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June 18, 2013

June 13, 2013 – Senate Banking Committee hearing entitled "Lessons Learned from the Financial Crisis Regarding Community Banks."

     This hearing proved a historical context for the many smaller bank failure which occurred in the Untied States during the recent economic downturn. At the center of the hearing was a report authored by the FDIC entitled, FDIC Community Bank Study, which provides a comprehensive view of community bank activity using data collected over the last 27 years.

     The report found that small bank failures peaked at 888 in 2011. They were primarily caused by growth that was too rapid, excessive concentration in commercial and real estate lending and the use of funding from highly volatile deposits.

     To guard against similar conditions in the future, the FDIC Inspector General urged the financial institutions enhance their IT capacity so as to improve the management of their portfolios. A witness from the GAO confirmed the Report’s finding since recent analysis of the same problem showed that recent failure of smaller banks in economically troubled area were largely driven by credit losses on commercial real estate loans, particularly loans made to finance land development and construction.

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