Aug. 20 will be remembered by many in the Sonoma Valley as "Black Friday."
That was the day federal regulators seized the local community financial institution, Sonoma Valley Bank. Of course, it's impossible for outsiders to know every detail of the inner workings of Sonoma Valley. But those close to it say it didn't need to happen.
Sonoma Valley Bank wasn't the only victim of "Black Friday." Four other California banks were taken into receivership that day. A total of eight were taken over across the country.
Yes, the seizures reflect the ongoing strain in the banking sector as it tries to climb out from under the property debacle and the recession.
But, say Sonoma Valley's supporters, the bank was fundamentally sound, had a strong deposit base and franchise, was working through its problem loans and was on its way to recovery.
In fact, the structure of the seizure and simultaneous transfer to San Rafael-based Westamerica Bank suggests Sonoma Valley Bank, even with its challenges, had significant value.
For instance, a leading banking industry expert notes that Westamerica actually paid a premium to acquire all of the deposits of Sonoma Valley, which totaled $255.5 million as of June 30. The bank reportedly had a highly sought after 30 percent market share in the area.
And the cost to the FDIC to seize Sonoma Valley was $10.1 million, "or less than 3 percent of total assets," the expert said. "This is one of the lowest hits to the DIF [Deposit Insurance Fund] based on asset totals for 2010 and raises questions as to why Sonoma was put down."
"In fact," said the expert, who provides proprietary information to the industry, "Sonoma's leverage capital ratio recently reported was over 4 percent, and it recently had a visitation from the FDIC that indicated that its reserves were adequate."
In addition, prior to regulators putting Sonoma Valley Bank on its watch list, the bank had actually drawn interest as an acquisition target by banks eager to acquire market share.
No wonder Sonoma Valley officers and directors were taken by surprise on Aug. 20.
So, was the seizure of Sonoma Valley Bank really necessary? After all, there was no "systemic risk" to the financial system posed by this relatively small community bank. It seems if you are a big Wall Street bank bailouts are plentiful. But if you are locally owned and operated and serving local customers, look out.
Analysts speculate federal regulators are intent on significantly reducing the number of U.S. banks in the coming decade from 8,000 to 5,000. It would be tragic if community banks and their customers become the biggest losers in this process.
Nothing against Westamerica. It is a strong regional institution. The North Bay needs Westamericas, but it also needs community banks to fill that special role that only they can fill.
As for Sonoma Valley Bank, there's probably nothing to be done to turn back the clock.
But communities need to be aware of what their government agencies are up to and whether their interests are being held above the current regulatory and political aims of Washington and Sacramento.