The U.S. House of Representatives approved late Thursday a bill from a Georgia congressman that would investigate if the government’s efforts to clean up distressed and failed banks are doing more harm than good.
House Bill 2056, introduced last month by U.S. Rep. Lynn Westmoreland calls for two yearlong studies into the banking crisis. One, conducted by the inspector general of the Federal Deposit Insurance Corp., would, among other things, audit the resolutions of failed banks in 10 states, including Georgia, as well as regulators’ treatment of distressed institutions.
“Community banks are the economic engine of our towns and cities and the large number of failed banks in Georgia can have a devastating effect on our economic recovery,” the Coweta County Republican said in a news release.
Georgia leads the nation in bank failures with 67 since mid-2008.
“Without these local lenders, job growth and economic investment can dry up -- an unmistakable reality proven by the fact that the ten states with the highest number of failures also have some of the highest unemployment and foreclosure rates in the country,” Westmoreland said.
The state’s unemployment rate was 9.9 percent in June, according to the Georgia Department of Labor.
Under the bill, which would require approval of the U.S. Senate and President Barack Obama, regulators would be required to examine so-called loss-share agreements. Loss-share deals are offered to attract buyers of failed banks, with the FDIC absorbing a large percentage of the losses.
The bill also would examine certain accounting practices that force banks to write down the value of certain performing loans, often involving real estate.
Bankers say the practice has made the crisis worse, hurting borrowers who would be current on loans and causing lenders to suffer losses based on souring appraisals and other factors.
A separate study also would be conducted by the Government Accountability Office, the investigative arm of Congress.
“We erred on the side of lax regulation in 2005, 2006 and 2007. Now we’ve erred on the side of overregulation,” said Tony Plath, a finance professor at the University of North Carolina at Charlotte. “[Community banks] have been pecked to death.”
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