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Over four years ago, I observed that trying to get into the banking business with a "monoline" business plan was going to be more difficult than finding a bat-free belfry in the hallowed halls of Congress. I hadn't counted on the persuasive power of any business with the word "green" in it.
A couple of weeks ago, the Federal Reserve Board approved the application of Green Dot Corp. to purchase a Utah bank. The bank will be renamed "Green Dot Bank" (who woulda' figured!) and will start issuing all of Green Dot's pre-paid cards, which have been issued by Synovus Financial Corp. Green Dot's business plan is the marketing, selling, and servicing of prepaid cards through retailers, primarily Wal-Mart (which is also a shareholder). That's the plan, that's all there is to the plan, and it's a classic "monoline" business plan if I've ever seen one (and I've seen my share). That fact didn't bother a majority of the Board, but it sure bothered Governor Elizabeth Duke, who dissented.
Duke is bothered by the narrow focus of the business plan, which makes the bank susceptible to storms that can arise in that narrow business sector, which today appears to be prospering, but, as we have seen with subprime mortgage lending and commercial real estate, today's goldmine can turn into tomorrow's garbage heap in a hurry. Try walking into the Fed with a monoline business plan that's focused on making CRE loans and see how fast it takes the Fed to hand you your head. I mean, try walking in with an entity that's not partnered with Wal-Mart.
That partnership also caused Duke some heartburn. Duke worried that since "a single large retail partner" would account for a majority of Green Dot Bank's revenues, a loss of that "single large retail partner" could spell doom, and rather quickly. She also poo-pooed the conditions the majority placed on the Fed's approval (including maintaining a 15% leverage ratio for five years and restricting dividend payments), since they do not address her monoline concerns. These aren't unreasonable concerns and, again, you have to wonder whether the average financial business could wander in with such a game plan and not be shot down in flames. I wouldn't bet on it.
This is yet one more example (among many) of Wal-Mart's relentless drive to put the Sheila Bair era behind it and do whatever it can do to exploit (in a good way, of course) its street cred with The Peeps and sell the unbanked bank-like services without, of course, becoming a bank holding company, which would cause (and has caused) bankers throughout this country to break out with a severe case of shingles and to phone their mothers for chicken soup.
Love 'em or hate 'em, you have to respect 'em.
