He authored a bill forcing the FDIC inspector general to look at its practices and how they impact banks in the 10 states with the highest number of bank failures, including Georgia.
Regulators have shuttered 16 Georgia banks this year and 67 since 2008, the most of any state in the nation.
Westmoreland said agency regulators have flexibility in how they work with banks that might be in trouble, but they are not using it out of fear they will back a bank that still ends up failing.
“What we’re seeing in the field is that these regulators are so scared that they are not using any of their flexibility or their discretion,” Westmoreland said. “It’s just safer for them just to close [the banks] down.”
The north Georgia congressman said he worries the FDIC is closing community banks that could ultimately survive with some help.
He said even though the banks’ deposits are usually sold to another bank, the connection with the community is lost when that bank is based somewhere else.
“Do they know the people in the community? Do they have the same investment in the community as the original board of directors? I mean, do they know that there’s a need for an automobile repair shop in the community?” Westmoreland asked.
“There are just a lot of different things that a community bank does other than just [being] a bank for banking purposes. A lot of [their work] is done knowing the community’s needs,” he said.
Westmoreland also said closing so many banks is hurting the economic recovery by limiting access to loans.
Westmoreland’s bill passed the House Financial Services Committee Wednesday. He said he hopes to move it through the full House before Congress recesses in August.