By the end of this month, small groups of bankers, homebuilders and Realtors will have taken turns trekking to Legislative Plaza in Nashville. They all will have faced a legislative committee whose chairman, Germantown resident Paul Stanley, wanted to hear them answer a basic question, each in their own way:

How did the banking and real estate industries get into this fix?

Stanley, a Republican state senator who heads the Senate’s Commerce, Labor and Agriculture Committee, said that since the committee’s schedule is light at this point in the legislative session, it would do some good to get industry primers from bankers, homebuilders and others.

Timely discussion

Representatives of the real estate industry from throughout the state are on deck this week to appear before Stanley’s committee, and they include at least one Memphis real estate agent, Fontaine Taylor. The wisdom of inviting some of Tennessee’s banking players to talk to the committee earlier this month, however, arguably provided the most instructive and timeliest fodder for discussion.

The Dow Jones Industrial Average sank 100 points Friday on fears related to the financial industry. By Monday afternoon, the Dow fell 251 points to a level not seen since 1997. And the administration of President Barack Obama informed the nation’s biggest banks that the government eventually could become a voting shareholder of banks, in which the government owns only non-voting shares at the moment.

One week earlier, Tennessee community bankers such as Will Chase, president and CEO of Triumph Bank in Memphis, and William Stuard, president and CEO of F&M Bank in Middle Tennessee, took a message of calm to Nashville in an attempt to distinguish their organizations from the blood-letting on Wall Street.

The message they delivered during a quasi state-of-the-industry presentation was that Tennessee’s community and regional players don’t operate on the same field as multibillion-dollar giants like Bank of America Corp. and Citigroup.

“The first few weeks of the sessions are typically very light, and we don’t have many bills on the calendar,” Stanley told The Daily News. “I wanted to use that time wisely and get the bankers and others to come in and educate us on what their world is like.

“Their first issue was, we’re not in the same world as the big boys, Wells Fargo and Bank of America and the like. We’re hometown people. We still have money to lend. For good borrowers, for good builders, we still have money to lend.”

Getting with the program

Greg Gonzales

What those bankers told Stanley was an important message, because 40 banks in Tennessee have applied to date to receive federal money as part of the Troubled Asset Relief Program (TARP), said Greg Gonzales, commissioner of the Tennessee Department of Financial Institutions.

Only a handful of those applicants have been accepted thus far, but for all of them and the banks approved in the future, the rules of the program are basically the same. The federal government determines if a bank is healthy enough to participate. Participating banks sell shares of preferred stock to the U.S. Treasury, which sends capital to the banks for those shares that will improve bank finances in the short term.

Eventually, the banks will repay that money.

The first local bank to be approved for the federal funds was Tennessee’s oldest and largest independent banking player – First Horizon National Corp., which got an infusion of $866 million from the government. Chase’s bank is one of the many smaller banks in Memphis that have applied but not yet been accepted.

Late last year, officials from the Federal Reserve Bank of St. Louis began reaching out to bankers around Memphis and

Shelby County, encouraging them to apply for the TARP money. Eventually, officials from the Fed convened a meeting in Memphis to explain the program to local bankers.

For the banks that have accepted, it puts them in a new position that carries with it political considerations they may not have had to weigh before. On one hand, federal officials and regulators created the program to shore up the system and make banks strong enough to ride out the current downturn.

On the other hand, the panel of Tennessee lawmakers who listened to the local bankers this month wanted to be convinced of something that remains a touchy subject with the general public – whether the banks are lending the federal money responsibly and not tucking it away.

Presenting the most recent loan growth data available from the first three quarters of 2008, Gonzales said those numbers show banks in Tennessee collectively ratcheting up their lending activity.

“It’s too early to make judgments on the impact of this (TARP) program, but I think it will result in stabilization and an increase in lending,” Gonzales said. “Some commentators have complained that banks are hoarding money. But if banks did not lend out money and instead kept it in cash, I think many of them would be unable to operate within a few months.”