Banking Law

Georgia On My Mind

We said recently that Georgia is a hot bed of failed banks. A story in today's The Wall Street Journal by Damian Paletta and Dan Fitzpatrick gives us facts to back up the assertion.

The state is home to just 4% of all U.S. banks, but 20% of the nation's bank failures since August. More banks have collapsed in Georgia than in any other U.S. state, even foreclosure-racked California and Florida. Six Georgia banks have been seized by regulators this year, burned by too much expansion in the past decade and bad real-estate bets.

Given the high level of delinquent loans haunting the remaining Georgia-based banks, more failures are expected. About 30 banks in the state are at risk of failing, according to bankers and lawmakers.

"Georgia is basically the Chernobyl of banking right now; it's radioactive down there," said Camden Fine, head of the Independent Community Bankers of America, a trade group.

The problem is exacerbated by the fact that Georgia has more banks than peaches. Bank branches dot the highways more frequently than bird droppings.

Georgia had 334 banks at the end of 2008, not counting branches of banks based elsewhere, such as Bank of America Corp., of Charlotte, N.C., and Wells Fargo & Co., of San Francisco. Since 2000, 112 banks and thrifts were started in Georgia, the third-highest total in the U.S., after California and Florida.

We understand why, as we observed in January, the FDIC appears to have said "nyet" to any more de novo banks in Georgia. One banker is quoted in the story as having to return to investors the $20.5 million he raised to start a new bank in Georgia when "his attorney was told by the FDIC's Georgia office that it didn't have the authority to grant any new charters." Of course, the FDIC denies the existence of a moratorium.

State and federal regulators said they don't have a moratorium on new banks in Georgia but are giving applications close scrutiny.

Yep, scrutiny using an electron proctoscope, a fireplace poker heated to 750°F, and a gross of vaseline. Thus far, few takers and no passers.

On the other hand, you have to chuckle at the response of one Georgia banker to Sheila Bair's complaint that too many banks were allowed to open in Georgia.

During a recent meeting with Georgia bankers, Federal Deposit Insurance Corp. Chairman Sheila Bair asked Christopher Maddox, head of Peoples Bank in Winder, Ga., why Georgia had so many banks. "Ma'am, may I respectfully submit that the FDIC approved every one of the applications," he recalls replying.

Unfortunately, Mr. Maddox and his entire family were whisked away the next night by a "Black Ops" helicopter and waterboarded at an undisclosed FDIC-run "rendition-friendly foreign location." No one smart-mouths Mother Bair and lives to tell the tale. At least, that's what anonymous e-mails we receive daily from the FDIC consistently promise. Luckily for Bank Lawyer's Blog, Texas law permits "concealed carry," and we have loaded the magazines of our Sig Sauer P-229s with hollow point silver bullets, certain to stop a even a Were-Bair dead in her tracks.

Another interesting tidbit contained in this article is the confirmation of what many of us have seen in other parts of the country.

The struggles of Georgia banks have inflamed fights between regulators, politicians and local bankers about who is most to blame and what to do next. Some bankers in the state complain that regulators are making their problems worse, forcing banks to take big write-downs on loan values, a common response when bad assets start piling up.

Regulators respond that they are just trying to apply one of the big lessons from the savings-and-loan crisis of the late 1980s and early 1990s: If the government hesitates to deliver tough medicine to overextended lenders, things could get worse.

Still, the FDIC and other regulators are being more assertive, sending real-estate specialists into Georgia, California and Florida to scrutinize troubled loans. In Georgia, the FDIC has installed two new officials in its Atlanta office. To handle a wave of expected failures in the Eastern U.S., the FDIC recently opened a temporary office in Jacksonville, Fla., with 500 employees.

In March, Georgia's two U.S. senators recently summoned banking regulators to a private meeting and conveyed the fury that bankers back home felt toward the FDIC. "What I'm hearing from banks is that the FDIC is squeezing them so tight they can't breathe," said Republican Sen. Johnny Isakson, according to people at the meeting.

It IS squeezing them so tight they can't breathe and as David Carradine recently discovered to his eternal chagrin, even the kinky fun part of that process has a down side. For banks, there is no kinky fun part.

Unless your last name is "Frank," "Pelosi," or "Reid," I doubt a personal visit to the FDIC is going to do a politician must good. The FDIC will continue to publicly call for banks to make credit available to creditworthy borrowers while privately doing everything in its power to ensure that that's the last thing banks are likely to do.

Full post as published by Bank Lawyers Blog on June 10, 2009 (boomark / email).