As Georgia endures a continuing shakeout among troubled banks, the state bureau that oversees lenders faces a further reduction in the ranks of examiners who ensure they operate properly.
The House version of the proposed fiscal year 2012 budget in the state Legislature calls for a 6 percent cut to the state Department of Banking and Finance, which could eliminate six examiner jobs.
That would cut examiner positions to 54, about half the number the small agency had in 1995 and down from 61 in 2005. The number of banks is smaller, too, as a result of the nation-leading number of failures in the state. But the ratio of banks to examiners has increased to 3.6 per examiner now, from 3.2 in the mid-1990s. Banks are bigger now and offer a wider array of loan products.
The banking and finance department isn’t alone in coping with budget cuts, and it has been spared deeper reductions experienced by other state agencies over the past few years. Unprecedented state revenue shortfalls and balanced budget requirements mean all agencies — from public safety to education — must do more with less.
DBF Commissioner Robert Braswell said he remains hopeful lawmakers will only eliminate three posts and restore funding for the others. Braswell said his department has been fortunate through the state’s lean years, but declined further comment about the budget situation.
The budget proposal must be approved by both chambers and signed by Gov. Nathan Deal. State agencies have been forced to eliminate thousands of unfilled positions to partly fill massive state budget holes. Deal’s original spending plan called for no cuts in examiner positions, a governor’s spokeswoman said. But a House version could cut six examiner positions.
State examiners, like their counterparts with the Federal Deposit Insurance Corp., comb through loan records and assess whether a bank is operating according to state and federal laws. As more have been hit by the real estate collapse, banks have required greater attention.
Walt Moeling, a banking attorney at Bryan Cave in Atlanta, said the department is equipped with all the legal power it needs but comes up short in funding and staff.
“The department does an excellent job for the resources it has,” he said.
The department is funded from levies on banks, not taxpayer funds. The levies generate an estimated $18.2 million, or nearly twice its operating budget, projected around $10.8 million for fiscal 2012, which begins July 1.
The overage goes into the state’s general budget. That means spending more on examiner staffing would, in effect, take money from elsewhere.
Six separate unfilled bank examiner slots included in previous fiscal year budgets no longer exist as agencies statewide eliminated positions to comply with the governor’s proposed budget.
Moeling said more examiners could not have prevented the vast majority Georgia failures, which he said were the result of the broader economy and housing market going into cardiac arrest. But he said they might have unearthed sooner some of the more egregious problems in some banks where criminal wrongdoing has been alleged.
While the number of Georgia banks is 215, down from 315 in 1995, the combined total assets of banks the department governs, about $257 billion as of Dec. 31, is also four times greater, not taking into account inflation and growing real estate values over that time.
As many as half or more of state-chartered banks are under some form of regulatory censure, far more than in the mid-1990s.
Starting in the late 1990s, greater amounts of DBF revenue shifted to the general fund. Exam cycles during healthier times for the industry also relaxed to every 18 months from 12 months for many of the top-rated banks. Some of the examination work shifted to off-site monitoring.
Audits of failed Georgia banks have criticized state and federal regulators alike at times for not recognizing problems in community lenders fast enough.
The state and federal government stepped up the pace of examinations with the onset of the state’s meltdown, and many of the banks under strict enforcement orders receive on-site exams every six to eight months.
Much of that has been spearheaded by the FDIC, said John Kline, a former state bank regulator and bank consultant in Decatur.
“The FDIC has increased their contribution to the exam effort because of the state’s [financial] inability to do it,” Kline said. But federal regulators can’t do it all.”
Kevin Jacques, a former economist for the U.S. Treasury Department and the Office of the Comptroller of the Currency, said there’s no substitute for on-site exams.
“Numbers give you an idea,” said Jacques, a professor of finance at Baldwin-Wallace College in Ohio, “but being in there kicking the tires, talking to management, that’s where the state regulators really have an advantage over the federal regulators.”
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