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Posted: December 16, 2009 12:00 a.m.

Georgia banks continue to fail

It's no surprise that the Georgia media has been consumed with the recent scandals erupting at the state capitol over legislators and their alleged affairs with lobbyists. Any assignment editor with a pulse will tell you that sex is what brings readers and viewers to a story.

In the rush to explore every aspect of Glenn Richardson's resignation as House speaker, however, we may be overlooking a story that is much more important to the state's future: the continuing failures in our banking system.

In the 18 months since the housing bubble popped and the construction industry collapsed, there have been 29 banks in Georgia shut down by regulators. That's an alarming number, as it accounts for nearly 10 percent of the banks here and is larger than the number of bank failures in every other state.

I know we want Georgia to be number one, but I don't think that's the category we had in mind.

These bank failures are bad news because they prolong the recession that has destroyed businesses and jobs across the state. With fewer banks to make loans, and with banks that are still operating more reluctant to extend credit, people who want to start or expand a business can't get the money to do it.

When businesses cannot expand, then jobs aren't created - which is a major reason why the state's unemployment rate has exceeded the national jobless rate for the past few years.

Georgia's bank failures have had a national impact as well. The Federal Deposit Insurance Corporation (FDIC), which was created during the Great Depression to prevent runs on failing banks, guarantees that you won't lose the money you deposit in a bank.

The FDIC has guaranteed the deposits at each of the 29 banks closed in Georgia at a combined cost to the agency's insurance fund of close to $5.4 billion.

The Georgia losses were a big factor in the FDIC's announcement in November that its insurance fund has now gone into the red, with a negative balance of $8.2 billion as of the end of the third quarter.

That disclosure should scare the pants off anyone who's concerned about the current condition of the economy. One of the fundamental protections that the money you deposit in a bank will still be there when you want to withdraw it is the FDIC insurance fund, and it is slowly sinking into a sea of red ink.

Oddly enough, Georgia lawmakers don't seem to be concerned about the matter at all.
At a budget hearing for the state banking department a few weeks ago, legislators were told that the number of bank examiner positions at the department had been reduced last year because of budget shortfalls and would be reduced again because of more budget cuts that are planned.
The lawmakers asked a few desultory questions and moved on to discuss other matters. Not one of them suggested that perhaps the state should hire more examiners to review the institutions' financial records and possibly prevent future bank failures.

Rob Braswell, commissioner of the state banking department, said he isn't sure that having more bank examiners on the payroll would have made much of a difference anyway. State examiners often spotted problem areas with banks that had made too many real estate or construction loans, but their advice to the banks' executives was frequently ignored, Braswell said.

"It's like a police officer telling drivers the streets are slick and they should slow down - if they continue to go 55 miles an hour, they can still go into the ditch," he said. "We don't manage the banks. We can make the recommendation, but they don't have to follow it."

Back when the housing boom was in full force and banks were making money hand over fist, it was hard to get anyone to pay attention to the problems that might lie ahead, Braswell said.

"It seemed to many this market was going to continue for months down the road," he noted.
Every boom comes to an end, which is what happened to the construction industry in Georgia. The crisis in our banking system has not yet ended - and there's no indication that it will anytime soon.

Tom Crawford is the editor of Capitol Impact's Georgia Report, an Internet news service at www.gareport.com that covers government and politics in Georgia. He can be reached at tcrawford@capitolimpact.net.


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