The FDIC is Killing Community Banks

by Mark on November 17, 2010 13:39 pm · 23 comments

I had a meeting with one of my community bankers yesterday, to discuss renewing some business lines of credit. If you thought I was unhappy about the lending situation I find myself in, you should have seen my banker. Depression, helplessness and exhaustion showed on his face. The FDIC, he says, is doing everything they can to drive community banks out of business.

Sheila C. Bair

FDIC Chairman Sheila Bair explains to community banks that they just don't have the Wall Street cred required to skirt playing by the rules.

After surviving the “audit from hell” two years ago, and then trying to comply with FDIC rules, he finds that every six months they change the rules on him again. The rules changes, it seems, forces him to put more decades-long borrowers in good standing with performing loans out of business or into bankruptcy. Many people who have never missed a payment on their loans are not being renewed for a variety of technical reasons, few of which it seems are based upon the borrower’s ability to continue paying the loan.

In addition, I heard many stories of shenanigans that have been pulled by bigger banks to force borrowers to technically default and lose their pledged collateral. The big boys see bargains to be had are using every trick in the book to get their hands on them.

So my good and decent community banker, who has worked with local folks for decades in our county, one who truly cares for his customers, finds he must curtail business with small businessmen and women, in order to attempt to comply with the ever-changing, noose-like regulations and ratios that the big banks we bailed out get a pass on. And what happens if the FDIC decides that this bank is not in compliance for too long a time? It will be shut down, and a faceless, bigger bank will swallow up the assets. One less small bank, and more power to the chosen few of Wall Street.

Community banks are the life-blood of small business, and small business employment is the life-blood of our economy. By showing such favoritism to large banks, our government is in essence undermining our fragile economy. 8,000 community banks serve 10,000,000 small businesses. What if each one hired one employee on average? Do the math.

Is this transfer from small banks to big, TARP banks done purposefully? Well, knowing the big banks we bailed out essentially wrote the rules for this administration’s FDIC, you can come up with the answer yourself.

Note: we’d love to hear from any community bankers with their horror stories, and also from small businesspersons, and real estate developers and investors. Leave your comments below, or use the contact form to send in a guest article.

{ 22 comments… read them below or add one }

Lisa D. December 1, 2010 at 12:00 pm

We need to be screaming in the media about what the bigger banks and the FDIC are doing. My Dad has been running a community bank since 1974. Not only has he helped to support and grow small businesses in a suburban Chicago community for 35+ years – he has employed hundreds of people and their families within that community during that time.
In a time when bigger banks and banks willing to take more risks were making unstable and unrealistic loans, my Dad was snickered at by some for not being more aggressive in his loan portfolio and joining the others in their unsafe and unsound banking practices.
He has complied with and passed every single FDIC and state audit with flying colors in the last 35+ years.
Yet not just 2 weeks ago, he was called into a downtown Chicago office with his Directors in tow by the FDIC and given a list “new rules” and new audit criteria he must comply with in the next 90 days or they will take over his bank – forcing a sale to one of the bigger banks and taking over all his assets for nothing near what they are worth.
His bank is profitable and has been profitable for the last 4 decades. Yet they are raising the capital bar, changing the rules, and given labor-intensive requirements to satisfy in the next 90 days or his 40 years of honest community banking gets flushed down the toilet.
We need to speak up and speak out loudly about what is happening to these valuable community banks – which by the way – support and grow small businesses in the community and employ hundreds of people.
The government and the FDIC are murdering thousands of community banks and jobs and they are getting away with it. They are extending the damage done by Wall Street and the bigger banks a million times over by treating community banks and bankers like common criminals when all they ever did was comply with FDIC regulations over and over again.
Please keep reporting on this, please tell your stories, someone has to step in and help. Someone has to stop this.


Mark December 1, 2010 at 12:27 pm

My hat is off to your dad. I wish him the best of luck. He’s going to need it with this administration and this FDIC. We need to get the word out because no news outlet is, and CNBC seemingly has no idea there are such things as community banks and small businesses.


