Las Vegas man shut down 13 Nevada banks during recession

Updated September 20, 2018 - 7:15 am

On a late Friday afternoon, George Burns walked into Carson River Community Bank to shut down his seventh bank in Nevada in 20 months.

As commissioner of the state’s Financial Institutions Division, it was Burns’ job to deliver the news to bank owners and employees that their institution could not be saved.

The collapse of Lehman Brothers a decade ago this month triggered the worst financial crisis since the Great Depression. And it toppled Nevada banks like dominos.

Burns would have to close 13 state-chartered banks between 2008 and 2013 as mounting real estate defaults and a run on deposits left them with too little cash to meet their obligations.

Those failures wiped away more than half of Nevada’s chartered banks. No other state lost as many by percentage.

But closing Carson River on Feb. 26, 2010, was one of the more unpleasant experiences for Burns during the crisis.

As he entered the bank, he recognized the teller at the customer line. It was the very woman who taught him how to balance a teller draw when he began his banking career in Nevada in 1979.

“The toughest thing for me was that every bank I was dealing with during the financial crisis had people in it that I either worked for or with during my career. Having to go in and place them under enforcement actions and having to eventually show up on a Friday afternoon to close their doors was very, very difficult,’’ he said.

Though the failed lenders were taken over by competitors and depositors were made whole, hundreds of people lost their jobs. Owners completely lost their equity.

Deposits lent out out

When Burns became commissioner in 2007, Nevada banks lent out, on average, 95 cents for every dollar of deposits they received. Some were lending more than they had in deposits.

Much of it went to the state’s red-hot real estate sector, including loans for land purchases and development, which carry higher risk.

Banks that lend out between 80 and 85 cents for every dollar of deposits they receive are typically considered sound if the loans are diversified among various segments of the economy.

Lending out a higher portion of deposits can increase profitability, but it also raises the risks of bankruptcy, especially when an economic downturn triggers a run on deposits.

“The overall theme of Nevada bank failures was not due necessarily to a lack of capital, but rather a lack of liquidity. They could not meet the demand for withdrawals from depositors. If they cannot pay out their depositors, they are no longer viable,” Burns said.

Burns had seen this circus before with the savings and loan crisis of the 1980s and early 1990s that devastated the financial industry in Texas and other Southwest states.

“The S&L crisis was basically the same as the banking crisis of ’08 of getting way overextended in land loans and development loans,” he said.

However, many bankers operating in Nevada in 2008 had never experienced a major downturn, he said, and that blinded them to potential risks of lending out 100 percent of deposits and concentrating them into real estate.

“If all of their experience had been in banking and lending in an upswing economy, which for decades was the case here in Nevada, particularly in southern Nevada, then the understanding that there could be a downturn was not prominent in their minds,” he said.

Late nights

Burns said he was sometimes working 14 to 18 hours a day and on weekends during the darkest days of the crisis.

The Financial Institutions Division increased examinations of banks from once every 18 months to once a quarter or once a month as needed. Some troubled lenders were being monitored on a daily basis.

He requested and received permission from the Nevada Legislature to hire 10 more examiners to cope with the increased burden.

Nevada State Bank Chairman Dallas Haun recalled speaking with Burns on a regular basis during those days. His bank took over two of the failed banks and managed the shutdown of a third.

“George and I worked pretty closely together for two to three years. Let’s face it, he had a tough situation. I thought he stepped up,” Haun said.

After the dust settled in 2013, depositors in the failed Nevada banks had lost only $9.3 million out of $5.05 billion, or 0.2 percent. The majority of that was lost by corporations, not individuals, Burns said.

The Federal Deposit Insurance Corp. backstopped $1.7 billion, or more than one-third of the combined deposits in those failed banks.

Fresh memories

Burns said Nevada bank executives and directors are some of the most experienced today because they weathered the financial storm.

They have learned firsthand the dangers of having loans exceeding deposits, high concentrations of loans to one sector and low or no down payments. They know that assets, such as home prices, don’t always go up, he said.

Burns is concerned, though, that the next generation of Nevada bank leaders will forget these lessons in the inevitable quest for profits.

“We never want to be in that position again where one of our bankers is having to be George Bailey in ‘It’s a Wonderful Life’ having to say, ‘Well, I don’t have your money here today, because it’s in Joe’s house and Mary’s house.”

Contact Todd Prince at 702-383-0386 or tprince@reviewjournal.com. Follow @toddprincetv on Twitter.

