I’ve made a lot of posts about the number of failed banks in Georgia since 2008.
While we haven’t gotten anything close to a full accounting of the reasons for the crisis in Georgia, there are obvious culprits: lax regulation, overconfidence in the economy, the opening of too many banks, criminal activity, and so on.
The two failures in Georgia push that state’s total to 73 at a cost of $9.3 billion since the on-set of the crisis in 2008. In all, the FDIC’s Atlanta Region has seen 154 failures at a cost of $27.7 billion. Perhaps these figures would be lower if the supervision team in that region had taken seriously the many warnings it received long before the on-set of the crisis on the riskiness of the C&D lending exposures. As an aside, it is interesting how many of the involved principals still hold high level positions at the FDIC or have gone on to lucrative consulting jobs. As the OWS movement wants Wall Street executives held accountable for the economic dislocations they caused, how about a movement to hold the regulatory agency executives accountable for their failings that contributed to those dislocations?
I did a little nosing around, and found an article — FDIC report on C&D loans: Area banks more vulnerable — from the Atlanta Business Chronicle. In 2001.
Clearly, there was a longstanding awareness of banks in Georgia having too much exposure to risky types of loans that would not perform well in a recession. From that 2001 piece:
There’s nothing mysterious about the reasons for heavy loans to the real estate sector: Between 1990 and 2000, Atlanta’s population soared nearly 40 percent, adding more than 1.1 million residents.
The red flag goes up when comparing statistics from the recession of 1990 with 1991, according to the FDIC report. Before that, Atlanta community banks’ highest previous exposure had been 20 banks above 15 percent in 1988.
The aggregate C&D exposure at year-end 2000 was 25.9 percent. In 1991, it peaked at 21.1 percent.
“Given the high and rising C&D exposure, Atlanta may be more vulnerable than several other metropolitan markets in the region to the effects of a slowdown in the real estate market,” FDIC officials stated in the report. Macon and Savannah also are vulnerable, although less so, according to the report.
As it turned out, that 2001 recession was pretty shallow, and banks proliferated in the following years, making ever more dubious loans for development.