The pain of Georgia's bank failures has spread to the state capital in Atlanta as several lawmakers, including the governor, have personal ties to some of the failed institutions.

The latest instance involves the failed Bartow County Bank of Cartersville, Ga., which lent about $2 million to a state senator and a congressman to rehab a dreary roadside motel. The Republican lawmakers — Rep. Tom Graves and state Sen. Chip Rogers — were later sued by the bank that took over Bartow, reaching an out-of-court settlement this week.

Other Georgia officials tied up in local bank failures include Gov. Nathan Deal, U.S. Rep. Phil Gingrey and state Sen. Jack Murphy, the chairman of the Georgia Senate's banking committee, who is a named defendant in a lawsuit filed by the Federal Deposit Insurance Corp. related to the failure of Integrity Bank of Alpharetta, Ga. (All of the lawmakers are Republicans.)

Some Georgia lawmakers think the downfall of so many banks — nearly 70 in the state since 2008 — is more the result of overzealous regulators than fraudulent business practices. U.S. Rep. Lynn Westmoreland, R-Ga., held a congressional field hearing in his hometown of Newnan this week to explore the issue, and two leaders of Georgia community banks testified about their dealings with regulators. Westmoreland has sponsored a bill to require the inspector general of the FDIC to review the impact of the agency's practices on small banks.

Since many elected officials are directors or clients of Georgia community banks, it stands to reason some would be hurt by the bank meltdown since it was so widespread, some industry observers said.

"There were too many banks employing similar strategies, especially in commercial real estate lending and funded with brokered Internet deposits," said Chip MacDonald, a lawyer at Jones Day. "It was one after another failed bank with bad real estate loans."

Murphy, named as a defendant in the FDIC lawsuit, said banks increasingly resemble government agencies. "My concern is whether banks are being allowed to operate as private entities," he said. "They're so highly regulated, they're almost government entities."

Deal, a first-term Republican, owed about $2.1 million to Community Bank and Trust of Cornelia, Ga., based on state records filed on May 6, 2010. The debt was spread over two loans. One was a $1.6 million note for an unidentified commercial building and lot. The other was a $500,000 liability, collateralized by 14 acres of land, for Wilder Outdoors, a camping-and-fishing retailer that later closed.

When state regulators closed the $1.21 billion-asset Community Bank on Jan. 29, 2010, a unit of SCBT Financial Corp. in Columbia S.C., bought "essentially all of the failed bank's assets," according to the FDIC. Deal's spokesman, Brian Robinson, did not respond to a call and email seeking comment.

In another example, Graves and Rogers obtained a loan on behalf of a corporation they created to renovate a hotel on Interstate 75 in Calhoun, Ga. When the renovation stalled, Bartow tried to recoup its money, according to media reports.

The $330.2 million-asset Bartow failed in April. The buyer, a unit of Hamilton State Bancshares Inc. in Hoschton, Ga., bought "essentially all of its assets," the FDIC said. Hamilton also took over Bartow's lawsuit against Graves and Rogers; it was settled for undisclosed terms earlier this month.

Rogers did not respond to a request for comment. Graves said in an email that: "All parties have been committed to finding a positive solution and I am pleased to share that our common goal has been achieved. I am happy this matter is fully resolved in an equitable and fair manner."

Murphy, a state senator, was a director of the $1.1 billion-asset Integrity Bank. The bank failed on Aug. 29, 2008, and was acquired by a unit of Regions Financial Corp.

In January, the FDIC filed a complaint in the U.S. District Court for the Northern District of Georgia against eight former Integrity directors and executives, including Murphy, on claims of gross negligence and breach of fiduciary responsibility. Murphy has denied the allegations.

Former Integrity executives — Douglas Ballard and Joseph Todd Foster — pleaded guilty last year in the same court to conspiracy to commit bank and securities fraud.

Murphy also has been sued by the FDIC in the same court on behalf of the failed Silverton Bank to recover more than $100,000 on a past-due loan. In court documents, Murphy has denied liability for that loan.

Lastly, Gingrey, a physician and a former member of the state senate, is a former director of the failed Bank of Ellijay. A unit of Community and Southern Holdings Inc. in Carrollton, Ga., bought Bank of Ellijay's assets in September 2010, when it was closed by regulators.

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