R.I.P. Franklin Bank

• On 2:12 pm EST, Monday November 10, 2008

Franklin Bank, the Houston-based bank founded by the father of mortgage-backed securities, died on Friday. It was just seven years old.

The bank, which was formed in 2001 by Lewis Ranieri, the former Solomon Brothers banker who is credited with the creation of the mortgage bond market that has crippled so many financial institutions during this credit crisis, died from complications from loans to builders in foreclosure-heavy states like California and Florida.

During its battle with the illness, which began to wreak havoc on Franklin's balance sheet in late 2006, Ranieri and his colleagues tried desperately to save it. But in the end, the cancerous loans prevailed and the FDIC seized control.

Its viable organs, including 46 branches and $3.7 billion in deposits, were donated to a needy recipient, Prosperity Bank.

Franklin joins 18 other banks buried in the FDIC's graveyard so far this year.

Despite his instrumental role in creating the mortgage-backed securities market, Ranieri was an early vocal opponent of the great risks associated with it. Starting in late 2006, Ranieri began warning that many investors didn't understand the risk they were taking in the bonds, particularly in the subprime market. Franklin Bank stayed away from subprime loans altogether, but it was the loans to troubled builders that ultimately brought it down.

Friends of Franklin are invited to Houston to reflect on the bank's better days, such as when it went public in late 2003 and its stock hit its peak in October 2006 at $21.70.

In lieu of flowers, please send contributions to the FDIC, a worthy and needy cause in these trying times.

by Megan Barnett