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Bankers: FDIC rules will ban new banksAtlanta Business Chronicle
Bankers: FDIC rules will ban new banksAtlanta Business Chronicle - by Joe
The Federal Deposit Insurance Corp. may be implementing what is effectively a ban on new banks in metro Atlanta and other distressed areas nationwide, as the financial industry’s and broader economy’s deterioration accelerates.
The FDIC, the nation’s bank deposit guarantor, has increased scrutiny of new banks applying for deposit insurance in select areas of the Southeast and other regions, including Western states, industry insiders said.
The new reviews, insiders said, make approval difficult in practice, if not impossible.
“It is a de facto ban,” said Stephen Johnson, CEO of Alpharetta-based consultant T. Stephen Johnson & Associates Inc. “I’ve never seen a time this difficult to get a charter.”
Johnson is a longtime bank organizer and consultant in Atlanta, raising $500 million for various bank investments during his two-decade career.
Spurring the new rules are worsening industry performance and an increasing skepticism that new banks can succeed in the same places where others have failed this year, those familiar with the process said.
However, Mark Schmidt, the FDIC’s Atlanta regional director, adamantly denied that a ban, either formal or informal, is in place. He said the FDIC is continuing to review new bank applications, and expects some to receive approval.
Schmidt did acknowledge deposit insurance approval is harder to get, and the FDIC is becoming more discriminating in who it approves nationwide, including in metro Atlanta.
“We have had four failures in Georgia, three being relatively new institutions,” he said. “We are asking a lot of very hard questions. They have to convince us they can get off to a good start. The standards don’t change. From our perspective, the economy changed.”
Federal and state bank regulators seized First Georgia Community Bank on Dec. 5. Integrity Bank and Alpha Bank & Trust, both based in Alpharetta, and Loganville-based Community Bank were taken over in recent months.
The FDIC’s changes affect at least eight Georgia banks currently organizing, according to state and federal regulatory data.
The FDIC’s tougher guidelines broadly address three key issues, sources said.
First, the FDIC is requesting bank organizing groups have directors or executives with management experience dating to the Savings and Loan Crisis of the late 1980s and early 1990s.
Second, banks are required to present a plan to generate deposits from the wider community, beyond the so-called “friends and family” of the organizing group.
Finally, banks are now required to submit an economic assessment of their distressed geographic area, addressing how the bank plans to grow and survive when, in some areas, loan growth is nonexistent.
The rule changes’ widespread impact comes from the FDIC’s unique role in bank regulation.
The organization is not the primary regulator of any bank, but serves as the linchpin to the U.S. banking system’s patchwork of oversight.
Other state and federal banking regulators require new banks to receive deposit insurance before opening their doors, making the FDIC a key industry overseer.
And the organization has directly felt the pinch of the 24 bank failures nationwide this year. The FDIC’s insurance fund, used to protect bank depositors from losing money in a failure, has shrunk from $57 billion to $37 billion.
Many of those failures have been concentrated in the Southeast, notably Georgia, Florida and metro Atlanta, and Western states like California, Arizona, Nevada and Washington.
It is in those areas that new bank scrutiny will be tougher than ever.
“This is a recognition of the significant deterioration in the last 60 days,” said Walt Moeling, a longtime Powell Goldstein LLP banking attorney.
Moeling said metro Atlanta is particularly problematic for the FDIC.
During the third quarter, 97 of 110 Atlanta banks reported rising levels of non-performing assets — or loans that are in some stage of default — from second-quarter to third-quarter 2008. Those problems across metro Atlanta spiked by 30 percent, a figure that worsens in certain areas.
Banks inside the Perimeter reported non-performing assets increase by an average of 131 percent. Banks in Atlanta’s southern suburbs reported an increase of 141 percent.
Those figures don’t take into account the worsening economic conditions of October, November and December, which will be reported in the fourth quarter.
“Right now, we’re in free fall,” Moeling said.
Uphill fight
The FDIC’s renewed scrutiny of organizing banks affects eight institutions in Georgia. The bulk of those are organizing in metro Atlanta.
The FDIC is requiring banks to answer new questions about their organizing groups and their business plans’ ability to weather a protracted economic downturn, in some cases requesting more experienced management or more robust strategies.
Source: FDIC and staff research
http://atlanta. bizjournals. com/atlanta/stories/2008/12/15/story1. html?b=1229317200^1746397
Reach Rauch at jrauch@bizjournals.com.
