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Kai Ryssdal: Bank number two in our tale today is Georgia’s Satilla Community Bank. It was seized by the FDIC Friday afternoon; the 73rd bank to be shut down by federal regulators this year. Satilla Community is in a town called St. Marys, Ga., down in the southeastern corner of a state that has seen more bank failures than any other the past two years. Dozens of small banks in the Peach State turn out to have something rotten at the core.
Jeff Horwich reports.
Jeff Horwich: Georgia’s dubious number-one status is the story of a down-home banking system swept up by big-city dreams. Traditionally, Georgia has had lots of small banks — a legacy of laws meant to keep banks focused on their local customers. But during the boom when development took off next door, in Florida, small banks saw an opportunity to make a lot of money.
Bert Ely is a banking consultant. He says the banks tapped into a stream of billions in so-called “broker deposits” that flowed in from out-of-state, looking for high interest rates.
BERT ELY: A number of these failed banks did use broker deposits to fuel excessively rapid growth in high-risk lending, often times in markets where they did not understand the lending risk.
Ely says the banks competed to see who could be most generous both with deposits and loans.
Atlanta-based banking attorney Walt Moeling says state examiners might have spotted the risk — if there had been more of them. He points to one practice regulators didn’t police where banks created reserves to cover borrowers’ interest payments but never funded them.
WALT MOELING: It wasn’t reflected in the banks’ data furnished to regulators, and you could only have seen that by being on-site.
Loans failed, depositors pulled out, and 39 small banks have shut down in Georgia since 2007. And the number of bank examiners in Georgia is shrinking. The state doesn’t pay for those inspectors — the banks do. But Moeling says lawmakers directed half the money that was supposed to pay for regulation to balance the state budget.
MOELING: You not only don’t get your money’s worth, you have a hidden tax on banks.
The examiners’ office may be short-staffed, but that doesn’t mean it’s not hustling. The Georgia Bankers Association says its members are reporting lots of in-person visits from the watchdogs these days.
I’m Jeff Horwich for Marketplace.
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