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In what some call a portent and others an aberration, a Texas banker whose bank was making decent money but was being criticized by the FDIC, its primary federal regulator, for making too many loans to small businesses that actually repaid them and not enough loans to other types of borrowers who might not repay them, told the FDIC to take the bank and shove it (paid subscription required). He's in the process of having the bank surrender its charter and, with the backing of investors like Microsoft co-founder Paul Allen, is about to embark on a business in which second-guessing by Hobbits and Elves will not be an impediment to making money.
Not coincidentally, the bank's owner is a Texan. They tend to have a low threshold of tolerance for BS shoveled by anyone other than themselves. I make this observation on the basis that "it takes one to know one."
I represented a large Texas financial institution that was successfully executing a lucrative business plan that had been approved by the institution's primary federal regulator until, about six years following its approval, the regulator's local head of supervision claimed that he no longer understood the business plan, which hadn't changed an iota over the years. After several months of incredulous discussions with the primary federal regulator and other state and federal regulatory agencies, the owner at first seriously explored converting to another form of charter and he was given some encouragement by other regulatory agencies to do so, but I think he eventually came to the conclusion that he was putting his investment, which at that time equalled hundreds of millions of dollars, at risk that at some future date, another regulator would also suffer an attack of amnesia and a precipitous drop in IQ points. He decided to bid the regulators adieu, voluntarily liquidated the institution and surrendered its charter, and upstreamed hundreds of millions of dollars that were put to uses he decided were appropriate without the input of treadmill-churning hamsters. By doing that, hundreds of employees were sent packing and the nation had one less successful financial institution to provide credit, liquidity, and (in this case), some nice deposit rates to consumers.
Such cases have been rare up to this point. Yet, based on discussions I've had over the past year with some investors, many of them former bankers, I think the unregulated arena is looking more and more attractive as a place to play. For more entrepreneurial operators, the funding advantage provided by FDIC-insured deposits is increasingly not a sufficient enough attraction to offset the brain damage inflicted by regulation that often seems intentionally designed to choke off the flow of credit at precisely the worst possible time for the economy.
I think that the FDIC (and a number of the more brain dead commenters to the linked article) seem to think that the exit of banks like this one from the system is a good trend. For FDIC personnel, one less bank means one less potential subject for criticism that can endanger the race to retirement. For some of the members of the general public who love the thought of there being only a few banks in this country that are essentially run as public utilities by the federal government, Texas bankers are a roadblock that ought to be removed.
What seems to be an anomoly might become a movement.
