The credit markets nearly collapsed by September.

Congress passed a $700 billion bailout in October intended to re-start the flow of money.

Local banks began getting millions of dollars by December, with orders from the government to keep lending. With loans would come spending, and with spending would come jobs.

But now it's March. The economy sputters and jobs disappear at a pace not seen in decades.

What's going on?

Many in the public and in Congress have blamed the banks for not lending.

Locally operating banks say they loaned money at record rates in 2008 despite the meltdown.

But because of the deepening recession, even borrowers with good credit scores and previously stable incomes are not expected to want to take on a lot more debt.

And banks say they won't lower their standards, because lending to people who couldn't realistically pay money back caused the current crisis.

Brian Davis, assistant professor of management at York College, has tracked the financial collapse and bailouts since the beginning.

He said some consumers continue to have trouble getting loans for various reasons, and banks need to find ways around some issues.

But the first big bailout last fall appears to have been "one step behind where the problem is," Davis said.


"That's not really the issue anymore."

The new problem is unemployment and the overall economy. People began to lose their jobs because of the credit crunch around the same time banks got government money to help solve the problem.

Many companies, dependent on a constant stream of loans and debt agreements, ran low on money when the crunch was at its worst. They began cutting workforce and spending to make up the difference.

So, many bank customers who wanted and needed loans last fall think it would be irresponsible to take loans now.

They fear for their jobs or their ability to pay back the money, Davis said.

Steve Snell, executive director of the Realtors Association of York and Adams counties, said local realtors are seeing the problem. The bottom line, he said, is that most people with decent credit can still get a mortgage. They just aren't taking banks up on it.

Davis said the gap between loan customers and banks is similar to today's fundamental housing market problem. Buyers expect a low price if they take a risk and buy in this economy, and sellers sit on their properties if the offer isn't on their terms.

"And somebody's gotta bend," he said, or nothing will change.

In the face of those problems, some local banks are trying different strategies to get money out the door.

Secondary problem

Fulton Financial Corp., parent company of Fulton Bank, has acknowledged the public wants to know how federal dollars are getting to the local community.

In a news release dated Feb. 26, the company tried to explain why it can't say specifically what it is doing with the government money.

The perceived lack of transparency has drawn criticism, including from U.S. Rep. Todd Platts, R-York County. He voted against the bailout last year and continues to say it was a bad idea because of transparency and because there was little guarantee the policies would work as intended.

Fulton's answer is that government loan money gets mixed into all money available for loans, so it can't be tracked dollar-for-dollar.

But from its overall loan pot, Fulton said, it is creating five new lending programs specifically for people who used to get loans through what Fulton calls the "secondary markets" and now can't.

The secondary markets were what sputtered and started the credit crunch in the first place.

Under the system, investors would buy the rights to get paid a person's mortgage or loan payment from banks, then "bundle" the person's mortgage with other similar mortgages and sell the bundles to investors.

The money raised by banks or other mortgage lenders by selling the payment rights created a larger pool of money, allowing banks to make more loans.

The system nearly collapsed when homebuyers, who bought houses they realized they couldn't afford, started defaulting on their mortgages.

Financial entities that dealt with riskier loans - those that required a lower credit score and smaller down payments, with payments growing over time - were the hardest hit.

Many are no longer in business. The government saved the two biggest investment firms, government-sponsored Fannie Mae and Freddie Mac, which purchased and bundled mortgages. However, the market is badly damaged, and the secondary markets for some loans that Fulton called "non-conforming" have all but disappeared.

The term describes difficult-to-bundle mortgages like those that are tied to a large amount of acreage, involve a low down payment for someone just coming out of school or are above the value that Fannie and Freddie would deal with.

So Fulton said it is going to not bother selling the loans in the programs it is creating specifically to bypass the secondary markets; it will keep them and collect the payments, without selling them as investments.

As for the speed of the programs' development, spokeswoman Laura Wakeley said two months was a relatively quick turnaround for such an undertaking.

The programs, though, don't target people who can't get loans because they have bad credit. Wakeley said it would be irresponsible.

Financial institutions, many of which no longer exist, lowered standards to loan money to more people. Many of them defaulted, causing the problems in today's market.

Pounding pavement

Susquehanna Bank received its Treasury investment Dec. 12. It was the first based in central Pennsylvania to accept the money.

At the time, government investments had primarily gone to failing banks, and the money from the Troubled Asset Relief Program shared in being labeled a "bailout."

William Reuter, chief executive officer of Susquehanna, wrote of what he called the misconception in a December letter to the editor.

".¤.¤. Susquehanna does not need to be 'bailed out.' Our bank is profitable and exceeds government requirements to be classified as well-capitalized," Reuter said.

Drew Hostetter, chief financial officer for Susquehanna Bancshares, parent company of Susquehanna Bank, said there was some debate internally about whether to take the money.

Dealing with the government and some changeable terms of the agreement were the chief negatives, Hostetter said. Also, he said Susquehanna would be subject to changes to the deal Congress could make.

In the end, Susquehanna took the money.

Hostetter said that even with the economic problems in 2008, Susquehanna managed to raise the amount of loans it made by about 10 percent, ending the year with about $9.65 billion in loans on its books.

It expects to increase loans by about 8 percent in 2009. But without the money, lending growth - because of the economy - would only be about 5 percent in 2009, Hostetter said.

