When Smithtown Bancorp (SMTB) applied for money last year from the U.S. Treasury's $700 billion rescue program, CEO Bradley E. Rock figured the Hauppauge (N.Y.) bank could use the cash to boost lending. Then politicians started pushing for conditions on the capital they were offering, and Rock decided the money wasn't worth it. In late January he refused a $37.8 million investment from the government. "I would never agree to let Congress tell us which loans we should and shouldn't make," says Rock.
While many of the nation's largest banks are asking for second helpings of aid, a growing number of small and regional banks are refusing the government's help altogether. The concern among the healthy lenders is that regulators will dictate how they structure dividends, compensate managers,. Worse, they worry that the government will impose lending quotas or force them to make loans that may not be in the banks' best interests.
The fear is so pervasive that it could hamper the government's ability to revive the economy.