Lisa D. December 2, 2010 at 10:56 pm

Mark- how can we get the word out? How can I get in touch with you? I have access to larger news outlets and need your help.


Mark December 3, 2010 at 11:08 am

I’ve sent you off an email.


Mark December 3, 2010 at 11:09 am

If anyone else has any other banker stories related to this topic, please post them here in the comments. Whether you are a banker or a borrower, we’d like to hear from you.


Mike D February 9, 2011 at 10:39 pm

I’m a bank manager with a large regional bank (we’re sized in the top 20 in the US). We operate like a community bank. In fact, we never took those risks that got the others in trouble. Our bank has been profitable every quarter for the last 34 years, and we’ve been in business since before Abe Lincoln was the President.
What has been described here in this story is a VERY REAL issue that even affects us in the larger banks. For example:
When a bank approves a line of credit, such as a home equity line of credit or a credit card, it has to set aside all of the money available to the borrower in an account that cannot be used for other purposes, since the borrower may decide to use those funds. When that happens, that means that any portion of those available credit balances aren’t earning interest for the bank (because borrowers only pay interest on what they are using, not the credit limit). So, rather than warning everyone that their ceilings would be lowered (which raises utilization ratios ==> lower credit scores ==> inability to refinance elsewhere), many of the super-banks did it without warning. This allowed them to hold borrowers hostage (since they had no chance to refinance elsewhere). It also allowed them to raise interest rates on borrowed money (since the credit scores dropped). Then, simultaneously, they also had more free capital to invest or lend to new suckers. They knew that smaller banks couldn’t compete. It’s so bad in my area (near WASHINGTON, DC of all places!) that we haven’t had a loan application in months, or a credit card application in weeks.


Mike D February 9, 2011 at 10:50 pm

I’m also working pro bono for a customer of mine who has a mortgage with IndyMac. She more than qualifies under HAMP for a modification since her income dropped when her husband died and the fact that she is partially disabled now too and can’t work. She lives off Social Security and survivor pension benefits (her husband was retired from the military and from the local police department).
Since she is a German immigrant and can’t read or write English (but can speak it just fine), I filled out the complete application for her and got all of the supporting documentation they asked for. Unfortunately, they only allow a few days to meet their demands for new or updated documents each time they request them. And since the HAMP application changed to add in the Dodd-Frank Certification at the end, we had to submit just that one page. However, we were 1 day late and they subsequently declined her. So I spent last night doing the whole thing over again. This woman just wants to keep her shack of a house and these guys won’t even show some compassion. Believe me, I would refinance her into the bank I work for if I could.


Mark February 10, 2011 at 7:22 am

Mike, thanks for sharing your experience. Since I wrote the article a few months ago, things have not gotten better. My local bank tried like crazy to refinance a $300K loan for a small partnership I am in, but after two months, just could not do it. I finally threw up my hands and paid it off. It wasn’t their fault, they were hampered by all the rules that would not let them make the loan. And after about 7 years on the loan, we never were late on a payment, and there are assets to repay it 10 times over. The FDIC is killing these small banks,

If you’re interested in writing a full article on any angle relating to any of this, please contact me via the contact form.


Laura Morton February 17, 2011 at 9:28 pm

I am a little confused. It would certainly be in the best interest of the country to support community banking. Allowing community banks to make prudent loans is the way to create jobs. One, two or three jobs at a time is the way to go.


Mark February 17, 2011 at 9:30 pm

It would, unless the president is in the pocket of the large bankers who helped get him elected.


Donald March 16, 2011 at 3:48 am

I am the founder and CEO of a reasonably large community bank that is suffering from government intervention and over-regulation. The truth about what is happening to the nations community banks is purposefully manipulated and kept out of the media because it would cause a major economic problem if known and understood by the public. This is a serious issue with severe economic consequences. There is a story here of national importance that includes government incompetence, collusion, corruption, ignorance, greed. I could go on for many pages but will just say that if there are any of you that have an interest in helping to get this story out and have access to legitimate and responsible media then feel free to contact me. My bank will not make it. We are being forced to sell, merge, or be shut down -this is being mandated by federal regulators. It is unnecessary and will result in many hundreds of jobs being lost with severe economic consequences for our several thousand customers – who have employees who have have families…you get the picture. It is very sad. Not just for us but for the future of this country because the direction we are headed will fundamentally change our country and our economy. The entrepreneurial spirit ithat built this nation is systematically being squashed. It is a travesty, with no logic, no oversight, no consideration for the unintended consequences, and no appeal process. It is obvious that this is all part of a plan being implemented by the FDIC, FRB, OCC, OTS on behalf of their more financially important constituents but unless you are in he trenches like we are it is hard to understand or believe but it is very true.


