James Pethokoukis provides us a crystal-clear example of the reason for the economic crisis — and how our political leaders still haven’t learned from it. He notes one small bank that has managed to weather the storm by lending carefully and within its means. Boston Bizjournal reports that East Bridgewater Savings has gotten federal attention for its fiscal responsibility, but not in the way you’d think:
Bad or delinquent loans? Zero. Foreclosures? None. Money set aside in 2008 for anticipated loan losses? Nothing. … The bank even squeaked out a profit of $87,000. And its Tier 1 risk-based capital ratio was 31.6 percent, or more than three times higher than many community banks in Massachusetts. “We’re paranoid about credit quality,” [Joseph] Petrucelli said. The 62-year-old chief executive has run the bank since 1992.
That makes Petrucelli a man to emulate, right? After all, with all the outrage over AIG’s performance, shouldn’t we cheer someone who knows how to correctly assess risk and keep his lending institution in the black? Only if you don’t work for the federal government (emphasis mine):
The FDIC’s negative review of East Bridgewater Savings Bank’s loan volume is an anomaly in today’s current banking scene as lenders reel from their role in offering too many cruddy mortgage products to borrowers with weak credit.
Still, the FDIC slapped East Bridgewater Savings with a rare “needs to improve” rating after evaluating the bank under the Community Reinvestment Act.
Let’s get this straight. We bail out the people who made all sorts of bad loans, and we punish the people who didn’t? How’s that for accountability?
In all seriousness, the FDIC gave EBS a poor rating because it didn’t advertise its rates well enough. It doesn’t have a website, which is apparently a sin for FDIC-insured lenders. The FDIC said that EBS didn’t have any “financial or legal impediments” to widening its lending, a remarkable statement considering the taxpayer monies getting thrown at companies that did widen their lending practices and wound up broke as a result.
Pethokoukis uses this example to remind us how the CRA distorted lending markets and led to the housing bubble that devastated the economy:
How many East Bridgewaters are out there that knuckled under to the pressure and started handing out mortgages to whomever? I am not saying that CRA is the only factor here. There is plenty of blame to go around, regulators, Alan Greenspan, derivatives desks on Wall Street. But to let CRA and its enablers off the hook is ridiculous.
How many, indeed? We are going through all of this bailout nonsense and economic upheaval, and the federal government is busily setting us up for the next crash.