Georgia Looks to Shed Title of ‘No. 1 in Bank Failures’

Thirty-two banks have folded in Georgia since August 2008, making it the most failure-prone state of the latest recession. The blame for most of Georgia's institutional[IMAGE]collapses can be placed squarely on the region's deteriorating real estate market. Losses on commercial property loans, in particular, have wiped out many regional banks' balance sheets.

As ""DSNews.com previously reported,"":http://dsnews.comarticles/tarp-watchdog-says-small-banks-cre-losses-could-hit-300-billion-2010-02-12 the Congressional Oversight Panel projects another $300 billion in commercial real estate losses, threatening to topple some 3,000 community-based lenders nationwide. It's a daunting number for a state like Georgia, where market indicators are already tipping the scale in the wrong direction, but lawmakers there are changing the rules to help bring greater stability to the state's financial institutions and hopefully shed that title of being the leader in bank failures.

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Last week, ""Georgia Governor Sonny Perdue"":http://gov.georgia.gov/00/press/detail/0,2668,78006749_78013037_156586295,00.html signed a bill in to law that allows banks chartered by the state to exceed current lending caps if a borrower hasn't defaulted on their payments, making it easier for them to renew large commercial real estate loans.

""If this did not pass, it would deepen the real-estate crisis,"" Keith Caudell, president and CEO of northern Georgia's Bank of Hiawassee, told the _Wall Street Journal_.

The existing state law, which had been in place for decades, restricted banks from lending more than 15 percent of their capital to any one borrower. With the recent pressure on bank capital levels, Perdue said the law has had the unintended consequence of disallowing banks to renew loans, even with good customers.

""That hurts banks by kicking out some of their paying customers, and it hurts borrowers who are meeting their obligations,"" a statement from Perdue's office read.

The bill gives more flexibility to state-supervised banks whose declining capital, in many cases, made extending high-dollar loans a regulatory violation. The measure puts state-chartered banks on a more even playing field with the more than 35 banks in the state that are overseen by federal agencies.

The bill passed the state's legislature by a vote of 217 to 1.

Rep. James Mills, the bill's sponsor, said, ""This needed change will allow some of the bank's very best customers to renew performing loans. Without this change, a constituent who has made every payment would be denied a loan renewal even at no fault of their own.""