I don't know anything about Calnet Business Bank other than what I have read about it in this article from the Sacramento Business Journal. However, I can make an educated guess about the "problems" that the bank had that led it to merge with a larger bank.
The management of the bank is too smart for its own good. I don't mean that in the sarcastic sense that management is not as smart as it thinks it is. My guess is that it's every bit as smart and innovative as the article would suggest. Another guess is that, in terms of the use of "advanced technology to deliver banking services," it's smarter than the regulators that supervise the bank, and that is the crux of the problem.
Calnet was started in 2001 specifically to use advanced technology in banking.
Calnet offers its customers real-time money-transfer products including draft processing, wire transfer and Automated Clearing House processing. Drafts are orders for a second party to pay a third party. Wire transfers are electronic orders to pay funds. The ACH is the interchange between banks. For companies such as securities brokerages, mortgage banks and title companies, the products allow the efficient movement of a lot of money electronically.
So, you had a bunch of bright people, knowledgeable in the use of advanced technology to deliver money transfer services to businesses that required it. According to the article, they had assets of $150.8 million, which is classified as a small bank. A small bank, doing sophisticated transactions, using advanced technology. Sounds like what Americans do best, doesn't it? The regulators didn't think so.
The start-up has been under a regulatory microscope for nearly a year because it had been doing an enormous volume of money transfers and electronic transfers for its size.
"It came down to it that the regulators were never going to be comfortable with a bank our size doing the kind of volume we are doing," said Bob Wood, executive vice president of Calnet and head of technology. Calnet doesn't disclose the volume of its transaction business, but it is significant as a percentage of its revenue.
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Some regulators even told Calnet staff that it had better controls and capabilities than a lot of the larger banks that offer similar products. But that didn't matter because regulators couldn't get around the fact that such a small bank had such a relatively high transaction volume.
Calnet put in more controls and still regulators remained nervous.
Thus, the hot shot technology guys were forced to go out and find a buyer with over $5 billion in assets. They even changed regulators, although going from the OCC to the OTS is, in my opinion only, like trading a black pair of wingtips for a brown pair of wingtips. You're still wearing wingtips. On the other hand, the vast increase in asset size will make the regulators more "comfortable."
Here's what I tell any group of bright, innovative people who think they've got a better idea of how to make money in the banking business and want to start or buy a bank to do it: You're putting your capital in the hands of regulators who definitely will be "risk averse" (you're using federally insured deposits and federal borrowings, for the most part, to fund your "innovative" activities), and may very well not be up to your "speed" on the innovation and sophistication scale. They're not dumb - it's just not their job to be up on "the next new thing." In the banking business, "safety and soundness" is often a synonym for "tried and true." In such a world, you can never have too much capital (and the more capital you have as a percentage of assets, the less your return on capital is going to be), but you can be too far ahead of the innovation curve.
I'm not saying that, as a general rule, this state of affairs is good or bad. As with every situation, the devil is in the details. On the other hand, entrepreneurs have to deal with reality (as hard as that might be for people who are congenital optimists). They need to think long and hard about the realities of operating as a bank before they put their capital at risk. Sometimes, being "too successful," especially when you're small, can be a detriment.
I didn't make the rules, I just try to explain them. Sometimes, it seems like a trip through the looking glass, but it is what it is.