Oct
18

Regulators! …And the Bad Loans.

By

Former NC-11 Congressman Charles Taylor was in the news this week, as his bank, Blue Ridge Savings, went belly-up.

Former Rep. Charles Taylor blamed increased federal regulations and a bad economy for Blue Ridge Savings Bank closing last Friday.

But regulators said Blue Ridge Savings Bank had failed to keep enough capital last year after being cited in late 2008 for poor management and a large number of bad loans.

The bank was declared insolvent last week, as its assets and deposits were taken over by the Thomasville-based Bank of North Carolina. Blue Ridge’s 11 branch offices opened Monday for business under new ownership.

It’s not surprising that Mr. Taylor would deflect responsibility for the management of his company. What’s surprising to me is that Taylor and managers failed to save the bank even after warnings from regulators about their dire financial situation.

Taylor placed $2 million into capital in September 2010, but failed to place a scheduled $3.7 million into capital at the end of the year.

He claims that regulations kept him from putting the money away, but no amount of avoiding responsibility can protect you from simple truths. If you put all your eggs in the construction/development basket, then you’re going to be in trouble when the market heads south.

To his credit (or perhaps because he didn’t want to deal with the additional associated scrutiny), Taylor and his bank did not ask for a TARP bailout. Also, it’s good to know that everyone with money in the bank was protected by the federal government, the real safety net when financial institutions fail.

Comments

  1. nathan says:

    This isn’t good news for any of us. This isn’t the first bank failure in the county in the last couple of years, these banks were operated by very skilled people, but if the economy doesn’t change, there probably will be more. This isn’t good news for homeowners, local governments which derive the vast majority of their budget from ad valorem taxes, or to our overall economy. Just check out the Black Mountain News which on a weekly basis contains pages and pages of foreclosures notices on property in Buncombe County.

    Local and community banks lend money on real estate, whether its a business loan, development loan, home construction loan, etc. The problem is that housing and other types of real estate values in our community are down between 20 and 50 percent since 2007. Lower priced properties have been hit less but all classes of property are worth less than they were a couple of years ago.

    Larger banks are able to diversify their loan portfolios much easier. The big money center Wall Street banks have been imboldened by “too big to fail” and our public policy is that we aren’t going to let the big guys fail while we will let small, community banks go down left and right.

    In the past, real estate has been the best security, you can’t move it away, generally it goes up in value over time, and its very tangible. Real estate values are in many respects a good barometer of your community, if it is going up in value that means your community is a place others want to be. There are lots of smart, good business people in our community who several years ago were very wealthy today are in dire straits. Hopefully things will turn around, otherwise, many of the rest of us will be in the same situation.

  2. TJ says:

    After a couple of failed attempts to access my Wachovia account by phone, I got a now Wells Fargo employee explaining how false rumors led to Wachovia being bought out. I had an account with WF in Ca,with no issues, but, for some reason, I don’t trust what’s going on now, and really feel no affinity for WF at this time.

    I’m transferring my $28.11 (j/k) and re-opening my USAA account. I’ll transfer all my gold to my off-shore accounts in the Caymans.

  3. TJ says:

    “Also, it’s good to know that everyone with money in the bank was protected by the federal government, the real safety net when financial institutions fail”

    What I don’t get (I’m on a slow learning curve here) is how the federal gov’t can be a “safety net,” when we’re reminded in a trillion different ways that we live in a deficit, and no one seems to know how to bring it down to a billion… how can we trust THEM with our local banks, when they can’t even manage their OWN funds??

  4. Tom Buckner says:

    We can trust them… when we can trust them.

  5. Impartial Observer says:

    Didn’t Taylor sell 8,000 acres of his land for $33 million? That could have capitalized his bank…

  6. RHS says:

    Some much for Republicans believing in personal responsibility.

  7. ChadEkre says:

    Has anyone been following the Hagan/McCain Repatriation of offshore corp funds bill?
    http://thehill.com/blogs/on-the-money/domestic-taxes/185949-hagan-mccain-introduce-repatriation-bill

    Basically allows companies that have been hiding billions in offshore tax havens for years to now bring the money back at a drastically reduced tax rate(8.75%-5.25% compared to our law’s 35%).