Hostetter said the money would be split fairly evenly among increasing its commercial real estate loans, residential real estate loans, auto loans and commercial loans to companies.

Hostetter said the TARP money wouldn't affect Susquehanna's lending standards. If you couldn't qualify before the investment, then you won't qualify after.

Brian Caler, vice president and relationship manager of commercial lending, said he and others are leaning on Susquehanna's network of current clients to grow business. And referrals are keeping the office busy, Caler said, although he believes some remain on the sidelines out of worry they don't have the credit or down payments to qualify.

Often people are more scared away than they should be, Caler said.

York County-based PeoplesBank is also trying to increase how much it lends.

Larry Miller, chief executive officer of PeoplesBank parent Codorus Valley Bancorp, said its growth plans are packaged as two prongs of PeoplesBank's Hometown Investment Plan.

PeoplesBank released the plan around the time of its TARP investment, and around the same time the federal government offered recommendations to banks to be more transparent with their money.

The plan also includes community investments like financial education, deferred loan payments for people who lose jobs and support for nonprofit entities.

But those latter programs won't use TARP money.

Miller said the government's intent is to get the money into customers' hands, so PeoplesBank is taking the government literally.

Community initiatives will come out of bank profits, Miller said, and will hopefully help make the community economically stronger.

PeoplesBank hopes its efforts will increase lending at least $125 million in 2009 compared with 2008.

"It would have been more difficult" without the TARP money to set such a high goal, Miller said. "That's a lot of money for a bank our size."

Report to Congress

Wells Fargo received one of the biggest investments through the Capital Purchase Program: $25 billion.

Other local banks received their investments either close to or after Jan. 1, past the point where they would have numbers compiled and reported through quarterly income statements about whether the government money was being loaned out.

But Wells Fargo received its money in October. And earlier this month, Congress called on Wells Fargo to answer for what it had done with that money.

According to the testimony by John Stumpf, president and CEO, Wells Fargo increased loans by about $22 billion in the fourth quarter of 2008, when it received its money.

Student, commercial, small business and agricultural loans were up by an average of about 12 percent over the previous period.

The bank also increased mortgages during the fourth quarter of 2008 by about $50 billion.

Stumpf said that after its purchase of Wachovia Bank, it was able to open back up Wachovia lines of credit that had been closed.

Wachovia had been on the government's troubled bank list after the institution tumbled under the weight of mortgage-backed securities.

At the time it received money, and before the testimony, Wells Fargo Chief Financial Officer Howard Atkins said the TARP money would help toward Wells Fargo's purchase of Wachovia.

Recession realists

Joe Crosswhite, regional president for M&T Bank in southcentral Pennsylvania, said M&T could loan out its TARP investment money.

But there is no reason to.

Before the investment, M&T Bank was increasing its loans as much as it could. He said it continues to have enough money on hand from customer deposits to cover the demand for loans.

The bank doesn't plan to change that strategy. It's the most stable way to do business, Crosswhite said.

Crosswhite said the bank considers the money more of a cushion or "shock absorber" to help protect the bank from further possible downturns in the economy. The backup money can make sure the bank continues business as usual in case its core business, collecting deposits, drops too much.

Conversely, if demand for loans skyrockets past what M&T expects, it would consider loaning the money out. But in a recession, the demand for loans goes down, Crosswhite said, so that isn't likely.

So why did M&T take the money in the first place?

Crosswhite said other strong banks were taking the money, and M&T saw it as a chance to show customers and investors it was a strong bank.

The government wasn't investing the money in banks on the verge of collapse, he said.

And going forward, Crosswhite said the status of a strong bank can help it gain more deposits and increase its lending.


Shortly after the $700 billion Troubled Asset Relief Program, or "bailout," passed and was signed by President Bush in October, the federal government set aside $250 billion for the Capital Purchase Program.

The U.S. Treasury uses the money to buy preferred shares of healthy banks.

The government doesn't get a vote on most issues decided by shareholders. But the government does get a dividend payment, like other shareholders.

The government said it hopes to one day sell its shares and recoup the money it's invested.

Why was it created? The Capital Purchase Program is intended help banks keep lending by ensuring they have enough money to back the loans people need to buy houses, cars and other big items, or to keep their businesses open.

It was created out of the $700 billion Troubled Assets Relief Program passed last fall.

Before last fall, many consumer loans across the country were funded by investors who bought the rights to receive a loan customer's payments and resold those rights to investors.

Those investors were betting on how many people were going to keep paying their loans on time, the same way investors bet whether a stock will go up or down. The American credit market and the money available for people to borrow grew large during this time.

But the system nearly disappeared when people started defaulting on mortgage payments at greater-than-expected rates, so the government began stepping in to replace that money with tax money-funded programs like the CPP. The CPP has been the most visible financial "bailout" program locally and has been in operation for some time, although government investments trying to help the economy continue.

Track lending

If you want to track a bank's lending, check its quarterly income statements.

How much a bank loans, compared with the corresponding three-month period during the previous year, and compared with the entire year, is commonly released in those statements.

Those statements can be viewed either at a bank Web site under its investor relations pages, or through the Securities and Exchange Commission's EDGAR Web site.

The searchable Web site can be accessed at:


To see what banks have received TARP money and keep tabs on how much they were given, visit www.propublica.organd click on "Bank Bailout Watch."