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Making Sense Of The Government's Bank Plan

: a mixture of hope, doubt and confusion. NPR's Frank Langfitt reports.

FRANK LANGFITT: Bankers may not like everything the Bush administration rolled out yesterday and frankly, they may not have understood all of it, either. But many were glad to see a direct, decisive plan with details. Michael Menzies is chairman-elect of the Independent Community Bankers of America.

: Never in my lifetime have I seen the federal government stand up and say failure is not an option. So there's no doubt in my mind that given the time necessary to deal with these issues, that the most powerful economy in the world will prevail and the banking system will survive.

LANGFITT: Time, of course, is the operative word, and neither the government nor the economy has much of it. Pumping money directly into banks is the fastest way to get them lending again, but that won't happen overnight. So the government has included stopgap measures to keep the crisis from getting worse. It will guarantee bank-to-bank lending so institutions will hopefully start trusting each other again. The government will also offer unlimited insurance on certain deposit accounts that businesses often use for things like payroll. Yesterday, Sheila Bair, who runs the Federal Deposit Insurance Corporation, explained why.

: This new temporary guarantee, which runs until the end of next year, should help stabilize these accounts. Thus, we can avoid having to close otherwise viable banks because of deposit withdrawals.

LANGFITT: Bair said businesses have been yanking these accounts from banks they think are weak and putting them into those they think are stronger. She said a guarantee would have protected banks like Wachovia, which saw a huge drop in deposits, as well as smaller banks. Mike Menzies of the Independent Community Bankers isn't sure how many of his members would use the guarantee for which the government charges a fee. And he added that his bank, Easton Bank and Trust in Maryland, has actually picked up deposits during the crisis.

: We didn't have deposits leaving our bank going to the large banks. Frankly, we had quite the contrary. I believe we've been gaining accounts because people like to be able to walk into the bank and sit in my office and ask how things are going. And they want to be able to kick the tire.

LANGFITT: Bert Ely, a banking analyst in Alexandria, Virginia, doesn't like the idea of offering unlimited guarantees for certain accounts. He says that just complicates matters.

: Believe me, there is a lot of confusion out there, even among bankers, about this stuff.

LANGFITT: Instead, Ely thinks the government should cover all deposits. That's what happening in Australia, New Zealand and the United Arab Emirates.

: The best thing to do is to say to depositors, you know, your money is not at risk.

: An important element of what was announced is more certainty about what the government will be doing.

LANGFITT: This is Vincent Reinhart. He used to run the Federal Reserve Board's Division of Monetary Affairs. He says by just providing some clear steps yesterday, the government helped calm anxieties. Now, he says, it all comes down to speed and execution. The sooner the government can pump money into banks, the sooner lending can get rolling again, and banks can loan money to businesses. That could help create jobs and stimulate an economy that many analysts think is already in recession.

: Faster is always better. Financial markets work at a much faster pace than the wheels of the government turn. That's what we've learned over the last couple of weeks.

LANGFITT: Reinhart says the longer the government takes, the worse the economy could get. And that could mean more losses for the very banks the administration is trying to help. Frank Langfitt, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Frank Langfitt is NPR's London correspondent. He covers the UK and Ireland, as well as stories elsewhere in Europe.