Georgia Legislature oddly incurious about bank failings
Last week, the Federal Deposit Insurance Corp. closed three more banks in Georgia, confirming the state’s reputation as the epicenter of the banking crisis. More than one in six bank closings this year were in Georgia.
State regulators played a role in many of those closings. In fact, 20 of the 24 Georgia banks shuttered this year were chartered by the state, meaning that the Georgia Department of Banking and Finance was partly responsible for oversight of those banks.
So what happened? Did state regulators have the resources to do their job? Did the agency lack the will to intervene with banks? Why did it let banks load up on loans to developers, in effect putting all their eggs in one basket?
In Washington, such questions have touched off numerous investigations and hearings. But in Georgia, banking committees in both the House and Senate have been strangely silent.
Financial disclosure reports filed by legislators suggest one explanation for that silence.
Rep. Cecily Hill, secretary of the House Banking Committee, is a director of the Satilla Community Bank. In June, the FDIC issued a cease-and-desist order to the state bank ordering a halt to “unsafe and unsound banking practices.”
Rep. Greg Morris, also a committee member, is a director of Montgomery Bank and Trust. In September it too received a cease-and-desist order and was told to review the “appropriateness” of money paid to Morris and others on its board.
Rules Committee Chairman Earl Ehrhart served as a director of Georgian Bank, a state institution that failed in September and cost the FDIC an estimated $892 million in insured deposits. He also sits on the banking panel.
Altogether, eight members of the House banking committee sit as directors of state-chartered banks.
(Departing House Speaker Glenn Richardson sits on the board of the troubled WestSide Bank in Paulding County.)
On the Senate side, Banking Committee Chairman Bill Hamrick does not sit on a bank board. In response to an interview request, he issued a statement claiming that “the Senate has been proactive in addressing bank failures for over a year now. Last session we took steps in the right direction by passing Senate Bill 57,” which is still in the House.
SB 57 tightens consumer protection in mortgages; it does not address bank failures at all.
Sen. Ralph Hudgens, vice chairman of the committee, is a director of a state-chartered bank, as is Sen. Ed Tarver, the committee secretary.
Another committee member, Sen. Jack Murphy, was a director of Integrity Bank. That state-chartered bank collapsed more than a year ago, costing the FDIC as much as $350 million.
Why have so many failed banks been state-chartered? In effect, federal law lets banks choose their regulators.
By choosing to be chartered by the state rather than a federal agency such as the Comptroller of the Currency, a bank also opts to be supervised by state regulators. (The FDIC has oversight over both state and federal banks.)
A. James Elliott, associate dean of Emory Law School and an expert in banking law, declined to discuss Georgia’s banking situation specifically. But in general, he says, it’s no accident that legislators sit so often as bank directors of state-chartered banks.
“Are there potential conflicts for state banking regulators in general?” Elliott said. “Yes, particularly when many of the banks have members of the General Assembly on their boards. In theory, that should have no effect.
“In reality, those legislators set your budget and are people you’d like to get along with. It creates at least the potential to at least hesitate.”
And hesitation has its price.
NOTE: This post has been edited for accuracy. A previous version reported that House Banking Committee Chairman James Mills was a director of state-regulated Creekside Bank. He is not and has never served in that capacity, and I apologize for that mistake.
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150 comments Add your comment
USinUK
December 8th, 2009
7:25 am
wow. talk about the foxes guarding the chicken coop…
Boogers for the Children Fund
December 8th, 2009
7:32 am
Forget about it. If they investigate it will turn into a political witchhunt with cover-ups, wasted time, perhaps some information or responsibility/blame being found then…Nothing.
Dont waste the taxpayers money exploring this rabbit trial.
USinUK
December 8th, 2009
7:33 am
interesting article in the WSJ about GA banks (although, I’m not surprised that Isakson is squealing against tougher FDIC requirements)
http://online.wsj.com/article/BT-CO-20091202-710525.html
N-GA
December 8th, 2009
7:34 am
Do you think that these same legislators also receive preferential loans, insider access to REO, country club privileges and other “perks” not generally available to the public?
Of course they do…….
I Report (-: You Whine )-: mmm, mmmm, mmmmm!
December 8th, 2009
7:37 am
The housing crisis probably had nothing to do with it…..
