When a Bank Fails

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I have a longer piece in this week’s print and IPad editions on how the failure of a community bank in Cornelia, Georgia, has undermined the town’s confidence in government, the economy and itself.

While the big banks have largely stabilized, small bank failures are still growing, and the piece addresses a few issues that come with that crisis. First, it lays out how Community Bank and Trust, a pillar of Cornelia since 1900, managed to destroy itself through lax lending practices and criminal fraud. Second, it shows how the government, in the form of the FDIC, took over the failed bank and saved it by selling it to a stable, out-of-state one that agreed to take over nearly all the assets and liabilities in exchange for the FDIC shouldering most of the loan losses. Third, it looks at local allegations that the FDIC deal is responsible for Cornelia’s ongoing woes because it created incentives for foreclosure.

The sad conclusion is that despite a $336 million FDIC bailout of depositors, ongoing federal government support to other parts of the town, and the willingness of an out-of-town bank to buy into the community, Cornelia sees all these outsiders as villains in part because it cannot face the fact that it got caught up in one of the worst real estate bubbles in the country and that at least one of its most trusted citizens ended up being a criminal.