The Federal Deposit Insurance Corp. may be implementing what is effectively a ban on new banks in metro Atlanta and other distressed areas nationwide, as the financial industry’s and broader economy’s deterioration accelerates.
The FDIC, the nation’s bank deposit guarantor, has increased scrutiny of new banks applying for deposit insurance in select areas of the Southeast and other regions, including Western states, industry insiders said.
The new reviews, insiders said, make approval difficult in practice, if not impossible.
“It is a de facto ban,” said Stephen Johnson, CEO of Alpharetta-based consultant T. Stephen Johnson & Associates Inc. “I’ve never seen a time this difficult to get a charter.”
Johnson is a longtime bank organizer and consultant in Atlanta, raising $500 million for various bank investments during his two-decade career.
Spurring the new rules are worsening industry performance and an increasing skepticism that new banks can succeed in the same places where others have failed this year, those familiar with the process said.
However, Mark Schmidt, the FDIC’s Atlanta regional director, adamantly denied that a ban, either formal or informal, is in place. He said the FDIC is continuing to review new bank applications, and expects some to receive approval.
Schmidt did acknowledge deposit insurance approval is harder to get, and the FDIC is becoming more discriminating in who it approves nationwide, including in metro Atlanta.
“We have had four failures in Georgia, three being relatively new institutions,” he said. “We are asking a lot of very hard questions. They have to convince us they can get off to a good start. The standards don’t change. From our perspective, the economy changed.”
Federal and state bank regulators seized First Georgia Community Bank on Dec. 5. Integrity Bank and Alpha Bank & Trust, both based in Alpharetta, and Loganville-based Community Bank were taken over in recent months.
The FDIC’s changes affect at least eight Georgia banks currently organizing, according to state and federal regulatory data.
The FDIC’s tougher guidelines broadly address three key issues, sources said.
First, the FDIC is requesting bank organizing groups have directors or executives with management experience dating to the Savings and Loan Crisis of the late 1980s and early 1990s.
Second, banks are required to present a plan to generate deposits from the wider community, beyond the so-called “friends and family” of the organizing group.
Finally, banks are now required to submit an economic assessment of their distressed geographic area, addressing how the bank plans to grow and survive when, in some areas, loan growth is nonexistent.
The rule changes’ widespread impact comes from the FDIC’s unique role in bank regulation.
The organization is not the primary regulator of any bank, but serves as the linchpin to the U.S. banking system’s patchwork of oversight.
Other state and federal banking regulators require new banks to receive deposit insurance before opening their doors, making the FDIC a key industry overseer.
And the organization has directly felt the pinch of the 24 bank failures nationwide this year. The FDIC’s insurance fund, used to protect bank depositors from losing money in a failure, has shrunk from $57 billion to $37 billion.
Many of those failures have been concentrated in the Southeast, notably Georgia, Florida and metro Atlanta, and Western states like California, Arizona, Nevada and Washington.
It is in those areas that new bank scrutiny will be tougher than ever.
“This is a recognition of the significant deterioration in the last 60 days,” said Walt Moeling, a longtime Powell Goldstein LLP banking attorney.
Moeling said metro Atlanta is particularly problematic for the FDIC.
During the third quarter, 97 of 110 Atlanta banks reported rising levels of non-performing assets — or loans that are in some stage of default — from second-quarter to third-quarter 2008. Those problems across metro Atlanta spiked by 30 percent, a figure that worsens in certain areas.
Banks inside the Perimeter reported non-performing assets increase by an average of 131 percent. Banks in Atlanta’s southern suburbs reported an increase of 141 percent.
Those figures don’t take into account the worsening economic conditions of October, November and December, which will be reported in the fourth quarter.
“Right now, we’re in free fall,” Moeling said.
Uphill fight
The FDIC’s renewed scrutiny of organizing banks affects eight institutions in Georgia. The bulk of those are organizing in metro Atlanta.
The FDIC is requiring banks to answer new questions about their organizing groups and their business plans’ ability to weather a protracted economic downturn, in some cases requesting more experienced management or more robust strategies.
Source: FDIC and staff research
http://atlanta. bizjournals. com/atlanta/stories/2008/12/15/story1. html?b=1229317200^1746397
Reach Rauch at jrauch@bizjournals.com.
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