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The struggle of small banks

By David McMillin · Bankrate.com
Thursday, September 8, 2011
Posted: 4 pm ET

For some community banks in Georgia, the past three years have marked a sour period in the Peach State.

Over the Labor Day weekend, the Georgia Department of Banking and Finance closed two small institutions, Cumming-based Patriot Bank and Woodstock-based Creekside Bank. The two closings bring the tally for bank failures in Georgia to a whopping 70 since 2008, a figure that tops all 50 states in the nation.

A Congressional hearing in August debated why so many of the state's banks are failing. While members of the Federal Reserve blamed the bulk of these failures on a collapsed real estate market, many of the small bankers in attendance attributed the continuing troubles on new regulations and the lack of capital injection funds available to them.

The FDIC's failed bank list shows that small banks in Georgia are not alone. From Innovative Bank to Ideal Federal Savings Bank, the list includes institutions from around the country that are too tiny for most readers to recognize.

Regardless of the cause or the cure for the small bank failure epidemic, I bet that one unfair yet unavoidable consequence will be that even healthy community banks are feeling the weight of a drop in consumer confidence. Despite the fact that many community banks are safe and sound, the buzz of bank failures has made plenty of checking and savings account holders think twice about where they are keeping their cash.

The serious challenges of the past three years have placed the entire banking industry under a microscope, but some community banks have ultimately endured the biggest blows. Sure, the nation's financial giants have been forced to announce layoffs and watch their stock prices rise and fall, but ultimately, they have passed the most crucial test: they're still here.

What do you think? Are community banks the victims of a system built to squash the little guy? Or have failed institutions gotten what they deserve for harmful lending practices and bad decisions?

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