Ray Davis, chief executive officer of Umpqua Bank, is in Sacramento this week talking with local business owners and staff at the bank's 22 branches in the area. Oregon-based Umpqua has $9 billion in assets and 151 branches in three states. After a speech at the Radisson Hotel on Thursday morning, Davis talked with The Bee about recession, recovery and the government's handling of the credit crisis.

For you, as a banker, what will signal that an economic recovery is under way in the Sacramento region?

The biggest thing is that the housing industry has got to find a bottom. And of course it's hard to predict if any market is at the bottom. But what we've seen is the inventory has dropped significantly. Coupling that with the low interest rates and the amount of people that are refinancing and purchasing homes, and there are good signs that the housing market is bottoming here.

The second thing, of course, is consumer confidence. The problem that California's got is that with this budget crisis, it's difficult to feel very good about anything. The sooner (elected officials) can deal with the hard issues … and take away the fear of the unknown, I think then consumer confidence has a much better chance of bouncing back.

You mentioned consumer confidence – what are the key indicators there beyond the national surveys?

The media are also important. We're almost numb to bad news. You tell me "It's bad" six or seven times, I'm going to believe it and I'm going to get cautious.

I believe American society is at the tipping point (for recovery). If the media will report aggressively on (positive economic news), put it on the front page, I'm telling you, Americans will pull out of this faster than anybody thinks.

What sectors of the Sacramento economy do you expect will lead the recovery? What sorts of businesses do you expect to come in your door asking for loans?

I think it's pretty broad-based. Certainly the green sector is huge right now – I saw a statistic this morning that their employment is up 10 percent. I think sustainability is going to be big.

In general – business people need to keep their eyes up, because they will be seeing more opportunity than they've seen in their careers in the next couple of years.

For small business in times like this, the most immediate reaction is to hunker down – and an element of that must go on. But there are also great opportunities that come from this type of downturn.

Like many other banks, Umpqua has taken substantial losses on loans to residential real-estate developers. How will you know when it's safe to start making those kinds of loans again?

I think it has a lot to do with supply and demand. Most banks have been so traumatized by that type of lending that it's going to be slow going. Right now, the demand is zero. Until the inventory gets so low that builders have an opportunity to build – and sell – I don't think you're going to see much of that.

Last fall, Umpqua agreed to receive a $214 million federal investment as part of the government's program to encourage healthy banks to expand lending. Now you've announced that you're going to return the money – with interest – because you don't like the stigma of having taken a "bailout." Was that mainly an issue for investors, or for customers? Any other reasons you're getting out of the program?

Most of the stigma has to do with (perceptions among) the general public. I don't know how many times I've seen "Umpqua Bank got $200 million of bailout money" in the media. It's not true, but I can't win that argument.

It's unfortunate, and it's not so much because of the media but because Congress has done just a (poor) job explaining how this program works.

The other intangible is that there's sort of a stroke-of-the-pen risk – that we don't know what Congress is going to do next (to banks that have taken federal funds).

That's calmed down, but there's still a risk. Do we really want to face that? My answer is 'No, not right now.' If I needed the capital, then I couldn't do that. I couldn't say what I'm thinking. But I don't need the capital.

Call The Bee's Jim Downing, (916) 321-1065.