Friday, May 10, 2013

This Week in Bank Failures

In this week’s conversation it became more clear that the social contract surrounding student loans has broken down. When you consider the number of people who personally know someone who was burned by a student loan — this now describes more voters than not — it is easy to imagine that the rules could be rewritten in some fundamental way within the next three years. One idea that has been suggested is an income limit and time limit for student loans. This would limit student loan payments to something like 20 percent of a former student’s income over a 30-year period. This might not sound like much of a restriction, but it would be enough of a change to turn the current system upside down. It would strongly discourage lenders from making loans that exceed 5 times a student’s likely annual income. At the same time, it would offer some hope of relief to those students who under the current rules will be stuck with their student loans for the rest of their lives. Another, perhaps more drastic reform would limit finance charges on student loans to one of the Fed’s interest rates — currently less than 1 percent. This would drive banks and all profit-oriented lenders out of the student loan business, and turn it back over to the nonprofit funds that dominated student loans 30 years ago.

Georgia state banking regulators tonight closed Sunrise Bank, based in Valdosta, with $58 million in assets. Synovus Bank is assuming the deposits and purchasing a small fraction of the assets. It plans to keep all of the three branches open.

In North Carolina, state banking regulators closed Pisgah Community Bank. Maryland-based Capital Bank is assuming the deposits and purchasing 90 percent of the assets.