Like many of their local competitors, the folks who run Independent Bank in Memphis were encouraged by regulators to participate in the federal government’s controversial but arguably necessary financial bailout program.

Independent Bank, Memphis’ second largest as ranked by assets, was offered $20 million in fresh taxpayer-funded capital. In exchange, the federal government would have owned a stake in the bank, the same way it does in several banks around the city and hundreds more across the country.

Susan Stephenson, the bank’s co-chairwoman, said her bank turned down the offer because it wanted to hold true to the key word in its name: independent.

“We wanted to stand alone,” she told The Daily News. “We went out to raise our own funds independently.

“You know, life is been good. We really are so differently positioned from most of our peers. We have great asset quality and low exposure to real estate.”

Good and bad actors

That was part of the message of an overview of the banking industry she gave at a business luncheon Wednesday: The industry has its bad actors, but it also has bright spots.

She also began with an apology acknowledging the excesses of her industry colleagues, particularly the once rip-roaring Wall Street titans of finance.

Many of them lost their shirts in the housing bubble. For others, structured financial products that few bank executives understood chewed massive holes in their balance sheets.

Like a falling row of dominoes, problems at the big banks careened through the broader economy – the economy that affects average consumers who have house notes, car payments and credit card bills.

But the co-head of Independent Bank was emphatic. It was the collapse of firms like Lehman Brothers, not the actions of conservative community banks like hers that Stephenson said brought the U.S. and world economies to their knees.

The ripples of that malaise spread far and wide, and local banks have not been immune. First Horizon National Corp., the Memphis-based parent of First Tennessee Bank and widely regarded as a well-run institution, reported its seventh straight quarterly loss in January.

At the same time, First Horizon is furiously regaining lost ground. Based on Feb. 17’s closing price of $13.05 compared with $8.20 on Feb. 17, 2009, FHN’s stock price has jumped almost 60 percent.

The recession’s dust is beginning to settle, but bankers of all stripes are still taking public relations lumps. That’s why Stephenson also took pains to show the crowd the reason her bank’s name is “Independent” and why it turned down a dollop of federal bank bailout money.

And even though she’s a banker, Stephenson said she’s, well, “a nice person.”

“I don’t have any horns or a tail,” Stephenson said, drawing laughter from the attendees at Wednesday’s meeting of the Sales and Marketing Society of the Mid-South.

Back to basics

Congressional lawmakers, particularly top Democrats, still have a bad taste in their mouth over bailed-out banks and what is seen as lavish executive compensation in the industry. That’s behind a major piece of comprehensive financial reform legislation Congress is prepping.

Part of what the finished version is likely to do is put a new financial cop on the beat to police the industry and the agencies that oversee it. Consumer protections and a system for dismantling megabanks without shattering the economy in the process also are in the mix.

Moves like that came as a swift political reaction to the economic crisis. But while Stephenson sweetened her presentation with a dose of optimism and acknowledged those political realities, she also came armed with a few hard truths.

She laid some of the blame for the meltdown at the feet of a debt-fueled buying binge among consumers, many of whom never planned for the good times screeching to a halt.

“We became a consumer-driven economy starting in the ’90s,” she said. “We as a nation spent more money than we earned, and we stopped being a nation of savers.”

McCall Wilson, president and CEO of The Bank of Fayette County, agrees that Americans have grown too comfortable with red ink on their personal balance sheets.

“Our country and its citizens need to decide if we are going to live within our means, be moral and pay our bills or party like a drunken sailor,” he said.

The problems snowballed from there. Stephenson said major upheaval in the financial industry compounded the consequences of consumers leveraging themselves to the hilt.

“Financial institutions were allowed to become much larger and enter many more lines of business,” she said. “We all thought we knew everything. Today, eight institutions control 80 percent of all deposits in the U.S.”

That’s similar to how things look in Memphis. More than 60 percent of the local market’s $22.2 billion in customer deposits is held by four large banks: First Tennessee, Regions Bank, SunTrust Bank and Bank of America.

First Tennessee commands more than a third of the area’s deposit market share all by itself. By comparison, Stephenson’s bank has 2.6 percent of the market according to the most recent numbers from the Federal Deposit Insurance Corp.

Even though more banks are expected to fail and commercial real estate woes are expected to take a big bite out of the industry in the coming months and years, some bankers still see a faint break in the clouds coming soon.

Stephenson is among that crowd.

“This is the strongest, most innovative, most integrity-filled economy in the world,” she said.