s ability to connect with his audience. Schroeder used his time to lay out a community banker’s current challenge in practical terms. He pointed out that in Indiana, problems are dramatically worse in the auto-manufacturing-intense north, while the southern region near Jasper has held up relatively well.

But all bankers work under the same regulatory restrictions. Noting that banks must reserve $1 of capital for every $10 in loans, Schroeder explained how recessionary credit losses squeeze a community bank’s ability to advance credit, even to well-known businesses. By way of example, Schroeder said, he pointed to a 76-year-old Jasper business that had never suffered a loss until 2008. German American struggled to advance the business working capital because it knew regulators would wave red flags and slap a “troubled” label on the loan.

According to the Federal Reserve, loans by the nation’s 8,000 banks fell 8 percent to $6.7 trillion in the past year, and some analysts expect them to keep falling at least through the next year.

Schroeder said he went on to describe how the Small Business Administration can help. With SBA backing, Schroeder said, a community bank can make $10 in loans with just 20 cents capital in reserve. Perhaps most important, the bank doesn’t have to classify those loans as substandard.

But the SBA’s money has been so in demand, Schroeder said, that it basically ran out of cash this year. Schroeder said he wanted to emphasize how that could drag down the economic recovery, especially next year.

Businesses for the last 18 months or more have survived by living off their receivables and excess inventories, Schroeder said. When the economy picks up, they’ll need to start building both back up again. But it will be difficult for businesses to get credit,  given their banged-up balance sheets, without the backing of credit-enhancement programs like the SBA, he said.

Community banks are also worried that Washington’s reform of mega-banks will spill over and hike their own compliance costs. Schroeder said Obama promised that any new rules aimed at curbing the excesses of enormous institutions that took outsized risks and sparked the economic downturn won’t add to community banks’ regulatory burden.

But Obama also stated flatly that community banks won’t get any special exemptions.

“I respect that,” Schroeder said. “He didn’t pull any punches.”

Obama did make one miscalculation yesterday, Schroeder said, laughing. The meeting was scheduled for an hour, but it stretched another 30 minutes beyond that.

“When you get 12 bankers in the room in this economic environment and ask them what issues are you facing and what can we do, we didn’t get done in an hour,” Schroeder said.

— The Associated Press contributed to this report