ad-high_impact_4
Business
Bellagio, MGM Resorts International’s luxury hotel turns 20
The more than 3,000-room Bellagio hotel is situated on the site of the former Dunes Hotel. The Dunes was imploded in 1993, and construction of the Bellagio started in 1996. It cost $1.6 billion to build, making it the most expensive hotel in the world at the time. The Bellagio was former Wynn Resorts Ltd. Chairman and CEO Steve Wynn’s second major casino on the Strip after The Mirage. MGM Resorts International acquired the property from Steve Wynn in 2000. (Tara Mack/Las Vegas Review-Journal)
Facial recognition software at G2E – Todd Prince
Shing Tao, CEO of Las Vegas-based Remark Holdings, talks about his facial recognition product. (Todd Prince/Las Vegas Review-Journal)
Former NBA player, Shaquille O'Neal, speaks about his new Las Vegas chicken restaurant
Former NBA player, Shaquille O'Neal, speaks about his new Las Vegas chicken restaurant. Bizuayehu Tesfaye/Las Vegas Review-Journal @bizutesfaye
Bobby Baldwin to leave MGM
MGM Resorts International executive and professional poker player Bobby Baldwin is set to leave MGM.
Caesars has new armed emergency response teams
Caesars Entertainment Corp. has created armed emergency response teams. They are composed of former military and law enforcement officials. "These teams provide valuable additional security capabilities,” Caesars spokeswoman Jennifer Forkish said. Caesars is hiring Security Saturation Team supervisors, managers and officers, according to LinkedIn. The company did not say how many people it plans to hire for the units. (Las Vegas Review-Journal)
Las Vegas, airlines prepare for CES
CES in January is expected to attract more than 180,000 attendees. (Las Vegas Review-Journal)
AGS partners with Vegas Golden Knights
AGS is the nation’s second-largest manufacturer of Class II slot machines used primarily in tribal jurisdictions. It announced a marketing partnership with the Vegas Golden Knights NHL team. (Las Vegas Review-Journal)
Lehman Brothers bet big on Las Vegas
Lehman Brothers collapsed 10 years ago, helping send the country into the Great Recession.
Fremont9 opens downtown
Fremont9 apartment complex has opened in downtown Las Vegas. (Marcus Villagran/Las Vegas Review-Journal) @marcusvillagran
Ross & Snow launches in Las Vegas
Luxury shoe brand Ross & Snow has opened in Las Vegas, featuring "functional luxury" with premium shearling footwear. (Bailey Schulz/Las Vegas Review-Journal)
Remote Identification and Drones
DJI vice president of policy and public affairs discusses using remote identification on drones. (Bailey Schulz/Las Vegas Review-Journal)
Drones and public safety in Nevada
Two representatives in the drone industry discuss UAV's impact on public safety. (Bailey Schulz/Las Vegas Review-Journal)
Frontier Airlines to launch flights from Las Vegas to Mexico
Frontier, a Denver-based ultra-low-cost carrier, will become the first airline in more than a decade to offer international service to Canada and Mexico from Las Vegas when flights to Cancun and Los Cabos begin Dec. 15. (Rick Velotta/Las Vegas Review-Journal)
MGM Resorts International CEO Jim Murren addresses Oct. 1 lawsuits
MGM Resorts International Chairman and CEO Jim Murren addresses criticism his company has received for filing a lawsuit against the survivors of the Oct. 1 shooting. (K.M. Cannon/Las Vegas Review-Journal)
MGM Resorts International opens the doors on MGM Springfield
Massachusetts’ first hotel-casino opens in downtown Springfield. The $960 million MGM Springfield has 252 rooms and 125,000-square-feet of casino. (K.M. Cannon/Las Vegas Review-Journal)
MGM Resorts International prepares to open MGM Springfield
Las Vegas-based MGM Resorts International gave news media and invited guests a preview of the $960 million MGM Springfield casino in Massachusetts. The commonwealth's first resort casino will open Friday, Aug. 24. (K.M. Cannon/Las Vegas Review-Journal)
A Walk Through Circus Circus
It only takes a short walk through Circus Circus to realize it attracts a demographic like no other casino on the Strip: families with young children. (Todd Prince/Las Vegas Review-Journal)
Morphy Auctions, a vintage slot machines seller, wants gaming license
Vice president Don Grimmer talks about Morphy Auctions at the company's warehouse located at 4520 Arville Street in Las Vegas on Thursday, Aug. 16, 2018. (Rick Velotta/Las Vegas Review-Journal)
Nevada's venture capital money doesn't stay in state
Zach Miles, associate vice president for economic development for UNLV, said there’s venture money in Southern Nevada, “but trying to find the right groups to tap into for that money is different.” According to a 2017 report from the Kauffman Foundation, Las Vegas ranked number 34 out of 40 metropolitan areas for growth entrepreneurship, a metric of how much startups grow. With a lack of growing startups in Las Vegas, investment money is being sent outside of state borders. The southwest region of the U.S. received $386 million in funding in the second quarter, with about $25.2 million in Nevada. The San Francisco area alone received about $5.6 billion. (source: CB Insights)
Neon wraps can light up the night for advertising
Vinyl wrap company 5150 Wraps talks about neon wraps, a new technology that the company believes can boost advertising at night. (Marcus Villagran/Las Vegas Review-Journal) @brokejournalist
Nevada on the forefront of drone safety
Dr. Chris Walach, senior director of Nevada Institute for Autonomous Systems, talks to a reporter at NIAS's new Nevada Drone Center for Excellence of Public Safety, located inside the Switch Innevation Center in Las Vegas. K.M. Cannon Las Vegas Review-Journal @KMCannonPhoto
TOP NEWS
News Headlines
Add Event
Home Front Page Footer Listing
Circular
You May Like

You May Like