Wednesday, March 17, 2010

A Bank Is Just A Bank?

GG4EFSVPQ6KK Every week I look at the list of the banks seized by the FDIC and wonder if the institutions on the list have any shared attributes. Based on an admittedly non-scientific review of the four banks seized last week, it turns out that they may. Mismanagement.

Looking at The Park Avenue and LibertyPointe Banks in New York City, Old Southern Bank in Orlando Florida and Statewide Bank in Covington Louisiana reveals what appears to be significant business lapses. Some issues, like the looting of TARP funds by the former president of the Park Avenue bank were not uncovered until after the bank's seizure. But many other problems were evident long before the FDIC stepped in.

Take the case of Old Southern Bank: in September of 2009, barely three years after its founding, the Federal Reserve Office of Financial Regulation issued a cease and desist order to the Bank's management citing credit and oversight issues and ordering the institution to "maintain effective control over, and supervision of, the Bank’s major operations and activities, including but not limited to, management, credit risk management, concentrations of credit, capital, and earnings." This isn't an unusual citation for a failing bank, however, the bitter public infighting between the Bank's CEO and a board member raises lots of questions. While the deteriorating Florida real estate market contributed to the flood of red ink inundating Old Southern, it seems like bad loans weren't the only problem for just the second bank in the region to fail since the great depression.

OldePointe, the first bank to fail in New York City since 1999 (The Park Avenue Bank became the second, just one day later), collapsed under the weight of bad real estate loans. This came after the five year old bank was charged by the FDIC last July for engaging in "unsafe and unsound" lending practices. Are these poor banking practices related to the Bank's chairman the alleged shoddy real estate development efforts? Perhaps.

A customer walking out of a former Park Avenue Bank branch the day after it was sold by the FDIC to Valley National Bank said, "We thought, a bank is a bank," expressing surprise at the change. What do you think?

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