A year after the collapse of Alpharetta-based Integrity Bank launched Georgia toward its dubious distinction as the nation’s bank-failure capital, what is the state of the state’s banking industry? And what lies ahead in terms of recovery and possible reforms?

The crisis is not over

The pace of bank failures has been picking up both in Georgia and across the nation, where 98 banks have failed in the past year. Twenty-three of those banks were in Georgia (that number includes six units operated by Macon-based Security Bank). More than a third of the U.S. bank failures over the past year have occurred in the last two months.

Last week, the Federal Deposit Insurance Corp., which insures deposits, said its list of problem banks grew from 305 in March to 416 in June, the highest total since 1994.

At the moment, it is estimated that about a third of Georgia-chartered banks are operating under some sort of state or federal enforcement actions. Meanwhile about 50 state banks with high so-called Texas ratios are on a closely watched unofficial list of problem banks.

Depositor funds protected

If there is a bright spot in the bad news about banking, it’s that few depositors have been affected by the rash of failures, as FDIC insurance — paid for with fees from banks — has covered deposits and the agency has usually found healthier banks to quickly take over shuttered institutions.

Still, the failures are hitting in other ways.

The FDIC expects the losses to its insurance fund to total $70 billion, and will likely require higher premiums from surviving banks — and possibly help from taxpayers. The FDIC said last week that its fund has $42 billion — all but $10 billion already committed for expected losses.

Meanwhile, many investors’ stakes in local banks have been wiped out by such failures, and top managers or other employees often lose their jobs.

Recovery over reform

Currently, state and federal regulators are spending more time dealing with the financial industry’s recovery efforts than focusing on how industry oversight needs to be changed.

The most concrete action has come at the federal level. Just last week, the FDIC boosted capital requirements for banks that have been in operation less than seven years, citing the “elevated risk” those institutions pose to its insurance fund. They’ll also be inspected more often by bank examiners, the agency said.

Calls for reforms have been muted among Georgia authorities. Bert Brantley, spokesman for Gov. Sonny Perdue, said beefing up the Georgia Department of Banking and Finance, which oversees about 259 state-chartered banks, may not be possible given budget constraints. It’s also unclear just how the state should respond, he said.

James Stevens, an Atlanta lawyer at Kilpatrick Stockton who advises banks on regulatory and other matters, said he expects most regulatory changes to come through tweaking policies and “guidance,” rather than new laws or a revamping of Georgia’s banking department.

New laws don’t seem likely

Last year the Georgia Senate passed a bill that would tighten controls on non-bank subprime lenders, whose loans had been a factor in the real estate bubble in Georgia and other states. It failed to reach a vote in the House of Representatives. House lawmakers will resume consideration in next year’s session.

“It’s way too early to even guess whether there will be legislation at the state level,” said Perdue spokesman Brantley. The solution, he said, may simply be “to allow the market to work.”

Danny Orrock of consumer advocacy group Georgia Watch says legislators need to tighten lending standards for subprime loans.

But any proposed fixes could face stiff opposition in the state legislature, where many lawmakers have ties to the banking industry.

Glenn Richardson, the House speaker and co-owner of a Paulding County bank that has a significant level of problem loans, “is obviously concerned about Georgia’s high rate of bank failures and other aspects of our economy that are not doing well,” said his spokesman, Marshall Guest. “He has and will continue to work with industry and state leaders to return growth to our state’s economy and determine if and how state government can help our banking system.”

Bankers resist legislation

The politically powerful Georgia banking industry appears to be seeking a largely self-directed solution to its problems. Even as critics call for reforms, the industry is resisting talk of legislative action or beefed-up state regulation, saying the troubled industry can fix itself. Bankers, they say, are going back to the basics of lending and running their businesses in a less risky manner.

That aim was reflected in a recent series of conversations and a closed-door meeting that Perdue had with industry leaders. After one meeting earlier this month, representatives of bank trade groups blamed the unexpectedly deep recession for the state’s banking crisis, and suggested bank reform wasn’t needed.

Banking experts offer some optimism for the future, saying Georgia’s bankers and regulators aren’t likely to get caught by another real estate bubble for a long time.

Measuring the bank problem

23

Failed Georgia banks in past year.

99

Failed U.S. banks in past year:

534

Failed U.S. banks in 1988.

305

Number of banks nationwide on FDIC’s problem bank list in March 2009.

416

Number of banks nationwide on FDIC’s problem bank list in June 2009.

48

Georgia banks with high Texas ratios.*

90-100

Georgia banks currently under regulatory enforcement actions.

Federal Deposit Insurance Corp.’s net fund balance: $10.2 billion

FDIC’s projected losses on bank failure through 2013: $70 billion

Average concentration of real-estate development loans at Georgia community banks

In 1999: 44 percent of capital

In 2006: 281 percent of capital

* The Texas ratio compares total problem loans and foreclosed properties to the amount of capital and other funds available to absorb losses.

Sources: FIG Partners, Federal Deposit Insurance Corp., Federal Reserve Bank of Atlanta, staff research