Danger Signs Ignored at Failed Banks

Regulators knew loans were toxic but didn't act

By Rob Quinn, Newser Staff

Posted Nov 19, 2009 3:43 AM CST

(Newser) – "Post-mortems" on banks that failed during the financial crisis are exposing serious misjudgment by state and federal regulators. Inspectors-general are finding at bank after bank that regulators were aware that risky and potentially toxic loans were being made while the economy was booming, but failed to take action, the New York Times reports.

"We all could have done a better job," sais FDIC chairwoman Sheila Bair. Another wave of bank failures is looming as the commercial real estate market worsens, and regulators are considering moves to restrict banks' abilities to make risky loans. The banking industry, however, warns that tougher oversight will make banks less willing to lend, stifling economic recovery.

[Images (1)]

[Quotes (1)]

Bank personnel and a sheriff deputy work inside the corporate office of MagnetBank in Salt Lake City earlier this year. (AP Photo/Douglas C. Pizac, file)

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Hindsight is a wonderful thing. At the height of the economic boom, to take an aggressive supervisory approach and tell people to stop lending is hard to do. - Timothy W. Long, chief examiner
for Office of Comptroller
of the Currency

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Danger Signs Ignored at Failed Banks