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Banking Commission crisscrosses between competition and protection

PIERRE -- Every so often the South Dakota Banking Commission finds itself in muddy waters. There was the 2010 decision in which the commissioners decided an offshore lender wasn't a bank. The matter involved a large loan to what then was Northern...

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PIERRE - Every so often the South Dakota Banking Commission finds itself in muddy waters.

There was the 2010 decision in which the commissioners decided an offshore lender wasn't a bank. The matter involved a large loan to what then was Northern Beef Packers at Aberdeen.

Unknown to the public at the time, the EB-5 program's management was headed into scandal land. We learned a lot about it three years later. We still don't know it all.

This month the commission emerged from a different thicket, allowing First State Bank of Roscoe to open a branch in Eureka.

The commission's 4-0 decision reversed the state banking division.

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The division's regulators thought the expansion should be denied because, based on three sets of lawsuits, character and fitness of management were lacking.

The commission's five members are current or former bankers. They thought otherwise.

Just days later, U.S. Bankruptcy Judge Charles Nail found First State Bank of Roscoe and its chief, John R. Beyers, guilty of contempt.

The federal judge awarded two debtors $159,605.77 for attorney fees and $50,000 in punitive damages.

He held the bank and Beyers each responsible for $25,000 of the damages.

How could there be two seemingly opposite results?

The commission decided the bank and Beyers put on a stronger case.

Further, the commission found the contempt order involved "a single incident which must be weighed" against all other evidence involving the entire management team.

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The commission specifically noted the state regulators never expressed concern about the rest of the bank's management team.

Instead, the team had been rated as satisfactory during examinations since 2007.

Further, an inspection of 100 bank loans over $400,000 found Beyers involved as principal loan officer on 15 percent.

The commission concluded Beyers, who is chairman of the board of directors and the principal shareholder in its holding company, wasn't running a one-man bank.

The commission also decided that events from 2005 through 2007 weren't relevant to the question of whether the bank should be allowed to open a branch in Eureka.

And, the commission also noted, the bank's management had taken corrective actions in the past.

Then there was the matter of citizens wanting First State Bank of Roscoe to open a branch in Eureka.

The commission said the bank already had nearly 400 accounts in the Eureka area.

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The commission declared it "entirely appropriate... to recognize the outpouring of public support" for the bank to open a Eureka branch and "the willingness of a community bank" to open a physical 'main street' presence in a small rural community.

One of the commissioners, Richard Westra of Aberdeen, didn't participate. The four commissioners who did are current bankers Steve Hayes of Presho and John Lillibridge of Burke and retired banking executives Jeff Erickson of Sioux Falls and Paul Christen of Huron.

State law provides for two of the five members to be people other than bankers but the law doesn't prohibit all five from being bankers.

Given that the court cases go back a decade, the people of Eureka should know what they're getting. The commission is going to let them have what they want.

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