Banking Law

American Banker editor at lareg Barbara Rehm wrote an article last week (paid subscription required) that contained an opening paragpraph that might lead someone who is grasping at straws one more thin reed at which to claw.

In a sign that the banking business is bouncing off the bottom of the economic trough, the Federal Deposit Insurance Corp. is ready to start insuring new charters.

With the very next sentence, however, Barbara turned a cold water hose on anyone whose de novo dreams might have reached a turgid fever pitch.

It will be a trickle, not a torrent of approvals, but it is a significant shift considering the agency is widely viewed as the single biggest reason why just two banks have gained deposit insurance this year.

That's like saying it's "a significant shift" when a bully stops beating you with a baseball bat and starts in on you with a billy club. You're still being beaten and it still hurts like Aretha Franklin used to moan:

Sometimes it hurts to even laugh
Sometimes the pain is just too much
And it hurts like hell
that's the way it feels

It was only a couple of months ago when attorneys who represent de novo bank applicants where widely quoted in the trade press as claiming that you'd be better off taking the high-six-to-low-seven figure amount you're going to spend trying to get a new charter approved and using it to fly first class to Las Vegas, walking into The Palazzo and up to the roulette wheel, and telling the croupier to put all the scratch you have left on red 14. Even with odds of 35-to-1 against you, your chances of having "a happy ending" that way are far better than they will be trying to work through the de novo bank application process over the next couple of years.

Cold comfort is given by a FDIC representative who "encourages" the submission of de novo bank applications.

"We would encourage and we do expect, it's hard to predict when, traditional community bank proposals to come through," he said. "And we expect we would approve" applications pledging adequate capital, qualified management and diversified business plans.

There are enough "outs" in those two sentences to give anyone who's seriously considering submitting such an de novo insurance of accounts application a serious case of gimpiness in his or her get-up-and-go.

Two de novo applications have been approved this year. Two. The latest one, Bank Midwest, is actually a new charter granted to NBH Holdings to facilitate a major branch acquisition transaction to bail out the existing Bank Midwest, which is operating under an order by the OCC to, essentially, "sell yourself or die." That's not a group of traditional community investors seeking to start a bank from scratch to serve the local community.The latter types of investors don't want to spend two and one-half years of their lives (the length of time it took the last de novo bank to open this year to wind its way through the FDIC de novo maze) and hundereds of thousands of dollars on the off chance that they might one lucky drop in the "trickle."

I remain convinced that the view stated in my most recent post on this topic remains correct, at least for the near term.

The bottom line: until things loosen up (again, don't hold your breath), the only viable way into the banking game is to find an existing bank and buy it.

I'll change that view when I see action, not words, that indicate that, as Jeff Gerrish puts it at the end of Barbara's article, the foot is coming off the brake.