WASHINGTON — Banking regulators should have taken more aggressive steps to deal with Alpha Bank and Trust before the firm failed last October in one of the fastest bank failures in U.S. history, according to a federal watchdog.
A report by the Federal Deposit Insurance Corp.'s inspector general said regulators should have been more concerned the Alpharetta, Ga.-based bank, open for barely a year, was growing well beyond its original business plan.
"In our view, the extraordinary risk associated with Alpha's business strategy and loan operations warranted additional examiner concern and action," said the IG report released Tuesday.
At the time of its failure, Alpha Bank had roughly $334 million in total assets and had only been in business for a scant 29 months. Its failure marked the shortest amount of time between a bank receiving approval for federal deposit insurance and then being taken over by regulators.
The IG's report paints a picture of a bank that aggressively sought to claim its piece of the booming housing market only to quickly collapse under the weight of its own ambition. Inadequate underwriting, few risk management controls, a reliance on high-cost funding, and a concentration on high-risk residential development and construction loans caused Alpha Bank's downfall, the report said.
The bank's regulators noted some of these problems, the report said, but did not take steps quickly enough to prevent the bank's failure.
"Supervisory actions were not timely and effective in addressing the bank's significant problems," the report found.
The report is notable because it comes as inspector generals at the FDIC, the Treasury Department and Federal Reserve are lobbying U.S. lawmakers to reduce the number of such reviews they have to produce. Currently, IGs are required to investigate any bank failure where the estimated loss is considered material, exceeding the greater of $25 million or 2% of the bank's assets.
Historically, this has not been a problem: Treasury IG Eric Thorson testified Tuesday his office had to do only five failed bank reviews from 1991 to 2007. With bank regulators already closing down 31 banks this year, however, the number of mandatory reviews is quickly climbing, straining the resources of government auditors.
"We have either shut down or indefinitely deferred nearly all critical audits in other Treasury high-risk programs," Thorson said in testimony before a U.S. House subcommittee.
Regulators have offered support for legislation raising the review threshold above the current $25 million level, possibly to between $300 million and $500 million.