USinUK
December 8th, 2009
7:40 am
while I generally think Erik Erikson is a total buffoon, this column is rather entertaining …
http://www.redstate.com/erick/2009/12/07/when-breaking-out-the-guillotine-it-is-best-to-chop-off-all-heads-at-once-the-costs-of-cleanup-are-cheaper/
Mrs. Godzilla
December 8th, 2009
7:52 am
I guess it would be a good idea to make sure ones life savings are
not stashed in Georgia State chartered banks……
a list can be found here
http://dbf.georgia.gov/00/channel_title/0,2094,43414745_46293690,00.html
N-GA
December 8th, 2009
7:53 am
The housing crisis simply exposed what was there all along. The federal bank regulatory agency (Comptroller of the Currency) restricts bank lending to prevent a bank from being too exposed to a particular customer or industry. The industry term is “safe and sound banking practices” and is typically ignored by state regulators.
Some banks make a loan to “Acme Real Estate Development Corp”, then later make another loan to “Bogus Builders, Inc.” which is owned by the same developer and represents the construction arm of the people behind the companies. When one company goes belly-up, both loans go bad. BTW, the bankers were completely aware of the relationship between the companies.
There is a bank up here in North Georgia that is operating under a “cease-and-desist” order. All top executives were thrown out of the bank and the regulators put an outsider in as CEO try to figure out what happened. Once all is known (due diligence), the bank will be closed/sold and the taxpayers will suck up the loss.
Redneck Convert (R--and proud of it)
December 8th, 2009
7:53 am
Well, there ain’t nothing to be curious about over these GA banks going bust. I said it before, I’ll say it again. Give a bunch of good old boys a pile of money to set on and pretty soon it’ll be gone. There’s dozens of big holes in the ground in this state, where people got big building loans from banks and then went bust before they even got the first slab of concrete poured.
Seems to me it goes something like this. Dozens of people apply for bank loans to buy trailers and houses and trucks and such. They all get turned down. Even tho at least there’s something of value to back up a loan like that. But let old Jason Thump III go to one of these banks with a idea to build a big shopping center and the bank people will fall all over theirselfs to shovel money to Jason. They don’t mind if Jason went bust on about 15 other shopping center ideas and is about to make it 16.
And that’s where the people in the legislature come in. See, they might could make only 7500 bucks for being a member of the House, but they can draw about 150000 bucks for being a member of the board of one of these banks. Plus, old Jason and his fambly and friends are ready to chip in about 10000 to see that this House member gets reelected.
So the bank goes bust when Jason goes bust on the project but old Jason still has all that money from other busts and the House member got rich from being a bank director and he’s ready to be a director of another bank that didn’t go bust. The only one that catches a big pile of You Know What in all of this is the taxpayer that has to make up for the bank going bust by paying off all the people that had money in that bank.
It’s just Free Innerprize at work and only a Socialist like Bookman would whine about it.
Have a good day everybody.
Boogers for the Children Fund
December 8th, 2009
7:53 am
“The housing crisis probably had nothing to do with it…..”
Of course…giving away houses/loans to lazy idiots with bad credit who had no intention of making repayment. Rampant fraud is the cause but lettuce not address the cause.
Lettuce stick our collective heads in the sand and address the symptom.
That being complete idiots who deserve to lose their homes. And of course lettuce not forget THE CHILDREN. Oh yes…the poor poor children…
I Report (-: You Whine )-: mmm, mmmm, mmmmm!
December 8th, 2009
7:54 am
Meanwhile, back on Earth, the big money gets schemed on-
Much of the momentum for Copenhagen is now driven by the alternative fuels industry and its investors, who stand to lose vast sums unless governments artificially raise the price of carbon. These include our friends at Kleiner Perkins, the ecoventure capital fund that includes Al Gore as a partner. And of course that part of the political class congenitally eager to redistribute taxpayer monies also wants to dispense “carbon credits” to friends and political donors.-WSJ
USinUK
December 8th, 2009
7:58 am
Mrs G –
“I guess it would be a good idea to make sure ones life savings are
not stashed in Georgia State chartered banks……”
well, make sure that whatever savings you have don’t exceed the FDIC coverage …
USinUK
December 8th, 2009
8:01 am
“Of course…giving away houses/loans to lazy idiots with bad credit who had no intention of making repayment. Rampant fraud is the cause but lettuce not address the cause. ”
of course, since the banks could sell the mortgages on, what did they care since the risky loan was off their books …
… until it wasn’t.