    This process was done in 2004, as well, and resulted in a loss of US jobs rather than gain, among other glaring issues.
    http://www.policyshop.net/home/2011/10/12/failed-policy-why-the-last-corporate-repatriation-tax-holida.html

  8. 8 Blade says:

    Response to TJ from October 18th at 11:48 pm.
    “What I don’t get…is how the federal gov’t can be a “safety net,” when we’re reminded in a trillion different ways that we live in a deficit, and no one seems to know how to bring it down to a billion… “

    TJ, you raise a good point that is very tricky ground for public officials, the mainstream media and even ballsy finance bloggers to tackle. Here we go:
    Mathematically, the U.S. government cannot replace every FDIC federally-insured deposit account in America. But that’s not their aim or their point. Psychologically, the FDIC, along with elected government, and the mainstream media, share a goal to work together to support the Belief System that all eligible bank deposits are safe because the federal government backs them with the full faith and credit of…the American govt. Last time I did the math, the FDIC actually had about 1.7 cents for every hundred dollars in our deposits under FDIC insurance. Or was it 17 cents for every hundred dollars? Or was it a dollar and 17 cents? Whatever, it wasnt remotely close to what we hope.
    Don’t snicker, these false hollow promises have a long track record of working very very effectively and not just in government but in our personal lives as well. If we’re honest with ourselves, think about how we all use hopes and wishes to motivate us, our spouses, kids or friends, or to give us courage to ask that girl out, or shoot that basket, or tackle a diet.
    Often when high-profile ballsy finance bloggers educate their blog readers on the itsy-bitsy tiny amount of money the FDIC actually has to make depositors whole, they were reminded that it is basically a prosecutable crime to say or write certain things that could cause a run on the banks. These are akin to the laws prohibiting yelling fire in a crowded theater as a fun prank. Highly-read finance blogger B. Ritholtz, who also writes at the Washington Post and is seen on CNBC, shared his 2011 experience of receiving threats from powerful people when he continued his 3-year blog and book discussion on how Bank of America is insolvent as are at least 2 other of the other largest banks, JP Morgan, and Citibank. Most mainstream economists know this as well but they too are bound by the agreement against causing a bank panic.
    But I digress. Back in 2008 when these Big Banks were facing their come-uppence, it was easy to find the links to the docs authorizing the FDIC insurance of eligible deposit account. Good reading; very short and clear as most things were written in the 1930s. The later revisions look like phone books, though.
    The bigger point is that if and when the Feds cannot actually deliver and make ur bank deposit whole, that will also be the day when far worse things, or maybe just hiccups, are happening in the global financial system…in the global food system and in the global energy distribution system. It is like worrying about getting ur sandals wet as a Category 5 Hurricane bears down. Good analogy because a Cat 5s are real, do actually happen but are also survivable, as are the unhappy scenarios I just referenced…but that’s another digression.

  9. Michelle A. Mead-Armor says:

    Ah, yes. Charlie Taylor, the man the NC-11 Republicans chose over my husband, the late John Armor. Schadenfreude, anyone? Interestingly, not a single Republican official attended his funeral or has sent me a note of condolence. Odd, isn’t it, for the party of the flag and family? But, whenever there was a Tea Party event, they couldn’t wait to get John in his Ben Franklin costume, out there pressing the flesh and fighting the good fight. What a bunch of hypocrites!

  10. TJ says:

    “But, whenever there was a Tea Party event, they couldn’t wait to get John in his Ben Franklin costume, out there pressing the flesh and fighting the good fight.”

    “What a bunch of hypocrites!”

    I don’t think you’ll get much argument here… At least, not from me. 😉
    And, those who know me know that is not a state I often find myself in.

    Perhaps if he were in full uniform, as my father was. Ironically, they honored a man who was the epitome of dishonor, but he gave a good show.