I recently read of Embree Easterly’s death. It reminded me of his valiant fight to prevent what turned out to be “The Great Recession.”
Forty-five years ago he was president of Capital Bank and Trust of Baton Rouge. As president of the American Independent Bankers Association he fought a losing battle for the preservation of banking integrity.
At the time, a bank could not extend its lending outside the parish or county where it was situated. This ensured that bankers knew their borrowers and that lending was based on character, not formulas. A bank was funded by its bank capital, which was regulated by the institutions that emerged after the Great Depression and provided the soundness of our financial system. The bank board of directors took a personal risk on every loan through their stock ownership.
All this ended in the 1970s with the introduction of statewide banking and bank holding companies, which allowed the owners of banks to leverage their bank capital through setting up a holding company for the bank and making loans regardless of risk and without capital requirements. This abandonment of the regulatory system became a catastrophe after the development of nationwide banking, which centralized and formularized lending. Of course, we all know now that, in the 1990s, Congress delivered the fatal blow when it started using the credit of the citizenry to force the issuing of mortgages to borrowers who could not possibly repay them.
Embree Easterly and his cohort were the last bastion against what has come to pass. We should have listened to him.
C. Ward Bond