Orion Bancorp in Danger of Closing

Last Updated Sep 22, 2009 2:20 PM EDT

When the real estate bubble burst in Florida, it rained all over the Sunshine State's financial industry. Six banks have collapsed in Florida this year, ranking it No. 4 in the U.S. after California (9), Illinois (16) and Georgia (18) in total number of bank failures. And unfortunately, Florida's feeble economy gives it a fighting chance of catching up.

More Florida banks are queuing up to go under. Federal regulators said today they've ordered $2.7 billion-asset Orion Bancorp to "cease and desist," which usually precedes a closure. The privately held banking company, which is based in Naples and mostly operates along Florida's west coast, must now jump through a whole lot of hoops to prove it shouldn't be shut down. Another Naples institution, Partners Bank, got hit with a cease-and-desist order last month after a deal to sell itself unraveled. Ditto for Fort Myers-based Commerce Bank of Southwest Florida.

To keep things in perspective, the banking crisis in Florida is, for now, nowhere near as destructive as what the state endured during the recession of 1990-92, when 53 banks failed. But the night is young. Although money-center banks are reporting profits, the fire is still raging throughout the rest of the industry.

Indeed, worth noting that it's mostly smaller players burning down, community banks in particular. Such institutions live largely on the strength of their residential real estate and commercial lending. As we know, the former blew sky high, and the latter is ticking. Smaller banks also have a much harder time raising capital than the big boys, especially since the capital markets remain effectively sealed for community banks.

In Florida, Bradenton's First Priority Bank was one of the first to get blown over by the real estate storm when the community bank failed in August 2008. The company was brought down by "bank management's aggressive pursuit of asset growth concentrated in high-risk [commercial real estate] loans with inadequate loan underwriting and a lack of other loan portfolio and risk management controls," regulators said in shuttering First Priority.

I said good day, sir. It's no accident that the first thing the FDIC wants Orion to do is hire an outside consultant to prove that it's management is up to snuff. As we've seen again and again, within the eye of the macroeconomic maelstrom knocking down financial companies is a failure of leadership.

Banks in Florida, as across the U.S., will continue to struggle into next year, and perhaps longer. In this by now familiar chain of causation, continuing high unemployment leads to rising loan delinquencies leads to increased defaults and bankruptcies leads to mounting bank losses leads to reduced lending leads to more businesses going bust leads to higher unemployment. And repeat.

Chart courtesy of the FDIC.

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    Alain Sherter covers business and economic affairs for CBSNews.com.