A Failed Bank: One Year Later

On Planet Money

One year ago this week, we brought you the story of a bank failure. The Bank of Clark County was a small bank in southwest Washington state. One Friday, in what has become a weekly ritual of the Great Recession, the FDIC stepped in to take it over. We told you about the banker who lost his job. The federal agent who ran the takeover. So what has happened to these people, and the bank's assets, since then?

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MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

ROBERT SIEGEL, host:

And I'm Robert Siegel. Today we're going to return to a story that we brought you one year ago, the story of a bank failure in Washington state, the Bank of Clark County.

Since the start of this financial crisis, the government agency that insures our banks, the FDIC, has had to swoop in and take over hundreds of banks, including the Bank of Clark County. Most of its employees had no idea their bank was failing that day. Todd Zalk(ph), a business banker, was standing in the lobby for a staff meeting.

Mr. TODD ZALK (Business Banker): And then all of these people, and mostly in suits and professional clothing with attorney-type briefcases, started entering the bank, just flooding into the bank.

SIEGEL: Well, now Chana Joffe-Walt, with our Planet Money team, tells the story of what happens after failure.

CHANA JOFFE-WALT: I started with the FDIC guy in charge of all those men in suits, the one who ran the Bank of Clark County operations, Ron Hodges(ph), and one year later, he was hard to track down. I finally got him on a bad cell phone connection. He said there was no landline we could use. So my first question: Where are you?

Mr. RON HODGES (Federal Deposit Insurance Company): Well, right now I'm at an undisclosed location, getting ready for another bank closing that will take place in about an hour, and...

JOFFE-WALT: That's what you're doing right now?

Mr. HODGES: Yes.

JOFFE-WALT: How many failures have you worked since we talked?

Mr. HODGES: Wow, probably quite a few, 10 to 15.

JOFFE-WALT: Ron is hard to reach because he has been flying all over the country, taking over banks. The FDIC has taken over 175 failed banks since the Bank of Clark County.

And these are secret, sudden, Friday events where the bank staff go from being regular bank workers to unemployed people with a failed bank on their resume. And they don't just lose their job. In some ways, they lose their identity.

I didn't quite get this until I met Todd Zalk one month after the bank failed. Todd is a man whose identity was so wrapped up in the bank that four weeks after failure, he was still wearing his Bank of Clark County nametag, still introducing himself this way.

Mr. ZALK: My name is Todd Zalk, Bank of Clark County, the best community business bank because we've changed the game in business banking.

JOFFE-WALT: I worried about Todd over the months and was relieved when I called him now, one year later, to hear he has found a new identity.

Mr. ZALK: Well, Chana, my name is Todd Zalk, and I am a business banking specialist with Wells Fargo Bank. Our product is our service. I like to tell my business clients that. And I've always been wired by service, Chana. You know that about me.

JOFFE-WALT: I do know that about Todd, who when speaking, makes sure to mention my name as often as possible. Todd is a true company man. He has moved on, got a new job, and more than half of his former colleagues have also found new work. But for Todd, it took a long time for him to really let go, to accept the failure. Because until very recently, the story in the community in Todd's mind was that the Bank of Clark County failed because of progressive real estate loans, sure, but mostly it was just that the market changed so fast. The bank got dragged down with it. That was until one Sunday last month.

Mr. ZALK: Oh, well, I was actually at church, and I had people approaching me, coming up to me, saying Todd, did you know that guy that was just indicted in the article yesterday about Bank of Clark County? And I said no, what article? I just didn't see it. I'm asking them, well, who was it, and they didn't remember.

JOFFE-WALT: It was David Kinelli(ph), the bank's chief loan officer, and the local paper reported that Kinelli had just plead guilty to hiding key documents from banking regulators.

The plea agreement says Kinelli and other executives knew bank loans were going bad a year before the failure, and instead of reporting that information to regulators, Kinelli hid it. He made a fake spreadsheet, showing only the healthy loans. And when regulators came to inspect the bank, he directed staff to hide the unhealthy spreadsheet in a basket under someone's desk.

Todd Zalk, ultimate bank loyalist, read this newspaper article slowly.

Mr. ZALK: Yeah, yeah, Bank of Clark County, the best community business bank because they changed the game in business banking, what I didn't know is that they cheated, and now they lost. The sense of pride that I had of working at Bank of Clark County is tarnished.

JOFFE-WALT: That's gone now.

Mr. ZALK: I don't want to say it, Chana, but you can. It is. I think it's gone now.

JOFFE-WALT: Soon after the failure, a nearby bank took over the deposits from the Bank of Clark County. But they left the bad stuff, the stuff that was hidden under the desk, for the FDIC to deal with, yet another pile of assets to try to resolve. The FDIC now has $563 billion in these failed bank assets. And it takes a long time to go through them.

Ron Hodges, the FDIC guy with the bad cell phone connection, he was assigned to stay in Clark County after the failure. So he spent five months trying to collect on those loans, basically making calls to local businesses and developers, repeating this message:

Mr. HODGES: Look, you took out a loan with the intention of paying 100 percent of it, and now we expect you to do that.

JOFFE-WALT: It turns out when it's the federal government calling and not some tiny community bank, people respond. Ron and his team managed to collect some money from debtors this way. They also got some quick cash just selling the bank's chairs and plants and computers in an auction online.

The real estate loans, though, this is what the FDIC is working overtime trying to sort out. They've got private investors trying to help them, but there is no way they'll get it all back. The FDIC takes the loss.

Ron Hodges and I talked for a while, and then right before he had to go do his takeover, I had what I thought was just one quick, last question.

How did you feel leaving the Bank of Clark County?

Mr. HODGES: It was hard.

JOFFE-WALT: There was silence for a long while after this, and finally, Ron says: I worked with those people for five months. I was in one place working side by side to wind down their bank.

Mr. HODGES: They become more allies, as opposed to adversaries, and you become friends with them. And when I left, this particular group gave me a cake, wrote me a nice card. Typically, you don't get that. Typically, it's good riddance, goodbye, and we're glad you're gone. And when they all came down, the entire bank presented me with this cake and card and told me how sad they are to see me leave, and it was a very emotional event for me.

JOFFE-WALT: Ron is tired. He travels all the time, works 14-hour days, most of the time providing an invisible service: keeping our banking system stable. Right after we hung up, he took over the Century Security Bank in Duluth, Georgia. On the same day, the FDIC was also in Utah, Alabama, Ohio and Minnesota, taking over a total of seven failed banks.

Chana Joffe-Walt, NPR News.

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