I Report (-: You Whine )-: mmm, mmmm, mmmmm!
December 8th, 2009
8:02 am
Like I was saying-
Anti-humanism: In his 2007 best seller “The World Without Us,” environmentalist Alan Weisman considers what the planet would be like without mankind, and finds it’s no bad thing. The U.N. Population Fund complains in a recent report that “no human is genuinely ‘carbon neutral’”—its latest argument against children. John Holdren, President Obama’s science adviser, cut his teeth in the policy world as an overpopulation obsessive worried about global cooling. But whether warming or cooling, the problem for the climate alarmists, as for other totalitarians, always seems to boil down to the human race itself.-WSJ
Finn McCool
December 8th, 2009
8:05 am
They don’t get worried because they operate in a world of “someone will bail us out if things go south”
In other news, David Brooks making some good sense this morning:
First, push hard to fulfill the Obama administration’s education reforms. Those reforms, embraced by Republicans and Democrats, encourage charter school innovation, improve teacher quality, support community colleges and simplify finances for college students and war veterans. That’s the surest way to improve human capital.
Second, pay for basic research. Federal research money has been astonishingly productive, leading to DNA sequencing, semiconductors, lasers and many other technologies. Yet this financing has slipped, especially in physics, math and engineering. Overall research-and-development funding has slipped, too. The U.S. should aim to spend 3 percent of G.D.P. on research, as it did in the 1960s.
Third, rebuild the nation’s infrastructure. Abraham Lincoln spent the first half of his career promoting canals and railroads. Today, the updated needs are just as great, and there’s widespread agreement that decisions should be made by a National Infrastructure Bank, not pork-seeking politicians.
http://www.nytimes.com/2009/12/08/opinion/08brooks.html
jt
December 8th, 2009
8:09 am
With a flick of his finger, Tommy Irvin could fire any or all of the above mentioned Banksters.
Not is not ONE aspect of a Georgia citizens life that is not affected by the power of Tommy Irvin.
Tommy Irvin is the George Soros of Georgia.
And I say this with the utmost respect Mr. Irvin sir.
Gale
December 8th, 2009
8:09 am
Three words: greed. campaign contributions.
USinUK
December 8th, 2009
8:09 am
that’s right, whiner … we’re all out to DESTROY mankind … mwaaaahahahahahahahah … (rubbing hands together gleefully)
oh, and Weisman’s book isn’t about what the right-wingnuts like to say it’s about – it just talks about the process of how the earth would wipe out all evidence that man had ever been here, it doesn’t cheerlead for it to happen.
Mrs. Godzilla
December 8th, 2009
8:09 am
USinUK
Good Morning….that whole FDIC coverage limit thing is not going to be a issue for us…..but thanks for your concern.
Finn McCool
December 8th, 2009
8:09 am
I think the problem the GA banks had were the number of loans they made to developers who were popping up new subdivisons faster than they could write checks.
Look at the number of construction firms that have gone belly up. They were building on spec.
It’s not poor people’s fault that they weren’t willing to buy those houses that are now at fire-sale prices.
BiS
December 8th, 2009
8:12 am
Erik Erikson is right (pun intended) it’s time to clean house! Take note, dems, that’s what conservative media does. They point to the con artists within the party and advise the voters. The left-wing media ignores the problems within the dem party. They go a step further, telling dim voters to buy their dim ideas and you do!
Hook, line and sinker.
Jay
December 8th, 2009
8:14 am
Actually, Georgia’s banking crisis has almost nothing to do with mortgage lending. Our banks are collapsing because they lent way too much of their capital to developers and land speculators, and when the housing bubble burst, those loans went bad across the board.
The problem described by N-Ga is very real. To get around rules against loaning too much to a single borrower, banks did make loans to several subsidiary companies of the same ownership. The banks knew they were doing it; the regulators knew the banks were doing it.
That rule has since been tightened, now that it doesn’t really matter any more. And of course the damage has been done.
USinUK
December 8th, 2009
8:15 am
Finn –
I was in Atlanta last April and did a quick drive through Buckhead up Piedmont Road – was SHOCKED at the number of empty highrise condos …
USinUK
December 8th, 2009
8:16 am
BiS funny … BiS make joke …
jt
December 8th, 2009
8:17 am
Regardless of what Tommy Irvin’s “official” biography says,
My Great-Grandma remembers Tommy Irvin “regulating” in 1902. AND she claims that HER mom has Tommy Irvin tales. No lie.
