BNJacksonGA

In small towns all across Georgia for the past several years, "community banks" have popped up all over the place. The claims are all the same: "let us be your hometown bank" and "we partner with you as we are part of your community". Clients, who had issues with large corporate banks or simply like the old-fashioned "know your teller who is your neighbor" mentality, have responded well. However, since October, 2000, 40 banks have collapsed or otherwise failed. Keep in mind, California has 4 times the amount of banks than we have in here in Georgia, yet fewer new banks and failures. There are many reasons for the failures, but lets examine a few.

First and foremost, as part of the current legislative moves, although we lead the nation in failures, we have been the only state, so far, to reduce our banking regulators and oversights. This has been spun recently by incumbents on the campaign trail as "reducing the size of government and reducing our expenses". Reduction of government makes a lot of sense, and there is only one Gubernatorial candidate that has addressed this issue directly. Karen Handel has said numerous times that the state must review regulations, keep what makes sense, and bring industry leaders to the table to discuss new and future regulations. Reducing departments and regulations makes a lot of sense, but it has to be the right type of reductions.

At the end of 2008, Georgia alone had 334 more banks than California. A quick lesson in supply in demand can be summed up to this: There is a limited amount of supply to satisfy a limited amount of demand. In other words, if you have 100 jelly-beans, you can put in a few bowls or several, the more bowls, the less jelly-beans possible in each. When you start taking jelly-beans away even fewer remain possible to be in any given bowl.

When you have more banks chasing the same dollars- either on the lending side or the investment and savings side- then banks must be more competitive. This, on the front-end, becomes attractive and beneficial to the consumer, but eventually there must be equilibrium in the market. It became very easy for a bank to become a bank, especially by those well-connected in a particular area and with the right state politicians. In Jackson county, Freedom Bank was a prime example of this. Having the right connections, investors, and capitol, a local started a bank and very aggressively competed with the more established local banks, as well as large national banks. In the hometown banks, several reports indicate preferential treatment was given based on the bank manager and the customer in questions. For example, my friend, Bob, had some financial troubles after being laid off from his job. Things were very tight and he really managed his finances to the penny. Somewhere along the way, he overdrew his account which given how tight the budget already was, put him into a "NSF tailspin", spending hundreds in fees for several months. He went to Reba Cash (manager at Community Bank and Trust in Jefferson) and was told, sorry they could not help him, but he had 30 days to get his account and maintained in the positive of the bank would close his account. And the bank did. Another friend I was sharing the story about Bob with said there was a program called "fresh start" that basically, the bank zeroed the account and allowed him to make payments over 60 days to "pay back" the amount that it was overdrawn. He was close friends, allegedly, with Ms. Cash so maybe she tried harder to our friend John rather than my friend Bob. Since this bank is now defunct, I can not connect with Reba for comment.

"On Friday, January 29, 2010, Community Bank & Trust, Cornelia, GA was closed by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver.  No advance notice is given to the public when a financial institution is closed."

"On March 6, 2009, Freedom Bank of Georgia, Commerce, GA was closed by the Georgia Department of Banking and Finance and the Federal Deposit Insurance Corporation (FDIC) was named Receiver.  No advance notice is given to the public when a financial institution is closed."

Secondly, these local banks- many of which had board members that were also developer- were responsible for the cash flow into many of these banks. Developers received millions in loans to build now empty or several vacant lots that have been foreclosed on. Many of the loans, the developers had a "partnership" with a "preferred lender". This basically made it easier for a home-buyer to qualify and avoid closing costs by using the "preferred lender", but out of all of the people I've talked to, none of them remembered the builder disclosing they were on the board of the bank. Outside of this, the real-estate market played a large part in the collapse of many.

In the town with the 3rd smallest population of the state, faltering loans played a role in the demise of FirstCity, said Robert E. Maloney Jr., the bank's attorney. The bank had $24.6 million in nonperforming loans in 2008: meaning no payments had been made for 90 days or more, and a loss of $8.3 million last year.

"Smaller banks make loans to people that can't get loans at larger banks," Maloney said. "Did we put our eggs too much in the real estate development market? Obviously, we did."

So, we have some preferential business dealings, reduction of the state oversight and regulations for an industry that we lead in the nation of failures- and in the end- who suffers. The answer to that is always the tax-payers as the consumers have guarantees with FDIC insured lenders, and there are some state provisions to protect consumers. In an almost ironic twist, new regulations and a relaxation of some of the most restrictive banking laws in the country, in the mid 90s, the state changed some of these laws to favor local banks. The one law debated the most is the removal of the restriction from local banks in opening branches across county lines. This is a prime example of the government's attempt to "help" private industry. Supporters of the change who argued this helped the local economy by allowing local banks to be more competitive with large national banks.

On the flip side, large national banks could help their image by soliciting local talent to work for the branch or service the bank. For example, I am a wachovia customer and have been since before it was called Nations bank. As you may know, Wachovia merged with Well's Fargo and the signage on ATMs and in the branches have gone up with the wells fargo name. I noticed the Jefferson branch was getting a brand-new sign, that removed the Wachovia name all together. New pole, new sign, and the like. There were three commercial trucks doing this job, and not a single one of them was a local plate or telphone number. The workers may have been, but I seriously doubt it. Oddly enough, the sign is still there, but a temporary one with the Wachovia name and logo are on it. Some of you may think "well that isn't right or fair. They need to be using local workers."  Although I agree, I think the corporation can use whatever resources it chooses to perform these services. This may be part of a national contract which may cost less, thus avoiding price increases at the bank. It may be the president's best-friend's company and twice as much. Who cares, its still their decision as they are private business. If the community is compelled, however, they, as customers, should always make their wishes and desires known to branch management ,as well as up the management chain. We have become lazy as a society, in my opinion, and we complain about government intrusion in our lives, but yet we are the first to run to the local or federal governments and complain about a private industry or company. Keep in mind friends we, as the consumers and with the money, have the most power and influence, however it takes all of us doing the right thing and being reasonably accountable for our actions and in control our day-to-day lives. The government is an evil necessity and there must be balance in regulations, oversight, and of ocurse in laws. By keeping informed, as to the choices we have as law makers and actually learning how industries work, what regulations are in place, and doing our part, we can take this country back and put the power with the people. It takes being a unified voice standing up for what is right as well as actually doing our job and using the power we have. Yes, it is "We the people…" and we need to not only remind our lawmakers of this but we must remind ourselves of this.

Tags: Bank, Community Bank and Trust, Freedom Bank, Georgia, Karen Handel