PPY's  Instablog

"'This is as absolute a heinous crime as there is. They stole that bank – the government stole that bank from its rightful owners'"
                         -Parnegg, CEO of Coldwell Banker Legacy, the largest residential real estate firm in New Mexico
albuquerque.bizjournals.com/albuquerque/stories/2010/02/08/story3.html

"'This was not indicative of any instability on the part of the bank'"
                         -NM State Regulation&Licensing Secretary Kelly O'Donnell
gdcritter.blogspot.com/2010/01/regulators-take-untroubled-bank-from.html


Because very few media outlets covered these bank failures in detail, our regulators have continued to abuse their power and force bank consolidation.  They leaked information that led to quick bank runs (e.g. New Frontier Bank).  They ignored their self-imposed deadlines given to management at troubled institutions to raise capital or find buyers, citing sudden economic deterioration (e.g. Wamu/ First Bank of Idaho).  Some of these officials even gave banks good marks upon examinations but then mercilessly seized them a short period later due to rule changes made by our regulators (e.g. FBOP/ Charter Bank).

One former Charter customer described the takeover:

"When armed men enter a bank and take everything away from the owners, it is a bank robbery. What do we do when the bank robber is the federal government? Charter and the other plundered institutions need to sue the FDIC and OTS for changing the rules midstream and conducting the most blatant hostile takeover ever seen. Our family have been loyal Charter Bank customers for years and we are pulling all of our money out of our accounts as soon as the banks open on Monday. I refuse to do business with thieves. Our thoughts and prayers go out to the Wertheim Family and all the employees and their families during this traumatic time."
www.koat.com/news/22339283/detail.html

Now a brief description of why Charter was seized despite having very little problem with their loan portfolios:

"The federal Office of Thrift Supervision (OTS) closed family-owned Charter Bank in New Mexico on Friday afternoon and handed it to the Federal Deposit Insurance Corporation (FDIC), which gave it to Beal Financial Corporation of Plano, Texas. The FDIC said all bank branches would reopen on Monday under Beal's ownership.

The closure was a surprise because the bank was not having problems, except with its regulators.

Last fall, Office of Thrift Supervision examiners, responding to the national collapse of real estate development, ordered Charter to increase its allowance for loan losses from $10.8 million to $55.4 million, even though Charter had no delinquent commercial construction loans and only .34 percent of the loans in its commercial real estate portfolio were behind on their payments. That order reduced the level of capital Charter had on its books.

Then, last Wednesday, 'OTS ordered Charter to find new capital as a buffer against insolvency or face closure.' That order was followed by OTS' closing the bank just two days later."
gdcritter.blogspot.com/2010/01/regulators-take-untroubled-bank-from.html

Make no mistake.  Regulators can make things worse, intentionally.

"Treasury Department, the Federal Reserve, and the FDIC can influence how fast the crisis unfolds. I think they can have an impact on the severity of the crisis as well – not making it less severe but making it more severe...

In November, the FDIC circulated new guidelines for bank regulators to streamline and standardize the way banks are examined. One standout feature is that as long as a bank has evaluated the borrower and the asset behind a loan, if they are convinced the borrower can repay the loan, even if they go into a workout with the borrower, the bank does not have to reserve for the loan. The bank doesn’t have to take any hit against its capital, so if the collateral all of a sudden sinks to 50% of the loan balance, the bank still does not have to take any sort of write-down. That obviously allows banks to just sit on weak assets instead of liquidating them or trying to raise more capital.

That’s very significant. It means the FDIC and the Treasury Department have decided that rather than see 1,000 or 2,000 banks go under and then create another RTC to sift through all the bad assets, they’ll let the banking system warehouse the bad assets. Their plan is to leave the assets in place, and then, when the market changes, let the banks deal with them. Now, that’s horribly destructive."
www.ritholtz.com/blog/2010/01/an-insiders-view-of-the-real-estate-train-wreck/

*imho*