Georgia Banks Aren't Peachy, Lead U.S. Failure Rate

fromWABE

As the economy has faltered over the past several years, the number of bank failures has grown. Nowhere is the problem more pronounced than in Georgia. Since 2008, 70 banks have failed there. That's almost a quarter of all banks in the state.

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Among the many indicators pointing to a fragile U.S. economy are ongoing bank failures. Twenty-three banks have failed, just since July. And no state has seen more banks close than Georgia. Since 2008, 70 banks have failed in the state. That's almost a quarter of all banks there. From member station WABE in Atlanta, Jim Burress reports on why Georgia's been especially hit hard.

JIM BURRESS: To understand why so many Georgia banks have failed, you have to start here, at this upscale Northwest Atlanta development.

(SOUNDBITE OF HAMMERING)

BURRESS: Workers are putting the finishing touches on a five-bedroom home. Monte Hewett is the developer. He's built houses in Atlanta for two decades.

MONTE HEWETT: When times are good, you prepare for the bad times. And when they're bad, you just live through them. And that's just part of the cycle of the homebuilding.

GREENE: Hewett has seen his share of cycles. Five years ago, it was a great time to be a builder in much of Georgia. Two hundred thousand people a year were migrating here, lured by new jobs and cheap housing. Builders couldn't construct homes quickly enough. And then the bottom dropped out.

HEWETT: The low that we had - which in my opinion, started about 2006 - was far more dramatic than anything that anybody in the business has seen, as long as I can remember.

BURRESS: About that time, mortgage markets seized; the housing market stalled; home values plummeted. And the housing industry that had exploded in Georgia, collapsed - and banks followed suit.

UNIDENTIFIED MAN: Hey, how you doing?

JOE EVANS: Good.

UNIDENTIFIED WOMAN: Good morning Mr. Evans, how are you?

EVANS: Very good.

BURRESS: Joe Evans walks through the lobby of State Bank and Trust's Atlanta headquarters. He's president of the community bank that took over the failed institution that used to be here. Anytime a bank fails, the federal government steps in to protect customers' deposits, and then usually assigns another financial institution to take it over. Evans says Georgia's banks are tied closer to the housing industry than other state's.

EVANS: Georgia, because of its legacy of many small, community banks, wound up with many small, community banks that were heavily concentrated in residential lending.

BURRESS: Unlike other regions, where national banks dominate the landscape, community banks are a staple in Georgia. Each of the state's 159 counties had at least one, often more, Evans says.

EVANS: The perpetuation of that culture of many small financial institutions worked well for many, many decades. And it just so happened that this downturn was particularly painful to community banks.

BURRESS: Mom-and-pop homebuilders looked to their local community bank for funding, and cash was easy to come by. New banks sprang up just to meet the demand; helped, in part, by favorable state financial regulations and a view that past growth was a future guarantee.

BYRON RICHARDSON: I think the worst is over for Georgia.

BURRESS: Byron Richardson is president of consulting firm Bank Resources.

RICHARDSON: Most of the troubled institutions have either been closed, are going to be closed, or those troubled institutions are taking the necessary steps to improve their health.

BURRESS: While housing construction defaults have eased, troubled commercial real estate loans are getting worse. Nationwide, the number of failed banks slowed during the first half of this year. But Georgia still leads the country with dozens of financial institutions on the troubled bank watch list.

For NPR News, I'm Jim Burress in Atlanta.

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