Georgia
homebuilder Blankenship Homes lost its source of loans for new construction
after four local community banks failed since 2009.
“The
economy just shut down,” said owner Johnny Blankenship, 54, a builder for more
than 30 years in Douglasville, 20 miles west of Atlanta. “We are just starting
back to do a few homes. The economy is still very, very slow.”
While
the Federal Reserve and U.S. Treasury rescued major banks amid the 2008 financial
crisis to avert a meltdown of the nation’s financial system, the bailouts
didn’t prevent the collapse of about 500 small lenders. Their disappearance,
part of a syndrome of economic weakness, still weighs on growth and employment
in dozens of counties across the U.S.
“It
will be difficult to fill the void left by failing small banks,” said Mark
Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.
“Small bank failures matter a lot to the communities in which they operate, especially
in non-urban areas. Small banks are key to small businesses.”
Counties
that experienced bank failures from 2008 to 2010 saw income growth reduced as
much as 1.43 percent, job growth cut as much as 0.5 percentage point and
poverty rise as much as 1.4 percent in the following year, Fed economist John
Kandrac reported in research presented last October at a community banking
conference at the Federal Reserve Bank of St. Louis.
He
concluded bank failures had “measurable effects” on economic performance. On
average, that meant a drop of as much as $700 in per capita income and a loss
of close to 600 jobs in the first year after a failure, Kandrac’s research
found.
Small Businesses
The
demise of local lenders has inflicted a disproportionate blow on small
enterprises, said Mark Gertler, an economist at New York University and
co-author of research with former Fed Chairman Ben S. Bernanke on how bank
failures contributed to the severity of the Great Depression. Community banks
provide almost half of small loans, those under $1 million, to farms and
businesses, according to a 2012 Federal Deposit Insurance Corp. report.
Bank
failures have been more common in four states that experienced real estate
booms and busts or had large concentrations of community lenders. Georgia has
had the most failures with 88 since September 2007, followed by Florida’s 70, Illinois’s
56 and California’s 39, according to Trepp LLC, a real estate and financial
data provider in New York.
Failures
nationwide have slowed, with 24 in 2013, led by Florida, with four, and Georgia
and Arizona, with three each. Even so, the adverse effects of bank failures,
coupled with tighter lending standards, persist. In the counties surrounding
Atlanta, that’s compounded by the lingering effects of the collapse of the real
estate market.
Around Atlanta
“There’s
a ring of death all around metro Atlanta,” said Brian Olasov, managing director
of law firm McKenna Long & Aldridge LLP in Atlanta, using a phrase
popularized in the real estate bust by Steve Palm, president of Smart Numbers,
a Marietta, Georgia, provider of real estate data.
Olasov,
who has represented about a dozen boards of banks that failed or are operating
under agreements with regulators, said the demise of small banks, coupled with
losses that put others on life support, “has sidelined the important mission of
allocating capital to borrowers with legitimate needs. It has had a very
damaging impact on the state.”
While
depositors are protected by federal insurance, lending is interrupted after a
collapse, said BB&T Corp. Chief Executive Officer Kelly King. The
Winston-Salem, North Carolina-based bank, with assets of $182 billion, has more
than a quarter of its branches in Georgia and Florida.
Whopping Big
“If
you get to a small town and the local bank fails, that is a whopping big deal,”
King said. “Commerce has no way of really continuing and certainly growing.”
“If
you are sitting at the Federal Reserve in Washington, you care about the global
economy” and “you don’t necessarily care about 2,000 people in a small town in
southern Georgia. But if you happen to live in southern Georgia in that little
town, that is the economy.”
Douglas
County, with a population of 134,000, had an unemployment rate of 7.6 percent
in January, 1 percentage point higher than the U.S. average. The county’s
unemployment rate averaged 8.3 percent last year after three years of more than
10 percent joblessness from 2009 to 2011.
The
county’s population ballooned more than 40 percent from 2000 to 2010 as people
fled Atlanta’s crowding and traffic for a more tranquil area that offers
fishing, boating and golf as well as suburban shopping malls.
Even
as homebuilding nationwide has recovered the past three years, few new homes
are being built in Douglas County. Permits for single-family homes in 2013 were
89 percent below the 2005 level, according to figures from Smart Numbers.
Construction Jobs
Blankenship,
which has four employees and contracts work out, built three homes in Douglas
County last year, down from about 100 in 2006. A new house can involve the work
of 80 to 100 people at various stages of construction, he said.
“I
don’t have a relationship with a big bank,” he said. “With a small bank, it is
just a different deal. They know who you are” and know borrowers’ character.
Few
local employers are looking for full-time skilled workers, said Brian Rountree,
37, a Douglasville office manager who has a finance degree and was let go in
2008 and again last month. Jobs advertised are “menial” and low-paying, such as
waiters and dishwashers, he said.
“I
just need to get some income going at this point,” he said. “Jobs are hard to
get. There aren’t the opportunities out there.”
