Withdrawals from retirement plans doomed Atlanta's Georgian Bank

By Paul Donsky

The Atlanta Journal-Constitution

A federal audit of the September 2009 failure of Atlanta-based Georgian Bank found that withdrawals by the bank’s largest depositor – a privately held trust company – ultimately led to its closure.

The audit, released Wednesday, did not identify the depositor. But the CEO of Atlanta-based Reliance Trust told the AJC his company had as much as $200 million deposited at Georgian Bank two years ago and began drawing that down as the bank’s problems mounted.

The funds were invested in short-term CDs and money market accounts for retirement plans that Reliance Trust manages, said the CEO, Ken Phelps. As Georgian’s troubles became well-known last summer, he said, employees invested in those plans began requesting that their money be moved elsewhere.

The audit said the depositor had $212 million in the bank in 2009 before signaling its “intent to withdraw its deposits by October 2009.” That severely strained the bank’s liquidity, the report said, and “ultimately led to its closure.”

Phelps said all of the money Resolution Trust held at Georgian was covered by the Federal Deposit Insurance Corp., which guarantees bank deposits up to $250,000 per individual account.

The company makes sure that none of the people in the retirement plans it manages exceeds the FDIC limit at any single bank, he said.

Reliance Trust, one of the nation’s largest independent trust companies, has about $70 billion under management, said Phelps. The company offers retirement planning, wealth management and investment advisory services to individuals, corporations and institutions, as well as other banks.

Georgian Bank was one of the state’s largest community banks when it failed, with more than $1.9 billion in deposits.

The bank aggressively lent to builders and developers in metro Atlanta's then-booming real estate market, taking on huge losses when the housing industry ground to a halt. Georgian lost $36.7 million in the quarter ending June 30, with $306 million in nonperforming loans.

That alarmed many of the retirement plan investors, causing the trust company to move money out of the bank. As more money evaporated, the FDIC apparently became concerned that if the trend continued, Georgian might not have enough liquidity – essentially cash on hand – to meet its daily needs.

The withdrawals “may have hastened [Georgian’s] demise,” said Chip MacDonald, a banking lawyer with Jones Day in Atlanta. A liquidity crisis is “like a heart attack for a bank. It’s very quick, if you lose your liquidity.”