Written by John Lounsbury
Hidden away from the main stream big city media, on tiny Bainbridge Island, WA, the FDIC (Federal Deposit Insurance Corp.) has filed suit against ten former directors and officers of a local bank. Bainbridge Island’s defunct American Marine Bank leaders are being sued over allegations they enabled $18 million in irresponsible loans. The suit charges four officers and six directors of the bank with breach of fiduciary duty, gross negligence and negligence, according to documents filed in the U.S. District Court in Tacoma on Jan. 25. The bank went under in 2010 and was taken over by the FDIC.
Where can you read more about this: In the Bainbridge Island Review, of course. Clearly banking interests hold no special powers of influence over this media giant.
Let’s consider some back of the envelope numbers:
American Marine Bank
- The charges specify $18 million in irresponsible loans made by American Marine.
- At the time of FDIC takeover, deposits were $68 million.
- Ratio of bad loans to deposits was 26%.
Total banking system
- Total mortgage debt outstanding December 2012 was approximately $13 trillion.
- Nearly 23% of all mortgages were underwater in late 2011.
- That produces an estimate of about $3 trillion in underwater mortgage value.
- Repossessions 2008-2011 numbered approximately 3.9 million.
- That produces an estimate of another $1 trillion in foreclosed mortgage value, for a total estimate of $4 trillion in bad loans.
- Total bank deposits in the U.S. are about $21 trillion.
- Ratio of bad loans to deposits was 19%.
The 26% ratio for American Marine Bank is not that far above the average for all of U.S. banking. Since we have estimated the average it is quite possible that many banks could have had ratios close to or even above the 26% level.
There are ten individuals charged with “breach of fiduciary duty, gross negligence and negligence” for officers and directors of one small bank. Have you seen any similar charges against bigwigs in any larger banks? What’s wrong with this picture?
Note: For those who understand banking operations, I did not intend to imply that deposits produced the loans. Just the opposite is the operative process in modern banking. The ratio of bad loans to deposits was a simple metric for comparison of American Marine Bank to the entire banking industry.
Hat tip to Naked Capitalism.