Nutman: Approve new bank
At a time when the nation’s largest banks are failing — 24 by latest count — and President Obama, Treasury Department officials and Congress continue to debate the best way to prop them up (more loans? convert loans into equity shares?), a group of bankers in New Haven has an idea. They want to open a bank.
First Community Bank of New Haven will not be just another bank. If the state approves the charter and the Federal Deposit Insurance Corporation agrees to insure it, FCB will be a community bank and, like many community banks, will target “inner-city residents, small- to...
Do you mean subprime loans packaged into securities? That worked really well for Bank of America and Chase last time :)
Which is, of course, why this money is no longer available anywhere, and why New Haven needs a First Community Bank.
Not at all sure what this article is getting at. For any bank in almost any state, there is an exhaustive initial and ongoing regulatory process that protects depositors as much the broader financial system from undue pressure. Smaller banks have typically struggled with these kinds of regulations since they are not as-able to maintain reserve ratios amid small portfolios of borrowers and depositors, and community banks in particular have additional trouble since the credit profiles of borrowers tend to be undiversified; these banks are therefore more likely to be subject to FDIC intervention and also have much higher turnover rates than other financial institutions.
Ultimately, however, the only real test regulators will apply to this or any prospective new bank is whether it has met initial capital levels; historically, the rest of the requirements are loosely -- if at all -- enforced. If it seems that regulators are flagging anything other than this and/or taking longer than their typically deliberate speed to review the application, then an article such as this would seem more appropriate.
(Separately, we should bear in mind that SBA microcredit programs -- which extend small-business financing to many urban residents who have limited or lackluster credit histories -- initiate billions of dollars in lending each year primarily through larger banks such as Bank of America and Chase. If a borrower does not even qualify for an SBA loan, then there are likely a series of egregious credit incidents in a borrower’s history which, mathematically, can only be underwritten with a pool of similarly-qualified borrowers through a fairly high interest rate [as otherwise, the rate of default on principal would exceed the rate of return, causing lenders to see their asset bases decrease].)