Politics: Not Paying Attention
Integrity Bank, Alpharetta ... Alpha Bank and Trust, Alpharetta ... Community Bank, Loganville.
Those were the first three Georgia banks to be shut down by federal regulators in August 2008.
Over the past 15 months at least 25 banks have been closed in Georgia – more than in any other state in the nation. Even California, which has more than triple our population and is mired in a much deeper financial crisis, hasn’t seen as many of its banks closed.
First Georgia Community Bank, Jackson ... Haven Trust Bank, Duluth ... FirstBank Financial Services, McDonough.
The major factor in many of these bank failures, industry analysts agree, has been the collapse of the real estate and construction industries. Small banks stacked up too many loans to developers. When the real estate bubble burst, the developers filed for bankruptcy and defaulted on the loans.
Freedom Bank of Georgia, Commerce ... FirstCity Bank, Stockbridge ... Omni National Bank, Atlanta.
More than 20 of the failed banks were state-chartered institutions, prompting the question: Why wasn’t Georgia’s Department of Banking and Finance doing a more thorough job of reviewing the books of these institutions and calling attention to problem loans?
Therein lies the tale. Gov. Sonny Perdue and the current legislative leadership are ideologically opposed to the idea of government regulation. The magic of the marketplace, they contend, will solve any business problems that might occur.
When a spokesman for the governor was asked in late August if any new state regulations were needed to deal with the banking crisis, he replied that the best solution might simply be “to allow the market to work.”
American Southern Bank, Kennesaw ... Silverton Bank, National Association, Atlanta ... Southern Community Bank, Fayetteville.
The political leadership has backed up its ideological aversion to regulation by cutting the budget for the state banking department, forcing it to eliminate positions responsible for handling consumer complaints as well as reduce the number of bank examiners. That makes about as much sense as laying off police officers in the middle of a crime wave.
Even when there were state examiners physically available to go over a bank’s books and detect those problem loans, their advice often wasn’t followed by the institutions.
“It’s hard to get someone’s attention with criticism when they’re making money,” said Tracy Whitesides, who’s in charge of administration at the banking department. “Everything was going so well.”
Community Bank of West Georgia, Villa Rica ... Neighborhood Community Bank, Newnan ... Security Bank of North Fulton.
As late as last summer Joe Brannen, president of the Georgia Bankers Association, be-lieved the industry was in pretty good shape.
“I’m confident Georgia will continue to have a robust, competitive and healthy banking industry made up of small, medium and large banks,” he wrote in a July op-ed column for the Atlanta Journal-Constitution. “And, we do know things will improve as the overall economy improves. They always have, and they will again.”
But improvement has been slow in coming. The FDIC subsequently shut down First Piedmont Bank of Winder (cost to the agency’s deposit insurance fund: $29 million), the six affiliates of Security Bank Corp. of Macon (cost: $807 million), ebank of Atlanta (cost: $63 million), First Coweta of Newnan (cost: $48 million), the Georgian Bank (cost: $892 million) and American United Bank (cost: $44 million).
The CEO of American United Bank’s holding company was David Poythress, a Demo-cratic candidate for governor. I asked Poyth-ress if he thought that more stringent bank oversight should be an issue in the upcoming campaign. He said he would rather focus on issues like education and transportation.
“The whole question of banking and financial institution reform is really more of a federal issue than a state issue,” Poythress said.
Considering that a sizeable percentage of the state-chartered banks still in operation are considered by regulators to be “problem banks,” that’s not exactly reassuring.