Jul. 5--KETCHUM -- In a tiny office tucked behind the shelves and a small cafe at Iconoclast Books, Sarah Hedrick is fighting to save her business from the most powerful banking regulatory agency in the United States.

Surrounded by leather-bound classic literature and family photos, she has been searching for a new bank that will extend her a line of credit. That financial lifeline is the only thing that could stop the Federal Deposit Insurance Corporation from seizing her nationally known bookstore.

She's not alone. By some estimates, as many as 100 Wood River Valley businesses are in danger of being taken over and liquidated. Hedrick, like most business owners interviewed, isn't about to give up without a fight.

"My business and this community have been through a lot in the last year," Hedrick said. "I'll be damned if I will go through all that and have the FDIC shut me down."

Nationwide, the FDIC and the Office of Thrift Supervision have closed nearly 100 community banks in recent months in an effort to build confidence in an unstable financial industry.

Each closure receives nationwide attention, but less obvious is the damage downtstream as small businesses struggle to replace severed lines of credit.

That's what happened in April, when a small army of accountants swept into Ketchum and took control of the First Bank of Idaho, which held the lion's share of small business credit accounts in the valley.

Depositors were reassured that their money was safe, but local businesses quickly learned that they were left hanging -- the new owner, U.S. Bancorp, would not continue their credit accounts.

At issue, said Hedrick, is that First Bank understood the peculiar rythmes of business in a resort town, and was willing to work with small businesses needing cash to continue operations between seasons.

"We live in a community that relies on tourism, which rises and falls on the seasons, not fiscal quarters," Hedrick said, as contractors, landscapers and other laborers raced past her storefront to the nearby Sun Valley Lodge, which was preparing for the summer tourist rush. "That's something that a federal agent in New York isn't going to understand, and it's why banks like First Bank (of Idaho) did so well here -- that is, before the feds shut it down."

SUBHEAD

As late as April, the director of First Bank of Idaho was unaware that the locally-owned bank was about to be number 85 on a growing list of FDICseizures.

Almost five months earlier, the bank's capital ratio -- capital compared to risk-weighted assets such as loans -- fell to 9.8 percent, slightly below the federally required 10 percent minimum. At that time, the Office of Thrift Supervision, which regulates savings banks, informed First Bank that it had to raise more capital by June 30 or risk FDICtakeover.

First Bank officials say they hired an investment bank in January to solicit more capital, and met with eight potential private investors in March. But just days later, said First Bank Director Nancy Schauer, the FDIC downgraded the bank's rating and cut access to brokered CD markets, limiting its ability to borrow.

The Office of Thrift Supervision also released a its cease-and-desist order to a local newspaper, which bank officers say led to a $15 million run on deposits.