steve March 26, 2011 at 7:38 am

This is the same plan as they had before. Basically call in all loans and crash the economy so that the big guns could come and mop it all up for pennies on the dollar and own everything. If this does not work, the next part of the plan is to raise taxes until the govt owns everything. This has been the plan from day 1, the world plus 5%!


Marc Armstrong May 5, 2011 at 7:09 am

Mark – will you pls contact me? Thanks…Marc


DAN 1 May 9, 2011 at 4:29 pm

While I don’t like the entire concept of banking, (as Capitalism practices it), and do not have a bank account or credit, I do find this article and the responses to it, to be very disturbing. If run in the name of social service and Civic Responsibility, small state or public banks could truly be helpful to the entrepreneurial elements of Our Nation. But they have to break the connection to the FDIC and the rest of the new world order governmental intrusion.

It might help to develope Community Currency, from the state level down and cast off the corrupted national monetary system. This could begin with “Team Loaning” by good neighbors of modest wealth accumulation. They would have to agree on the values of the new currencies and pledge to honor these agreements. Then the rest of the community would have to support this innovative approach…for the sake of the prosperity of all in the community. I guess one could call this “Closed Circuit Economics”, or some such.


Serban Enache May 23, 2011 at 8:45 am

The FDIC is a tool of Wall-Street as is congress… I’ve read the article and comments, it looks really dire. My country’s banking system has been plundered after ’89. Now only foreign subsidiaries control the banking sector and all they did was to give consumption credit without ID. The the crisis came, the government borrowed from the IMF and the EU, a lot of that money went to our central bank, which liberated the obligatory reserves. The subsidiaries took that money and repatriated it. Thus deposit costs and fees were hightened and the bastards even went so far as to change the settled interest rates on loans. A few actually won in court against the banks, but still the situation is static. The only ones getting preferential interest rates on big loans are our corrupt politicians…


Destro June 13, 2011 at 10:40 am

There is no one in your country wanting a revolution?


Serban Enache June 27, 2011 at 11:35 am

There are a few, but after what happened in ’89, ’90 and ’91, the people are really divided. Of course they all hate our government, but still poor and stupid people get into the parties’s vans on election day for a little tourism of voting. Corruption runs deep… It’s a sad state of affairs. Otherwise it’s a beautiful country with rich history, folklore and traditions.


Destro July 26, 2011 at 8:32 am

Divided how? Those who approved of the regime change back then versus those against it?


Serban Enache July 26, 2011 at 9:33 am

Those who deposed Ceausescu are the same who run things in Romania today. The revolution of ’89 was confiscated. In ’90 and ’91 the new regime brought the miners into the capital and set them loose upon the students who were protesting against the “new” regime (the National Salvation Front). It’s so easy for the oligarchy to manipulate things when it manages to divide the people between themselves.

Lisa Davidson July 28, 2012 at 5:08 pm

If any bank president or bank management is willing to talk about what happened to their community bank (i.e. FDIC forcing them out of business) – anyone who CAN talk about this – making a documentary and have reputable news outlets interested. This story needs to get out. Please help us do that.


Donald July 28, 2012 at 6:43 pm

Lisa – see my comment from March. I have been working on telling the story but have hit a few road blocks. I would be very interested in speaking to you. My bank was shut down under very unusual and suspicious surcumstances – a very interesting story and situation. Let me know if you would like to talk.


Lisa D July 28, 2012 at 9:58 pm

Hi Don,
Yes, very interested.
email me at


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