Georgia has one of the highest bank failure rates in the country as a result of too much expansion and bad real estate bets during the past decade, which created an opportunity for banks to flourish and then fail.
About 50 banks have failed nationwide so far this year. In Georgia, 15 have failed since August.Even though just 4 percent of all U.S. banks are in Georgia, the state has had 20 percent of the failures since last summer.
Institutions in California, Florida and Arizona are facing similar problems. Examiners across the country are enforcing regulations in an effort to protect depositors.
But banking analysts predict perhaps another 100 banks could fail nationwide in the second half of the year.
There's no panic in Georgia over the number of failed banks, but the fact is causing some depositors to take extra precautions.
In Douglasville, about 20 miles west of Atlanta, reports surfaced that Douglas County Bank — the bank the city had been using for years — could be in jeopardy, so officials decided to take action.
"We just felt it was prudent because of the unfavorable report on this bank that we should not sit idly by and just wait to see what might happen — that we should be proactive," says city manager William Osborne.
Douglasville removed $9.4 million from the bank and put the money in 10 different banks.
"At points past, you may have been more concerned with how do we get the highest interest rate, but now it's how do we make sure that the funds are available when we need them," Osborne says.
Douglas County Bank has been operating under intense federal oversight since January as a result of its risky financial condition. About 60 other Georgia banks are operating under similar restrictions as a result of their role in real estate development.
Atlanta is one of the fastest growing areas of the country, and there has been great demand for real estate development. Many new banks sprang up and needed deposits to make loans. So they got what's known as "hot money" — large deposits from brokers who search for banks paying the highest interest rates. The problem is that money can leave the bank as fast as it comes in.
"The bankers aren't stupid," says Walter Moeling, a veteran banking attorney in Atlanta. "They knew that there was risk."
Moeling says Georgia may have suffered the most — not because housing prices soared — but because residential and commercial property markets continued to be quite profitable until mortgages completely dried up in 2007.
"We had faster growth in this market. We had more new banks in this market and they were dependent on growth," he says. "And when the growth stopped — when the cake walk ended — they were vulnerable."
Another issue is declining commercial real estate values, especially in outlying areas. Joe Brannen with the Georgia Bankers Association says banks are being forced to take unreasonable losses.
"We have one example of a bank branch that was closed that the appraised value came back as nothing," he says. "There's a building. There's a lot [with] traffic by it. Now you can't tell me that that's worth nothing. That's where the significant problem occurs."
'Chernobyl Of Banking'
Camden Fine, the president and CEO of the Independent Community Bankers of America, has called Georgia the "Chernobyl of banking." He says it's because regulators are coming in too quickly to shut banks down — not because banks didn't operate well.
"The bank examiners have not been giving community bankers time to work through these loan problems," he says. "They've just been hammering them very, very hard and in some cases forcing them into receivership and I just don't think that's right."