Cutting Expenses
Rountree,
whose wife is a teacher, said he’ll have to cut spending for his family,
including two children. That means eliminating expensive meals at restaurants
including one of their favorites, a local Japanese steakhouse.
“If
you don’t have the money you don’t go out to eat,” he said. “We have to tighten
the screws down. There is no extra money.”
Georgia
had a 7.3 percent unemployment rate in January, weighed down by counties that have
been choked by bank failures and a slow recovery in housing, including northern
Georgia’s Gilmer County, with 7.5 percent, and two counties south of Atlanta,
Henry, with 7.5 percent, and Lamar, with 9.1 percent. The U.S. rate dropped to
6.6 percent that month, the lowest in more than five years.
In
Douglasville, two banks that failed held the bulk of the county’s $680 million
in deposits in 2010, according to an analysis by SNL Financial, a bank research
firm in Charlottesville, Virginia.
Failed Banks
First
Commerce Community Bank, with $243 million in deposits, was closed by the
Federal Deposit Insurance Corp. in September 2010 and Community & Southern
Bank, about 30 miles to the west in Carrollton, acquired the deposits. Douglas
County Bank, with $314 million in deposits, was acquired last April by Hamilton
State Bank of Hoschton, about 70 miles northeast of Douglasville.
Blankenship
said he had relied for loans on First Commerce Community Bank and two other
nearby lenders, First Choice Community Bank of Dallas, Georgia, which failed in
2011, and Georgian Bank of Atlanta, which closed in 2009.
“We
have lost the local banker who knew us and our business,” said Clate Wall,
president of Double Eagle Land Development Co. in McDonough, 30 miles south of
Atlanta. “These people not only worked in the community but lived here as well.
That has made it very difficult to find help in financing our operations.”
Acquiring
banks have sold foreclosed homes at “steeply discounted prices” to investors
who may not retain the properties, Wall said. “If the investors choose to put
all of these homes on the market at the same time we could be in for another
bust,” he said.
Corporate Buyers
Corporate
buyers such as Blackstone Group LP have descended upon the area to buy foreclosed
homes and turn them into rentals. Institutional investors accounted for a
quarter of home purchases in the Atlanta metropolitan area in January, the
biggest share in the country after Jacksonville, Florida, according to data
firm RealtyTrac.
Borrowing
difficulties have been compounded by a tightening of bank standards by
regulators since the financial crisis, said David Ellis, executive vice
president of the Greater Atlanta Home Builders Association.
“It
has been very difficult for smaller companies to have access to the capital
that they need to get building again,” he said. “We are seeing greater interest
from banks to lend again, but they are still very limited in what they can do.”
That
has had a ripple effect on jobs and incomes. Douglas County’s median household
income dropped 7 percent to $51,540 in 2012 from five years earlier, U.S.
Census Bureau figures show.
Tile Demand
“I
have never seen a recession this deep and it is not improving much,” said Wayne
Wilkes, president of Tile and Stone Express in Douglasville, which sells to
consumers and builders. His annual sales have dropped 20 percent since 2007.
“When people can’t get credit to build houses or expand businesses, they don’t
need tile.”
While
taxpayer-funded bailouts following the rescues of insurer American
International Group Inc. and Citigroup Inc. stoked public anger, the Treasury
Department provided funds to large and small banks as part of the $700 billion
authorized by Congress for the Troubled Asset Relief Program. Some banks in shaky
condition didn’t qualify for TARP funds. As of Feb. 28, $422.8 billion was
disbursed under the program, and the Treasury received $435.9 billion.
“Many banks were too
small to save,” said James Barth, an Auburn University finance professor in
Auburn, Alabama, and Milken Institute senior finance fellow who formerly was
chief economist at the Office of Thrift Supervision. “Other banks were too big
to allow to fail. There is an inequity there. They were important even if they
collectively didn’t cause a systemic crisis.”Source: Newsmax.com Wednesday, 19 Mar 2014 09:29 AM http://www.moneynews.com/Economy/banks-death-Atlanta-homebuilders/2014/03/19/id/560452#ixzz2wRaSKV6d
Comments:
The article above exposes the real condition of the
Georgia economy. The delusional cheerleading
in Atlanta citing economic growth doesn’t factor in the real economy. It’s political cover and propaganda from the
Chamber of Happiness. If the economy
really was on the mend, we shouldn’t keep seeing Georgia’s commercial banks
continue to fail.
I hope our legislative geniuses don’t rush off to fix the
symptom. I wouldn’t expect that commercial
banking would be booming right now. They will need to continue to retreat along
with the rest of us. Rural counties need
a rush of manufacturing to return to stabilize our rural cities. Remember, UN
Agenda 21 wants all rural counties vacated and replaced with government owned wildlife
preserves.
The beleaguered American consumers are the last goose
left in the pen and their feeling tapped out.
It appears that all golden eggs reside under the gold dome, funded by
printed federal dollars offered the form of bribes. These are offered to local officials as
grants for mal-investment requiring overpaying for intersections and bike lanes
but require that you forfeit 75% of your pothole repair fund.
Norb Leahy, Dunwoody GA Tea Party Leader
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