Bank officials across Helena are closely watching the ongoing credit and liquidity crisis on Wall Street, but most say they see few effects in their own business, and local depositors don’t need to be concerned.

By cutting its overnight loan rate by three-quarters of a point Tuesday after an emergency quarter percentage cut to the discount rate over the weekend, the Federal Reserve signaled it wants to lower the cost of borrowing money to encourage lending and economic growth.

One of the most venerable brokerages on Wall Street, Bear Stearns, effectively disappeared over the weekend, scooped up for a song by the investment bank J.P. Morgan after nervous creditors stopped making loans to Bear Stearns and essentially triggered a run on the firm’s assets. The government put up $30 billion to shore up the deal.

The headlines are troubling, but officials with local banks say the effects are limited here.

“The problems at Bear Stearns go pretty deep. That became a crisis of confidence as much as anything, and those types of things are really hard to overcome,” said Pete Johnson, president of American Federal Savings Bank. “For most people, if they’ve got good credit, they’ll still be able to get loans. And when things like this happen, we always reinforce the message that deposits are insured by the (Federal Deposit Insurance Corp.).”

Valley Bank of Helena president Andy O’Neill said it appears the crisis is confined to Wall Street and the investment banking community.

“The effect for community banks is next to none,” he said. “People’s money is completely safe, the industry is well-capitalized.”

O’Neill said Glacier Bancorp, Valley’s Kalispell-based parent holding company, hasn’t changed its lending standards in response to the credit crisis.

“We have not seen any tightening of credit on the local level, and we don’t see tighter underwriting standards being adopted,” he said.

Banks maintain certain loan-to-deposit ratios, meaning that for every dollar the bank has on deposit from a customer, the institution can loan out a certain amount. In addition to using deposits, some banks also borrow money from other institutions in order to have more funds they can then loan against.

Both O’Neill and Mike Dalton, president of Mountain West Bank, said they haven’t seen any changes in the availability or liquidity of the overnight funds the banks use to keep their ratios in line.

“We’re a well-capitalized bank,” Dalton said, adding that turmoil on Wall Street may actually lead to an increase in deposits as investors seek safety. “We feel good about the markets that we are in in Montana, and expect an influx of deposits because of uncertainty in the stock market.”

Johnson said some borrowers ask about lower mortgage rates when the Fed lowers its lending rates, but those two aren’t necessarily tied together. Mortgage rates, as long-term loans, are more closely tied to the rate on the 10-year Treasury bond, he said.

“There really isn’t any direct relationship (between mortgage rates and the federal funds rate),” he said. “The market controls (mortgage rates), and what comes into play is the market’s perception of what’s going to happen with inflation down the road. Fear of inflation drives up mortgage rates.”

Reporter John Harrington: 447-4080 or john.harrington@helenair.com