Stress and More Stress

By Tim Holland

While the stock market is expressing what might be called a sigh of relief over the “stress test” results, whereby it appears that none of the 19 largest banks in the country are expected to fail, small banks around the country continue to reflect the real health of the county’s financial system.

The Federal Reserve announced on Tuesday, May 12 that they had placed a series of banks on a short leash that are owned and controlled by Security Bank Corporation and Security Interim Holding Corporation (both of Macon, Georgia). In effect, the controlling entities are bank holding companies that could be considered smaller versions of the 19 financial services companies that have just finished their examination by the Fed.

The agreement entered into by the Federal Reserve Bank of Atlanta is with the two holding companies and the Banking Commissioner of the State of Georgia. The State of Georgia is involved because, although the holding companies are regulated by the Federal Reserve the six Georgia banks they control have state charters. The mixture of regulators of the different banks and their holding companies continues to highlight the task ahead for Congress as they try to re-regulate the financial services industry so that one regulator will be able to see the total picture of each financial holding company, something the financial services industry is fighting against with all of its resources.

In this instance, the Fed is requiring that the holding companies perform their own “stress tests” on their subsidiary banks and affiliated institutions and, within 60 days, come up with a comprehensive plan to strengthen their financial structure. During the period the holding companies agree to not take any action that would further weaken the banks.

So while the larger market takes a deep breath that the big 19 (who control almost two thirds of the country’s banking assets) are going to survive, there are more and more Security Bank Corporations sitting out there with large question marks on them.