Be careful what you wish for. That’s my modest advice to some bankers and their government regulators who want to ease up on bank oversight.
An article in the Wall Street Journal last week reported that several banks around the country are dropping the Federal Reserve as a regulator. The actions so far seem innocent enough, and perfectly reasonable in the examples mentioned, but they did conjure up some bad memories of how the housing bust – and subsequent global financial crisis – got started.
Here’s the story.
According to the Journal, Little Rock-based Bank of the Ozarks in June opted to ditch its holding-company structure, which means it is no longer regulated by the Fed. Now, as a bank only, and not a BHC, it will be regulated solely by the Federal Deposit Insurance Corp.
Saving money from having two layers of regulation was the main motivator for the bank. George Gleason, the bank’s CEO, said, “We didn’t really need to be regulated by both.”
The banking industry avoided the attention of activists, for the most part, as the industry was still recovering from the financial crisis and the regulatory outlook was very uncertain.
Buyers were unwilling to step up to the plate, absent some clarity of what the future would like from a regulatory point of view. But according to a recent Harvard Law School forum, that is all about to change.
A post from William Sweet, partner and head of the Financial Institutions Regulation and Enforcement Group at Skadden, Arps, Slate, Meagher & Flom LLP stated that, “with resolution of some of these uncertainties, and some improvement in the bank M&A environment (which is becoming more active among smaller community banking institutions), banking organizations can expect greater attention from activist investors.
This could be a real boon for investors in the smaller community banks and thrifts. In a presentation at the recent Value Investing Congress in Las Vegas, Richard Lashley of activist investing firm PL Capital pointed out that industry fundamentals have almost returned to pre-crisis levels, but the stock prices of the smaller banks are still very cheap when compared to tangible book value. Continue reading "Think Small Banks For Big Profits"→
In his 2010 book, Bye Bye Banks, 50-year industry veteran Robert H. Smith outlines the obstacles and issues facing the bank industry today.
Smith points out that it is the small banks that are disappearing from the financial landscape either via failure or merger, and sees a long list of obstacles. These obstacles include the Federal government, which sees banks “as their vehicle to engineer society, thereby satisfying their political and social expectations.” Smith addresses the competitive and regulatory environment that is practically forces banks to see merger partners and become larger.
Consider the life of a banker running a small bank today.
It used to be a great life running one of these little banks. You oversaw a network of 10 or 15 branches in smaller towns or suburbs across the country and were a well-liked business leader of your community.
More than likely you weren't just a member of the Rotary and other civic groups, you were an officer of the group.
Bankers helped people buy homes, grow their businesses, put their kids through college and even save for and fund their retirement. The employees had good jobs and made decent money and really liked the bank and the officers. The stock price was at a nice premium from the original offering price and most folks in town were pretty excited about that. On weekends, the bankers probably played golf and went to local college games with local politicians, developers and car dealers. Continue reading "What's Happening To The Smaller Banks?"→