Weird huh?
Mrs. Godzilla
December 8th, 2009
8:18 am
BiS
What you talkin’ bout?
Max Baucaus issue addressed at Raw Story, HuffPost, Dk, DU,…..
Taxpayer
December 8th, 2009
8:21 am
Well, Jay, I think you cleared up the “oddly incurious” aspect quite well. I had heard about Richardson’s, and a few others in government, connection to a failed or failing bank but there are clearly more connections than one should expect to see. There is no room for objectivity. Just a huge lack of transparency and potentials for conflict of interest. Of course, that does not concern enough people as long as everything is growing and expanding and feeding on itself. Now, we the people have to pick up the tab via our ultimate payments in taxes to fund shortfalls at the FDIC and our inability to get any worthwhile return on our savings, etc. At least a couple of our local banks refused to participate in the housing bubble and they have sound balance sheets. I’ve talked to a few of the directors myself and they’re certainly happy that their investments did not get flushed down the toilet as so many others have. However, I cannot help but wonder what shenanigans the good old boys will try to pass in order to help them recoup their losses in their respective banks. Special tax cuts, rules that allow major investors a chance to slip in and cut out their investments before the bank’s ultimate demise, etc. Who knows what they are capable of. Anyway, as you can see, I don’t trust ‘em even when I can see ‘em.
USinUK
December 8th, 2009
8:23 am
Mrs G –
“Good Morning….that whole FDIC coverage limit thing is not going to be a issue for us…..but thanks for your concern.”
now, we know you’re just being modest
Mrs. Godzilla
December 8th, 2009
8:25 am
USinUK
Not modest – always practical…..I was raised to squeeze a nickel till the buffalo cried.
jt
December 8th, 2009
8:25 am
It gets weirder. I found this in an old library book.——–
“In the final months of the Civil War, as manpower reserves drained away, Georgia Quarter-Master Tommy Irvin adopted a plan to arm slaves to fight on behalf of the Confederacy, but this came too late to change the outcome of the war. After Appomattox, Irvin discouraged Southern dissenters from starting a guerrilla campaign to continue the war, and encouraged reconciliation between the North and the South. Tommy Irvin was honorably discharged from the Confederate army, settled in Dog Lick south Georgia and started a pest control business.”
AmVet
December 8th, 2009
8:27 am
Another day in Shuckandgrinville by the conned.
And you gotta love how dumb and dumber glorify the wicked and vilify the weak.
Then get slapped in the face publicly with those things they just abhor – facts.
The conned disease – it not only disables the brain, but their tiny little hearts as well…
USinUK
December 8th, 2009
8:30 am
Mrs G –
you’re far better than I … while both parents were children of the Depression and lived very modestly, they didn’t half love to cook and eat well (and if people were over for dinner, that meant making enough to serve the entire Israeli army) — all 3 of us kids carry on that tradition …
Mrs. Godzilla
December 8th, 2009
8:34 am
USinUK
My folks had 7 in a 3BR 1bth flat in Chicago…..I can only make soup for 20. Thank heavens for the freezer.
(By the way, yesterday was my Pop’s 86th b’day…they don’t make men like that anymore)
I Report (-: You Whine )-: mmm, mmmm, mmmmm!
December 8th, 2009
8:35 am
Actually, Georgia’s banking crisis has almost nothing to do with mortgage lending. Our banks are collapsing because they lent way too much of their capital to developers and land speculators, and when the housing bubble burst, those loans went bad across the board.
Pardon me but isn’t development and land speculation part of the housing industry?
USinUK
December 8th, 2009
8:38 am
Mrs G – Happy Birthday to Papa Godzilla!!!
whiner – “Pardon me but isn’t development and land speculation part of the housing industry?” Jay was differentiating between loans to developers vs. mortgages (in other words, it wasn’t Joe-Bob Subprime defaulting on his loan that was the problem, it was the developers and speculators defaulting)
Finn McCool
December 8th, 2009
8:39 am
It’s much easier to just blame the poor people than to look at educated people running banks and say “WTF, dude? You’re a banker, not a speculator. “
Doggone/GA
December 8th, 2009
8:39 am
“Pardon me but isn’t development and land speculation part of the housing industry?”
