Main Street Money

The funny thing is, Chuck Welter never wanted to be a banker in the first place. He had been there, done that, and boy, was it dull. When Welter started as a trainee at the Indiana National Bank, banking was so heavily regulated it became known as the 3-6-3 club, he recalls: "You paid 3 percent on savings, you charged 6 percent for loans and you were on the tee at 3 o'clock." This was the early '70s. After a year drowsing over his work, Chuck found an "honorable" escape, heading to Notre Dame for an M.B.A. He soon landed himself a prized job in sales at the giant Eli Lilly pharmaceutical plant—which in Indiana back then was the equivalent of going to work for Microsoft two decades later if you grew up in Silicon Valley. Chuck was quite happy—until his father, Bill, called up one day in 1973 and told him he wanted to buy up the old community bank, First National, in the little town of Valparaiso. Would Chuck come in with him?

His heart sank, Chuck says. He would be condemned to a life of drudgery at the First National Bank. You knowthe type: one of those old granite relics on Main Street that in many small towns now lies vacant or is subdivided into shops. Valparaiso is virtually Middle America itself, less than an hour's drive southeast of Chicago and not far from the Rust Belt town of Elkhart, which Barack Obama turned into a symbol of economic distress on his first trip as president in early February. Chuck resisted his father's entreaties, warning Bill, a successful car dealer, that neither of them knew much about banking. But Bill wouldn't take no for an answer. He wanted to create a family business that would span the generations.

Chuck eventually agreed, of course. He became a banker—and after a long period of painful learning and personal trauma (his marriage ended, among other things), a pretty damn good one. The three-decade-long saga of the Welter family is a microcosm of much of what has happened inside the American banking industry. It is a tale of near bankruptcy and harrowing gambles, of the subversive temptation of higher-risk returns and a searing family breakup over banking philosophy. It is, ultimately, a story of vindication for Chuck Welter, who was fired in 2006 by his own younger brother in part for hewing to traditional banking values during the subprime-mortgage mania— a stance that Chuck took in large part because he was old enough to remember the fallout from the last mania, the S&L crisis. Now Chuck and his loyal daughter Katy, a 26-year-old who's in her last year at University of Chicago Law School, are looking to become bankers again. They are among fewer than a dozen applicants who have qualified in the last six months for national banking charters.

Back in Washington, there is a rising tide of opinion that, in general, banking values should resemble Chuck Welter's more than they do Wall Street's. While America's global banking industry is not going to start acting like community banks—even Federal Reserve chairman Ben Bernanke said last week that good finance is about innovation as much as restraint—the government seems intent on promoting traditional practices. On April 1, the Federal Deposit Insurance Corp. instituted new rules that will reward conservative banking values by charging less for FDIC insurance to institutions that practice them. Columnist Paul Krugman recently joined other commentators in calling for a return to "boring banking"—code for when the industry was tightly regulated, U.S. household debt was low and Ivy League geniuses really did go into rocket science, engineering or tech, rather than inventing arcane financial instruments like collateralized debt obligations. Bernanke himself said recently that sound small banks could be a major engine of lending during the recovery. Still, it's brave to go into such a beleaguered business: according to the FDIC, the insurance approvals granted to new banks has dropped by half.

The sub-prime-mortgage disaster occurred in large part because many of the old banking verities were forgotten. The relationship of trust between lenders and borrowers—crucial to sound banking—grew so distant that the two sides no longer knew each other at all. And regulators didn't care much if they did, such was the furor to bundle loans into securities and sell them around the world. People forgot that the old divides between retail banking and investment banking were there for a reason; traditional banking is cautious, while investment banking and trading is buccaneering and bold. During the height of the bubble, the bankers were almost totally overwhelmed by the buccaneers. "I used to joke, being a traditional banker at a Wall Street firm was like being the last guy in the Alamo," says Doug Hollowell, whose company—sponsored by Jeff Greenberg, the son of former AIG Chairman Hank Greenberg—was also just approved for a new commercial-banking charter. "No more." Katy Welter says: "We used to struggle to explain to people the value of a community bank. I don't think we'll have to now."