by Calculated Risk on 8/24/2008 02:18:00 PM

From Joe Rauch at the Atlanta Business Chronicle: Bank flu spreads to rural areas (hat tip Edward)

The housing market’s collapse is reaching banks beyond the [Atlanta] metro area, through a process largely hidden from public view.

Banks in more rural areas of Georgia reported rising levels of loan losses for the second quarter of 2008.

Industry experts attribute many of those problems to the purchase and sale of loans between banks, a practice called “loan participations.”

The loan pieces are for projects often geographically distant from the home markets and familiar territory of the purchasing banks ...

The process was dubbed by one local banker as “a poor man’s securitization” ...

While parceling out portions of the loans distributes risk through the financial system, critics argue bankers relaxed their credit analysis on the loans during the building boom, enticed by the prospect of rapid growth by buying into others’ deals.

... “The same sloppiness that crept into regular lending crept into participations,” said bank analyst Chris Marinac of FIG Partners LLC. “It was a convenient means to an end. It was really easy to get lazy with these things.”

Just more containment.