Finding the Roots of Tennessee Commerce Bank’s Failure

A new report finds that Tennessee Commerce Bank’s failure early this year came after several years of warnings from state and federal regulators. Concerns that the bank’s strategy was too risky were voiced as early as 2007.

Tennessee Commerce Bank offered a full range of services, but its overwhelming focus was lending to small and medium size businesses. According to an audit from the FDIC’s Inspector General, the bank held firmly to that strategy even as it started to crumble. It made risky loans and set up overly complex borrowing relationships, while at the same time not doing enough to carefully administer them. By 2009, Tennessee Commerce was officially considered to be in a “troubled condition.” In late January of this year, it was forced to shut down.

While regulators identified problems and suggested solutions early on, the audit finds many of those recommendations weren’t followed. It also suggests the government was too slow to increase its oversight of Tennessee Commerce once those warning signs were spotted.