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In the early 1990s, the First National Bank of Keystone in West
Virginia began buying and securitizing subprime mortgages from all
over the country, and quickly grew from a tiny bank with just $100
million in assets to over $1.1 billion. For three years, it was
listed as the most profitable large community bank in the country.
It was all a fraud. All of the securitization deals the bank
entered into lost money. To hide that fact, bank insiders started
cooking the books, and concealing that they were also embezzling
millions of dollars from the bank. This was all hidden from the
bank's attorneys and auditors, federal bank examiners, and even the
board of directors of the bank. To keep the examiners at bay, the
bank insiders did everything possible to avoid giving them access
to documents they were entitled to see, documents they knew would
sink their scheme. The head of the bank even went so far as to bury
four large truckloads of documents in a ditch on her ranch. Robert
S. Pasley explores the failure of the First National Bank of
Keystone, the intrigue involved, and the lessons that could have
been learned-and still can be learned-about how banks operate, how
federal banking regulators supervise financial institutions, how
agencies interact with one another, and how such failures can be
avoided in the future.
In the early 1990s, the First National Bank of Keystone in West
Virginia began buying and securitizing subprime mortgages from all
over the country, and quickly grew from a tiny bank with just $100
million in assets to over $1.1 billion. For three years, it was
listed as the most profitable large community bank in the country.
It was all a fraud. All of the securitization deals the bank
entered into lost money. To hide that fact, bank insiders started
cooking the books, and concealing that they were also embezzling
millions of dollars from the bank. This was all hidden from the
bank's attorneys and auditors, federal bank examiners, and even the
board of directors of the bank. To keep the examiners at bay, the
bank insiders did everything possible to avoid giving them access
to documents they were entitled to see, documents they knew would
sink their scheme. The head of the bank even went so far as to bury
four large truckloads of documents in a ditch on her ranch. Robert
S. Pasley explores the failure of the First National Bank of
Keystone, the intrigue involved, and the lessons that could have
been learned-and still can be learned-about how banks operate, how
federal banking regulators supervise financial institutions, how
agencies interact with one another, and how such failures can be
avoided in the future.
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