Senator Says FDIC to Blame for Bank Failure

ATLANTA -- Responding to a $70 million federal lawsuit against officers and directors of Alpharetta-based Integrity Bank that failed in 2008, state Senate Banking Committee Chairman Jack Murphy of Cumming, said it was the federal government's "lax oversight" that caused the failure not mismanagement by bank officials.

The FDIC has targeted Murphy and seven other Integrity Bank directors and officers for failing to fulfill their fiduciary responsibilities.

In documents filed in federal court last week, Murphy said bank regulators gave Integrity high marks for its asset quality as late as 2006, and approved the bank's business plan and "tacitly approved" the loans the FDIC now criticizes.

"The FDIC is engaging in Monday morning quarterbacking of the worst kind," the response reads. "The FDIC approved Integrity Bank's game plan on an annual basis. Now, after an unforeseen real estate meltdown on a magnitude not experienced in this country since the Great Depression, the FDIC takes the position that the game plan that the FDIC repeatedly approved was unsound."

During a break in the General Assembly Thursday, Murphy took time out for a brief telephone interview with Cumming Patch.

"What happened to Integrity is the same thing that happened to hundreds of community banks across Georgia," he said. "In mid-2007, the country was facing an economic crisis from which it is just beginning to recover. As real estate values plummeted, the number of borrowers that were not able to meet their obligations increased dramatically. Consequently Integrity, like hundreds of community banks in the state, struggled to maintain adequate capital."

But, Murphy added, "Rather than take responsibility for their failure to predict the economic crisis, the FDIC attempted to shift the blame to the officers and directors by forcing arbitrary write downs of loans and using the resulting decline in asset values as an excuse for labeling the bank unsafe and unsound."

The documents also claim that certain FDIC enforcement actions, including requiring the bank write off $100 million in loans, many for borrowers who hadn't missed payments, depleted the bank’s reserves.

Four of the bank's directors, including Murphy, have asked a judge to reject the government's claims. Four other defendants say they are shielded by Georgia’s business judgment rule that states that an officer or director of a corporation is not liable for decisions made in good faith.