Sunday, January 10, 2010

State banking crisis impacting metro, rural banks

Georgia's banking crisis is spreading from its roots in metro Atlanta to more rural parts of the state.
 
Banks from the North Georgia mountains to the onion fields outside Vidalia report mounting losses and rapidly expanding pools of bad loans, just like their big city counterparts.
 
As if to underscore the trend, federal regulators recently slapped five Georgia banks with enforcement actions? only one of which was in metro Atlanta. The others were in north and central Georgia.
 
The root of the problem is common to Georgia banks of all stripes: real estate loans that soured after the housing bubble burst.
 
Because the boom-and-bust cycle was by far most pronounced in Atlanta, lenders in that region have borne the brunt of the troubles. Since Georgia's banking crisis arose in 2008, all but one of the 29 banks to fail have been either based in metro Atlanta or had sizable presences in the area. The only exception: tiny Tattnall bank in Reidsville, which failed last month.
 
But the pain has made its way to rural banks, in large part because so many small-town lenders bought pieces of loans, known as "participations," that other banks made to builders and developers working in the Atlanta suburbs, said Lee Bradley, an Atlanta financial consultant who often works with banks.
 
Rural banks simply wanted in on the action? and the profits? the booming Atlanta market promised, he said.
 
"They loaded up on participations, and it's coming back" to hurt them, he said. "It was just a matter of time."

Posted via email from Jim Nichols for GA State House

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