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Robert Trigaux

Why Georgia is ground zero for bank failures

Silvertonbanklogo Wake up and good morning. So Florida wanders over to its northern border and knocks on Georgia's door. It's just a friendly exchange between neighboring states.

FLORIDA: "Knock, knock, Georgia. What's up with all these bank failures in your state?"

GEORGIA: "Why is that your business, Florida? We take care of your own."

FLORIDA:"You've got more failures -- by far -- than us here, though we're much bigger. You've got more failures than California which is four times your size. What gives?"

GEORGIA: "We're kinda busy up here, Florida. Why don't you cool your heels at Disney World like a good tourist destination?"

FLORIDA: "Something fishy's going on up there, neighbor. And your failures are having an impact in my state. So fix it!"

Eleven Georgia banks, most surrounding Atlanta, have been shuttered by regulators, followed by nine in California and four in Florida, reports the Associated Press. Experts predict more could be closed in Georgia in the future. But what propelled Georgia to become the new No. 1 in bank failures "is complicated," the story says.

I beg to differ. It's simple. Georgia has too many banks chasing too few banking opportunities in a lousy economy. The story says Georgia banking laws encouraged the creation of lots of small banks over big banks, which was amplified during the go-go years and housing boom around Atlanta. Well, duh. We've already seen states like Texas and, yes, Florida, go out of their way to nurture small banks at the expense of big ones. The result? Lots of little banks which statistically make the state much more prone to lots of little bank failures over the  years.

Georgia is also peculiar because it has only one big metro area: Atlanta. And that's where the bulk of new banks tended to cluster, trying to ride the suburban real estate boom. That made things ultra-competitive. If one small bank raised its CD rates, for example, it often started a domino effect of higher rates. Good for the consumer but expensive for all the banks. It works the same way on the lending side. When a developer asks for a construction loan, banks scramble over one another to offer the easiest terms. 

Here's a suggestion the AP story ignores. Georgia bank regulators, who were way to quick to okay new bank start-ups and obviously way too slow to monitor their health and demand more conservative banking practices. A number of recently failed Georgia banks -- the failed Omni National Bank is one example -- had extended themselves into the Tampa Bay or other Florida markets. So their pain became, in part, our pain.

Consider this: At the end of 2008, Georgia had 334 banks -- more than California, four times larger than Georgia's population, and more than Florida, which has twice as many people. Only five states — Texas, Illinois, Minnesota, Iowa and Kansas — have more banks than Georgia, according to the FDIC.

The latest Georgia bank to fail was Silverton Bank. It was a "banker's" or wholesale bank because its customers were banks -- more than a thousand of them -- rather than people. Silverton also operated an office in Tampa. And other banks invested in Silverton. Like the $987 million-asset Florida Community Banks Inc. in Immokalee. Guy Harris, its chief financial officer, told the American Banker newspaper that Silverton's failure would not have a huge impact on his company's capital. But he chose not to disclose how much Silverton stock Florida Community owns.

It does not help that his bank, Florida Community Bank, is a "zero star" bank as of the end of 2008, meaning it is ranked among the very weakest financial institutions in the state.

So Georgia, some neighborly advice from Florida: How about raising the bar on banks a bit? And give some of our own institutions down here a break.

-- Robert Trigaux, Times Business Columnist

[Last modified: Tuesday, June 1, 2010 12:24pm]

    

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