Local Bank applies for Federal Bailout Money

In today’s Daily Newsleader, Community Bank (headquartered in Staunton) reveals that it has applied for a piece of the federal bailout package.  The Bank phrases the move as an “investment”.  The way its described in the article sounds more like a loan to me.  The bank claims that it hasn’t decided if it will actually take the money.

This move was not unforeseeable.  It was announced in September that Community Bank’s Board of Directors was suspending the quarterly dividend, in large part because of a markdown due to the bank’s position in Fannie Mae and Freddie Mac.  This move in turn downgraded the bank’s capitalization rating.

Other local and regional banks(First Bank & Trust, BB&T) presumably did not have such a stake in the Secondary Mortgage Market.  In fact, BB&T came out sharply against the bailout, with the Bank president, John Allison writing a letter to Congress urging restraint.  Of course, once the bailout was passed, BB&T changed its position in order to participate.  That’s the very problem with allowing companies and whole industries to lobby for rent-seeking.  Once the floodgates open, everyone else has to go along or face unfair competition due to government interference at the behest of a few.