schreef:
What they did do is see loans go bad, in some cases with stunning rapidity, in volumes that they never thought possible.
The fact that so many loans are souring is a testament to how bad the recession, and the collapse in property prices, has been. But looking at some of the banks in detail shows that they were also victims of their own apparent success. Year after year, these banks grew and grew, and took more and more risks. Losses were minimal. Cautious bankers appeared to be missing opportunities.
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Take the recent failure of Temecula Valley Bank, in Riverside County, Calif. For most of this decade, it grew rapidly. Deposits leapt by 50 percent a year, rising to $1.1 billion in 2007, from less than $100 million in 2001.
That growth was powered by construction loans, on which it suffered virtually no losses for many years. By 2005, loans to builders amounted to more than half its total loans — and to 450 percent of its capital. Temecula appeared to be very well capitalized. But virtually all that capital vanished when the boom stopped.
When the F.D.I.C. stepped in last month, the bank had $1.5 billion in assets. The agency thinks it will lose about a quarter of that amount.
Across the country, at Security Bank of Bibb County, Ga., the story was remarkably similar. Its fast growth was powered by construction loans, although in this case the loans mostly financed commercial buildings, not houses. When those loans went bad, what had appeared to be a well-capitalized bank went under. The F.D.I.C. estimates its losses will be almost 30 percent of the bank’s $1.2 billion in assets.
So far this year, the F.D.I.C. has closed 77 banks, and there almost certainly will be more on Friday, the agency’s preferred day for bank closures. Last Friday there were five. Not since June 12 has there been a Friday without a bank closing. By contrast, there were three failures in 2007 and 25 in 2008.
Although the losses on current failures stem mostly from construction loans, it is possible that commercial real estate will be the next big problem area. Losses in that area were growing at the Temecula bank, although its portfolio was relatively small.
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Two years ago, when the subprime mortgage problems began to surface, Washington took great comfort from solid balance sheets, which regulators thought meant the banks could easily weather the problem.
Last year, we learned that the regulators, like the bankers, did not comprehend the risks of some of the exotic instruments dreamed up by financial engineers. This year we are learning that the regulators, like the bankers, also failed to understand the risks of the generous loans that the banks were making in the middle of this decade.