Economics

An ugly new wrinkle in Georgia’s banking crisis

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An article in today’s AJC, Feds’ suit targets state senator, other officials of failed bank, almost reads like something from The Onion.

As the state’s banking crisis has deepened — Georgia leads the nation in bank failures since the recession took hold — the state’s elected leaders have failed to ask obvious questions.

Why, exactly, did we allow so many banks to open in recent years, and why have so many banks failed or now stand on the verge of failure?

Clearly, the state’s leaders don’t want to talk about the government’s failings or about the sometimes cozy relationships between legislators and banks in their communities, so it might just take the FDIC to get everyone’s attention.

According to the article:
In a lawsuit filed by the FDIC, state Sen. Jack S. Murphy, R-Cumming, is among former Integrity Bank executives or directors accused in relation to a series of loans made from 2005 to 2007. The FDIC seeks damages of “over $70 million.”

Murphy was just named chairman of the state Senate Banking Committee.

It seems that Integrity, “which touted itself as a faith-based company and featured copies of the Ten Commandments in its branches,” had “numerous loans in violation of the state lending limits, and its own internal loan policy permitted loans larger than allowed by state law, the suit asserts,” according to the AJC.

Senator Murphy’s otherworldly response to questions about whether this will affect his position as banking committee chairman:
“I have served on the banking committee for eight years in the House and the Senate,” he said. The committee deals with legislation aimed at banking law in Georgia, he added, and “has absolutely nothing to do with the FDIC and their decisions.”

Well, maybe it’s all clear now. The state oversight of banks has nothing to with the agency charged with federal oversight.

I’m not going to hold my breath, but let’s hope this news, which seems all but certain to me to be picked up by national outlets, will force Georgia’s leadership to reevaluate their approach to the banking crisis and to regulatory failures during the real estate bubble.