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FDIC Penalizes A Bank…..For Not Lending Enough

by @ 2:48 pm on March 20, 2009. Filed under Credit Crisis, Economics, Sub-Prime Mortgage Crisis

Apparently, there’s still a penalty for being prudent:

Joseph A. Petrucelli is one of the most cautious bankers in America.

In fact, Petrucelli is so cautious that the Federal Deposit Insurance Corp. recently criticized his bank for not lending enough.

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.

From late 2003 through mid-2008, East Bridgewater Savings averaged 28 cents in loans for every dollar in deposit. The average loan-to-deposit ratio among similar size savings banks is more than 90 percent, FDIC data show.

(…) Bad or delinquent loans?

Zero.

Foreclosures?

None.

Money set aside in 2008 for anticipated loan losses?

Nothing.

“We’re paranoid about credit quality,” Petrucelli said. The 62-year-old chief executive has run the bank since 1992.

And, yet, they find themselves in trouble with the FDIC:

[T]he FDIC slapped East Bridgewater Savings with a rare “needs to improve” rating after evaluating the bank under the Community Reinvestment Act.

“There are no apparent financial or legal impediments that would limit the bank’s ability to help meet the credit needs of its assessment area,” the FDIC said in its CRA evaluation.

If you’re thinking that you’ve heard this before, you’re right.

What’s amazing is that we’re in the middle of a credit crisis caused in part by imprudent lending standards, and East Bridgewater Savings Bank is being punished for being too prudent.

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