FAIRMONT — Following the rejection of the economic stabilization plan Monday, local economists and banking officials are thinking about what will happen next.

Legislation involving a $700 billion emergency measure to save the country’s financial system was defeated 228-205 in the U.S. House of Representatives. Under this bill, the government would have been able to purchase the bad mortgages of banks and financial institutions that were in trouble and hopefully help the economy in the process.

Dr. George Hammond, associate director of the West Virginia University Bureau of Business and Economic Research, said experts are unsure of what could happen if the financial bailout bill doesn’t pass and are worried about the potential impacts.

“That’s a major source of uncertainty going forward,” he said.

Hammond said failure to act now could mean an inability to head off issues in the financial sector that might inhibit investment spending.

“The fear is that the problems in the financial system will reduce the ability of banks across the nation to make loans, and that sort of problem can reduce investment spending,” he said.

The country’s economic situation could lead to decreased capital spending for plant equipment, nonresidential structures like office buildings, and residential construction, Hammond said.

“This crisis has to be solved immediately,” Dr. Mohamad Khalil, professor in the Fairmont State University School of Business, said.

He said the government has to be responsible for this financial situation because it won’t just touch the economy of the United States. The impact will be felt across the world and could create a domino effect from bank to bank.

Khalil said if the problem isn’t solved, almost every sector in the economy will be affected. There will be less demand for labor, and a bad recession could result.

Loans will become very costly and harder for businesses to obtain, and investment will reduce as a result. If the market is not stable, business people will look for safer places to invest, he said.

Dick Martin, president and CEO of MVB Bank, said he wishes the legislation wasn’t referred to as a bailout bill. People are under the misconception that every bank in the country needs to be bailed out.

However, the bill really refers to investment brokers, investment banks or large U.S. banks rather than the community banks across the country, he said.

“We didn’t create the mess,” he said. “We don’t have that mess. The community banks in communities all across this country are in good shape.”

However, Martin said there will probably be more regulations for all financial institutions, regardless of whether they played a part in causing the situation or not.

“It will I’m sure have an impact on people borrowing money,” he said. “I think we will see less financial activity on a consumer level.”

It’s hard to tell what the plan will or won’t do for the economy, but Martin said the country needs government leaders who aren’t just making decisions in order to get re-elected.

The problems on Wall Street are causing local bank customers to voice their concerns and make sure their deposits are insured. Many clients visit MVB Bank to discuss FDIC insurance. The FDIC recently made some significant changes and expanded its coverage, which Martin said is a positive step.

Mortgage activity is one way to measure a bank’s business, he said.

“Our mortgage activity this year is greater than last year,” Martin said. “We have not seen in North Central West Virginia a slowdown in mortgage activity.”

As far as its practices, MVB Bank hasn’t really had to change anything and certainly hasn’t had to turn people away from loans, he said. However, MVB Bank tries to be more cautious if it happens to encounter a strange loan.

“People should not panic,” Martin said of the economy. “The community banks are well positioned, and the community banks weren’t part of the problem.”

WesBanco, which is headquartered in Wheeling, has a large presence in the Fairmont area. Robert Young, chief financial officer, said WesBanco was disappointed by the decision that lawmakers made Monday.

“We are hopeful that before the end of the week, they will see the error in their ways,” he said.

Although there were some problems with the legislation, the economy is dependent on some sort of congressional action in order to deal with the losses in the market, he said.

Young said the bill has the elements of a financial rescue, and many people think it will primarily benefit Wall Street. But WesBanco believes Main Street will also see a significant benefit in the form of economic recovery that will keep people employed or provide better job opportunities.

Without action, the economy may see a downward spiral of consumer confidence in stocks and bonds as well as relationships oversees, Young said.

“Most importantly, people will become more and more concerned with the economic viability of the (country),” he said. “We firmly believe that some sort of resolution is necessary, and sooner rather than later.”

Young said WesBanco is heavily invested in home-based markets. WesBanco and the state’s banking industry have learned how to operate in markets that have slower growth and are less dynamic, and they have individual residents that they can count on to pay back bills.

“The state’s banking industry has never been healthier,” he said. “We don’t stray from our roots.”

“If you were to look at that FDIC Web site and break down West Virginia banks, you’d say that we have some of the healthiest banks in the United States.”

Young said business is normal for WesBanco, and the bank is seeing some decent customer deposit inflows. Like other financial institutions across the state, WesBanco is trying to be more careful with loans.

“As with most other banks, we are becoming more cautious about how we lend money and the terms and conditions and rates for loan customers,” he said. “We do have money to lend. We have plenty of capital. We are indeed open for business and encouraging businesses to apply for loans through this (bank).”

Banks headquartered in West Virginia aren’t seeing the same sort of concerns from customers as the larger institutions are, Young said. In fact, WesBanco has established a marketing campaign emphasizing the safety and soundness of the banking industry.

E-mail Jessica Legge at jlegge@timeswv.com.