Just find a bunch of people with money they don’t immediately need and persuade them to let you hold it for safekeeping — in return for, say, half a percent a year in interest. Then you loan out the money at a higher rate. Rarely do you physically hand over cash to borrowers. Each time you make a loan, you “create” a new deposit. Now you have, on paper, even more money against which to lend. Since it’s unlikely that everyone will show up at the withdrawal window simultaneously, you can lend as much as 10 times the amount you have in these virtual deposits. If the house of cards collapses the federal government will step in and arrange a takeover.
When that happened last week to Charter Bank I wasn’t too worried. My money is at Los Alamos National, which was started years ago by a man I admire, George Cowan, a scientist and philanthropist who was also a founder of the Santa Fe Institute. With unbeatable service and community investment, the bank has always struck me as a class act. I was surprised when I learned in December (by following a link from the Reporter) that LANB had a “troubled asset ratio” of 44.6 — three times worse than the national average. And that was after the bank had received a $35.5 million infusion from the federal Troubled Asset Relief Program.
Still I was unprepared for the news, announced this week in a frustratingly opaque press release, that LANB has entered into an “agreement” with bank examiners (it sounds so friendly) “focused on reducing the Bank’s classified loans [“classified” is a euphemism for “troubled”] and reducing its loan concentration in commercial real estate.”
A story in Tuesday’s New Mexican was only slightly more enlightening, reporting (way down in the eighth paragraph) that LANB officials are “bringing in” a federal regulator — as though by invitation — “to work with the bank on its problem loans.” These are presumably in addition to those that have already gone bust and are listed in two pages of “discounted real estate” — another great euphemism — on the bank’s website. The repossessed property includes condos, houses, and lots at the stalled-out Oshara, Aldea, and Tessera subdivisions and, as mentioned here before, one of the famous Juanita Street condos. (Another has apparently been sold.) In addition, the Journal reported in December that the bank had filed a foreclosure complaint against Don Wiviott, the developer and unsuccessful Congressional candidate, for a property near the Railyard on Cerrillos Road.
“We’re experiencing everything every other bank is,” LANB’s president, William Enloe, told the New Mexican. But how many other banks have entered into “agreements” with regulators, and what does that mean? Judging from a document on the website of the Office of the Comptroller of the Currency, An Examiner’s Guide to Problem Bank Identification, Rehabilitation And Resolution, it sounds as though LANB has been slapped with something called a “formal action”:
A bilateral document [whose] provisions are set out in an article-by-article form to prescribe necessary corrective action. Violation of a formal agreement can provide the legal basis for more serious proceedings (e.g., cease and desist).
“Formal actions,” the document says, “are appropriate when a bank has significant problems, especially when there is a threat of harm to the institution.”
That sounds pretty serious. But without an inquiring reporter on the case, readers — and depositors — have no way to know.
Postscript, February 5. A story in this morning’s New Mexican serves as a reminder of another bad Los Alamos National Bank loan: to entrepreneur Charles Kokesh for the Santa Fe Horse Park. Mr. Kokesh, the father of Congressional candidate and Tea Partier Adam Kokesh, is also being pursued by the Securities and Exchange Commission and bankrupt Thornburg Mortgage.