The Wall Street Journal features an article about a Kingwood, Texas community bank that is giving up its banking charter rather than sell or merge. Main Street Bank lends most of its money to small business and reportedly is profitable. But, as reported by the WSJ, the bank chairman is frustrated with regulators tightening their oversight of financial institutions.
In a rare move, the bank announced that the 27 year old institution will surrender its banking charter and sell its four branches to a nearby bank. It will then set up a new lender charter that will operate beyond the reach of banking regulators and the deposit insurance safety net. The endeavor is backed by Microsoft co-founder Paul Allen’s private investment firm.
WSJ says that regulators came under fire in the financial crisis for lax oversight that allowed financial institutions to dole out too much credit to unworthy borrowers. But now some bankers complain that regulatory agencies have swung to the other extreme, poring over minute details of virtually every loan, including those to small businesses.
Main Street Bank has been at odds with regulators since 2009 because of the bank’s concentration of small-business loans. Nearly all of its $175 million loan portfolio is in loans to dentists, fast-food franchisees and delivery-truck drivers, who use the loans to purchase equipment. The bank's average loan size is $100,000. The bank had a $1 million profit in the second quarter and wrote off 1.25% of its loans as uncollectible. The industry charge-off rate is 1.82% in FDIC data for the first quarter. The bank earned $11 million in the past year.
The post-bank entity won't be regulated and won't be able to offer federal deposit insurance—but doesn't want to attract deposits. Read the full story here.
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