Newnan, GA, August 16, 2011 -

Associated Press: Congressional panel investigates Ga. bank failures

Published: Tuesday, August 16, 2011

Georgia holds the dubious distinction as the epicenter of bank failures in the aftermath of the Great Recession. But lawmakers who gathered at a congressional hearing Tuesday to investigate the causes questioned whether some of the shuttered banks were victims of overzealous regulations and strained relations with examiners.

Georgia has suffered 67 bank failures since 2008, far more than any other state. Many of those banks collapsed due to lax lending practices that left them laden with bad debt after the downfall of the housing market. But other troubled banks with better track records struggled to broker deals with regulators, and their failures wiped out generations of wealth, said U.S. Rep. Lynn Westmoreland, the Georgia Republican who organized the hearing.

"Now strict enforcement has created more failures. Banks that are too big to fail survived. Banks too small to save have been cut lose," Westmoreland said. "I'm convinced there's a middle ground between these two extremes."

Bank executives complained of testy relations with regulators and onerous legislative restrictions. Chuck Copeland, the chief executive of First National Bank of Griffin, said "second guessing and weariness" plagues interactions with bank examiners. And Michael Rossetti, the president of Ravin Homes, said lenders are overwhelmed by the new rules imposed by last year's Wall Street Reform and Consumer Protection Act, passed in response to the 2008 financial crisis.

"We are being regulated to death in all of our personal business lives," Rossetti said.

Regulators defended their policies, which they said helped banks and borrowers navigate the slow economic recovery. The FDIC brought stability to the banking system by quickly resolving problems with failed banks while saving the financial system billions of dollars, said Christopher Spoth, an FDIC official.

Georgia, which U.S. Rep. Spencer Bachus of Alabama called "ground zero" for the banking crisis, was a convenient site for the hearing. The collapse of the housing market in 2007 devastated the nation's financial network, but Georgia's banking system was among the hardest hit.

One of the reasons, Spoth said, was that Georgia's banks were too eager to make construction loans in the mid-2000s, when the state's economy was booming and real estate prices were on the rise.

"Not many expected the housing collapse," said Spoth.

Other systemic problems could be traced to the 1990s, when state regulators seemed to relax strict standards to make it easier for potential bankers to get charters, said Gary Fox, the former chief executive of Bartow County Bank, which failed in April.

That led to a glut of banks in small communities that couldn't support new lenders, forcing them to seek more business at lower rates in other markets. Soon, competitors were flooding the metro Atlanta market trying to outdo each other.

"It only takes a couple of folks to pollute the pool," he said.

Westmoreland and U.S. Rep. David Scott, D-Georgia, are pushing legislation that calls for a review of the FDIC aimed at investigating whether regulators are hampering rather than helping the economic recovery of the financial industry. The measure passed the House and is now pending in the Senate.

"Our banks are like the heart of our system. It's a heart that pumps out the blood. It is banks that pump out credit, pump out cash, pump out the lending, so the economy can grow," said Scott. "When we have the rash of bank failures ... then we've got to dig deep and find out what happened."

But others said regulators shouldn't shoulder all of the blame.

"That's human nature, to say someone else caused my problems," said Bachus, who chairs the House Banking Committee. "And the bottom line is that the regulators may have made a mistake, but I don't think in many cases they forced the failure of banks."

Published: Tuesday, August 16, 2011

Financial regulators have taken a public thrashing for going easy on banks before the financial crisis hit, allowing institutions big and small to dole out dubious loans. Now, according to some community bankers, regulators have abandoned their light touch for a heavy hand at a time when the industry is struggling to recover.

The Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have dispatched on-site examiners to scour banks for minuscule problems, bankers said in Congressional testimony on Tuesday. While regulators say they are trying to prevent further bank failures, bankers complain that the examinations amount to nitpicking.

“We have found the field examiners less willing to disclose conclusions and very guarded in acknowledging progress in those areas where we may have been performing well,” Chuck Copeland, the chief executive of First National Bank of Griffin, Ga., said at a House Financial Services subcommittee hearing in Newnan, Ga.

Since the crisis hit, Georgia has had 67 institutions fail, more than any other state. Community banks, those with $10 billion or less in assets, make up the bulk of those now-shuttered institutions.

For all the talk of Bank of America’s beleaguered stock price and Goldman Sachs’s disappointing earnings, small banks are faring far worse than their large Wall Street counterparts. More than 380 banks have failed since early 2008; 326 of which were community banks, according to the F.D.I.C.

“The F.D.I.C. is keenly aware of the significant hardship of bank failures on communities in Georgia and across the country,” Bret D. Edwards, the head of the agency’s division that oversees bank failures, said in prepared testimony before the financial services committee.

But some bankers say their regulators are making matters worse by misunderstanding the cause of the industry’s woes. Mounting losses at small banks are not owed to reckless risk-taking, community bankers say, but the unforeseen collapse of the commercial real estate market in the Southeast.

“Did we have a role setting ourselves up to become victims? No doubt,” said Mr. Copeland of First National Bank of Griffin, a nationally registered bank that is overseen by the Office of the Comptroller of the Currency. “But did we recklessly pursue growth and earnings at all cost with no regard to the other elements of our mission? Never.”

That message is lost on regulators, he said. “We understand that it is not a personal affront; it is simply this environment of second-guessing and weariness in which we are all operating.”

In testimony before the subcommittee, regulators said they were taking steps to address the perception that their examiners are overly strict.

“The Federal Reserve takes seriously its responsibility to address these concerns,” Kevin M. Bertsch, an associate director of the Fed told the subcommittee. The Fed, he said, has created training programs for its examiners and conducts occasional reviews of their examinations.

For its part, the F.D.I.C. said it was reaching out to bankers for guidance on the examination process. In 2009, the agency created the Advisory Committee on Community Banking, made up of small bankers from across the country, according to Mr. Edwards of the F.D.I.C.

“The F.D.I.C. takes great care to ensure national consistency in our examinations,” Mr. Edwards said.