On November 25, the Inspector General of the Treasury Department released its analysis of the causes of the collapse of ANB Financial in May of this year and the regulatory actions that preceded the failure. Such reports are required by section 38(k) of the Federal Deposit Insurance Act (12 USC 1831o(k)) whenever the failure of an insured depository institution results in a loss to the FDIC’s Deposit Insurance Fund of the greater of $25 million or 2% of the institution’s total assets. In the case of ANB Financial, the FDIC had projected a loss of approximately $214 million.

The report traces the failure of ANB Financial, a national bank in Arkansas, to five factors: aggressive growth (it nearly quadrupled in size over four years); inadequate risk management controls; excessive reliance on wholesale funding; a high concentration of commercial real estate loans; and unsound loan underwriting. Taken together, the IG was of the view that these factors did not result from the current financial crisis, but from the bank’s reliance on wholesale funding that created substantial liquidity risk if the credit markets collapsed – as in fact they did.

ANB Financial’s primary federal regulator, the Office of the Comptroller of the Currency, came in for some mild criticism for what, in retrospect, was a delayed response to early problems at the bank. The report makes clear, however, that once the OCC recognized the extent of the problems at ANB Financial, the agency acted in an appropriate and timely manner.