Wednesday, March 18, 2009

A Bank With No Bad Loans? Bad Bank!

This is exactly why I fear for our country.




Fox News: FDIC Criticizes Massachusetts Bank

Here's the gist: A community bank in Massachusetts which has managed to have precisely ZERO bad loans on its books was sternly, uh, wrist-slapped by the FDIC recently.

[Strict attention to credit quality] has allowed East Bridgewater Savings Bank to stand out among a flurry a failing banks, with no delinquent loans or foreclosures on its books, the Journal reported. East Bridgewater Savings didnít even need to set aside in money in 2008 for anticipated loan losses.

But rather than reward [bank CEO] Petrucelli's tactics, the FDIC recently criticized his bank for not lending enough, slapping it with a "needs to improve" rating under the Community Reinvestment Act, the Journal reported.

This is a joke, right?

The problem, according to FDIC data, was that from late 2003 through mid-2008, East Bridgewater Savings made an average of 28 cents in loans for every dollar in deposit ó a sharp contrast to the 90 percent average loan-to-deposit ratio among similar banks, the paper reported.

"There are no apparent financial or legal impediments that would limit the bankís ability to help meet the credit needs of its assessment area," the FDIC wrote in the CRA evaluation.

The agency also faulted the bank, which does not have a Web site, for not promoting its loan products enough, the Journal reported.

You mean to tell me this bank was actually working to make sure its loans were going to be paid back?


In a world where a bank "meeting its community's credit needs" is FDIC jargon for "flushing depositor funds down a black hole," you just gotta wonder when it was that our society became so out-of-its-mind in love with (and dependent on!) ever-increasing debt levels.

I mean, with such diligent loan underwriting, East Bridgewater Savings will never get its hands on any of the Bailout Billionz the feds are shovelling out the door to the banks that were, uh, "doing it right."

I'll say it again: We're in trouble, kids. The problems are systemic.


— Posted by Michael @ 8:09 AM


This is crazy. If they wanted to destroy our economy they could not do worse.



The point of CRA is to prevent banks from absorbing deposits in low-to-moderate income areas and then take those funds and lend them somewhere else. Its basically taking cheap funds out of an impoverished area and not reinvesting in the community.

Every bank could have no delinquencies or losses if the underwriting standards are tight enough. Only allow 800+ FICO and 50% or below LTVs, with 12-month cash reserves and you'll basically have no bad loans. You also won't make many loans (as the FDIC noted).

Yes, all loans should be underwritten based on ability to pay and collateral, etc etc. But by allowing a bank take funds from a distressed area, only to lend them to higher income areas does nothing but further widen the ever growing income gap.


Jeff, that may be the point of the CRA, but the execution is what is the problem here.

It's the CRA's requirement of having 52% of a bank's loans be made available to people who aren't creditworthy that accelerated the spiral into the current financial crisis.

So, instead of having people put their savings into banks which remain financially stable, you think these poor people should put their money into banks that lend to anyone regardless of ability to repay?

Most people who put money in a bank account usually want to be able to take it out again at some point.

Anonymous Anonymous
, at 1:01 PM, March 19, 2009  
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