In its promotional material, Long Beach-based Farmers & Merchants hammers home the safe-and-secure message, billing itself as "California's Strongest Bank."
That image may have held special appeal to customers of Pasadena-based IndyMac Bancorp Inc., which federal regulators took over in July as it faced a run on deposits and a collapse. That month, more than 600 new customers opened accounts, giving the bank $170 million in new deposits.
Now, with Washingon Mutual Inc. putting itself on the block amid a loss of investor confidence in the company, Farmers & Merchants says it is seeing a fresh run of customers.
Bank Chief Executive Henry Walker said he was visiting a Newport Beach branch on Thursday when a customer holding a Washington Mutual checkbook asked him whether his money would be safe at Farmers & Merchants.
"I told him before you lose dollar one, I am going to have to lose everything, and I'm not going to lose everything," Walker said.
It's not just small banks that are in vogue again. Wells Fargo & Co. and Bank of America Corp. have survived and, in some ways, thrived during the mortgage meltdown because they did not rely too heavily on the subprime mortgages that landed other banks in trouble and instead focused on core banking products, such as checking, savings and certificates of deposit.
Banks and thrifts used to live on checking accounts, certificates of deposit and long-term loans. But with the Federal Reserve keeping interest rates low for most of the decade, they found that they could market loans as never before. The availability of low-cost loans helped drive up home prices, and that made borrowers willing to take more risks, getting themselves into short-term loans and option loans that had interest rates or payments that would shoot up after a few years, or even months.
The banks would then resell these loans to investors who would bundle them up and sell them again, this time like shares in a company. Those bundled loans and other so-called derivatives, like interest rate swaps, turned companies like IndyMac from small-time savings and loans into national names nearly overnight. They also helped regional banks like Washington Mutual expand into nearly every corner of the country.
But as home prices slumped and borrowers defaulted on their loans, the banks that bet the biggest on investments tied to risky loans, such as Lehman Bros. and Bear Stearns, were forced into sales or collapse.
