Mike Carlton, president of Crescent State Bank, answers questions about the banking crisis. Crescent State is based in Cary.

Can you explain briefly why our country is in a banking crisis right now?
I think it would be more accurate to say that our country is in a credit crisis or crunch than in a banking crisis. The troubles in the mortgage lending arena have spilled over into broader credit markets slowing all lending down to a crawl. Nationally, community banks, as opposed to Wall Street’s investment banks or large commercial banks, have had little to do with the subprime problems and remain well capitalized and able to withstand the current downturn. In North Carolina, the banking industry is faring very well compared to the rest of the nation.

The current situation began with the subprime lending debacle, but what truly threatens the economy is the fact that credit has withered away and will remain nearly unobtainable until the Congress takes action.

Financial institutions need access to capital and liquidity in order to continue to be able to lend money. Unfortunately, it’s not a Wall Street or big-business issue anymore. Businesses, large and small need loans for everything from inventory financing to expansion of infrastructure.

Individuals need money to buy homes, autos and to send their children to college. All these types of credit, and many, many more, are drying up. If the economy is allowed to stall for an extended period of time, it will lead to additional company layoffs and personal unrest. Immediate action is essential.

Can you explain what the proposed legislation is intended to do?
The proposed legislation should place enough money back into the credit markets to make borrowing of all kinds possible again.

In your opinion, what is needed to get this country back on track? In other words, what do you think of the plan being developed for a bailout?
I personally have mixed opinions about the bailout plan. Whatever Congress does now is likely to be the first of several steps to address today’s economic situation and the causes of it. No matter whom our next president turns out to be, continuing the process of righting our economy is certain to be a top priority. Having said that, the current proposal has a number of elements that are working toward restoring confidence in our economy. The investment of money by the government that simultaneously removes some bad loans from many larger financial companies and stabilizes property values will help the credit markets.

The increased FDIC insurance limits should also provide additional comfort to individuals. The oversight provisions should assure that the investment of public funds is done wisely with every opportunity to mitigate the final expense, or even turn a profit. With a problem this complex, it would be naïve to expect this one piece of legislation to entirely repair our economy, but the proposal should help us move toward the right direction. Much work will continue to be needed by the new administration.

They say this is the worst crisis since the Great Depression. What do you think the longterm effects of this will be on our country?
It’s hard to say what the longterm effects might be. However, the fundamentals that have been fueling such a robust expansion of our economy still exist. Our productivity remains at an all time high.

Market corrections eliminate companies that for one reason or another can no longer compete effectively. That leaves a more effective marketplace for the future. But rest assured we will all be paying for the repair to the current system problems for some time. While we are unlikely to return to rapid expansion quickly, there is hope that the Emergency Economic Stabilization Act will achieve faster results than many of us anticipate.

What would your advice be to people who might panic about their money right now?
There is certainly no need to panic. However, there is also never a bad time to evaluate one’s exposure to risk and to determine if a different risk profile would be better for that individual. Over the long term, investments in equities and the stock market have always performed better than most other investments. It is not uncommon or unexpected for consumers to sit down with their banker and review their FDIC coverage and explore other alternatives that may be available to provide comfort. The vast majority of all citizens can be sure of insurance coverage far beyond the basic $100,000 per account (which will now increase temporarily to $250,000) by using individual, joint, trust and retirement accounts. It’s highly unlikely that a particular person’s bank will have problems, but the system was put in place to increase people’s confidence. There is no reason not to make sure it is working for you.

If a bank were to fail and close its doors, how would depositors go about getting their funds?
In the vast majority of cases, the FDIC transfers deposits to another bank which makes them available without any lack of availability ... not even a single day. In the rare instances in other parts of the country where the FDIC has actually taken over a bank, insured deposits likewise remain available without any obstacles. Typically, customers will enter the same buildings to make withdrawals as they have always done. Let me emphasize that I do not anticipate any bank failures in North Carolina, but that is how the process works.

Crescent State Bank was named business leader of the year by the Cary Chamber of Commerce recently. How has your company managed to rise above this crisis?
As a local community bank with 13 banking offices and its headquarters in Cary, we are fortunate to be providing a full range of both commercial and consumer banking services in economically solid communities. We are close enough to the pulse of each community we serve and believe that we have a better understanding of local market conditions than many of our peers. While Crescent has been painted with the same brush with all other financial institutions, both large and small, it is important to note that Crescent did not participate in the subprime lending nor did we have any ownership in the Freddie and Fannie preferred stock, which really were part of the problems that the economy is experiencing. As the financial markets make recovery, we are confident that Crescent State Bank will continue to be recognized as the bank of choice in each community we serve.

— Wendy Lemus