Part of the housing industry, yes…not necessarily part of the housing bubble that burst.
Joey
December 8th, 2009
8:41 am
Jay Bookman and the Left-Wing of our media are grossly incourious about evidence that Global Warmist are perpetrating a fraud on the world. No one finds this betrayal of trust the least bit odd.
Corey
December 8th, 2009
8:44 am
I Report You Whine, what else do you do for fun other than bash minorities, the poor and progressives? When you need open heart surgery please pray that your surgeon isn’t gay, black and atheist.
Bruno
December 8th, 2009
8:44 am
“Then, you disproved your own original statement that sunspot activity is mentioned but downplayed with your own post at 12:07 It proves nothing because you said so.”
Taxpayer–In my critique of your site, I intended to say that “solar activity is mentioned but downplayed”, not “sunspot activity”, which my 12:07 post proves. Your “Skeptical Science” link focuses on one element of global warming and one element only–CO2. The fact is that other scientists take a broader view and believe that solar activity and even the proximity of the earth to the sun are more significant factors.
But in the end, this isn’t really an argument about science. It’s more about you latching onto a website, promoting it incessantly, yet refusing to consider any other points of view. Dave R. asked you direct questions which you never attempted to answer, you just kept pointing to your link. As such, my feeling is that you don’t really come here to discuss issues, but more to act like an ass.
Mrs. Godzilla
December 8th, 2009
8:45 am
and know the comedy stylings of Joey….
“”Jay Bookman and the Left-Wing of our media are grossly incourious about evidence that Global Warmist are perpetrating a fraud on the world.”"
also incurious about Bigfoot, Nessie and alien abduction.
Taxpayer
December 8th, 2009
8:45 am
Speaking of notable defaulting by a little developer, didn’t our state DOE head’s husband go belly up early in the bubble bursting/deleveraging process. I think I read that the banks are trying to get her “Who’s smarter than a fifth grader” winnings.
I Report (-: You Whine )-: mmm, mmmm, mmmmm!
December 8th, 2009
8:46 am
Jay was differentiating between loans to developers vs. mortgages (in other words, it wasn’t Joe-Bob Subprime defaulting on his loan that was the problem, it was the developers and speculators defaulting)
You people have got to be kidding me, right?
Either that or you have totally moved into your own alternate universe.
Who buys the product that the developers and speculators produce? And if they don’t buy because of the mortgage crisis, what happens to that product?
Doggone/GA
December 8th, 2009
8:46 am
“No one finds this betrayal of trust the least bit odd.”
Logic isn’t your strong point is it. Obviously YOU find it odd, so saying NO one does includes yourself, which makes the statement “no one” false.
USinUK
December 8th, 2009
8:46 am
hey Bruno!! (waving) I thought sunspots only affected satellite teevee!!
Finn McCool
December 8th, 2009
8:46 am
Want to know why it will be a loooong time before the resell price on your house woreaches what it was just 2 years ago? It’s because these spec builders saturated Georgia with houses for all buyer levels.
If you can buy now and hold onto the property for 5-15 years, it’s a good time to do so.
USinUK, yeah, i’ve noticed the fancy, empty new digs down there between the old Gold Club and I-85 where a low income housing development once stood. Same thing between downtown and VA/Highlands.
I Report (-: You Whine )-: mmm, mmmm, mmmmm!
December 8th, 2009
8:48 am
I don’t bash you because you are gay, Corey.
Doggone/GA
December 8th, 2009
8:48 am
“And if they don’t buy because of the mortgage crisis, what happens to that product?”
Not everyone who bought a house and land was a bad loan risk. There really ARE people out there with sound finances, you know.
I Report (-: You Whine )-: mmm, mmmm, mmmmm!
December 8th, 2009
8:50 am
duhggone- That has nothing to do with it. Speculators and developers build subdivisions populated with houses and if those houses do not sell, because no one can get a mortgage, then they default on their loans.
Think, man.
N-GA
December 8th, 2009
8:52 am
Remember Whiner, the Developers were thinking “if we build it they will buy it”. Kinda dumb, doncha think? And the bankers “bought” into the program. Funny how many of these small banks had developers on the board, or as backers to help get the banks chartered. It was a very incestuous relationship…until it imploded. Funny how you don’t hear much from these developers now……they are very, very quiet.