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Fed Up: A bank Is Calling It Quits


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successful at that point. a lot of banks and businesses were successful until about 2/3rds of the way through 2008.

FDIC insurance is something that we all have to pay for. If a bank that takes deposits that are FDIC insured fails, all of us are the hook for those deposits. you, me, everyone. Wouldn't you want to government to ensure that the banks are being responsible with what is essentially our money in the event of bank failure?

I hear you, but personally I see this as an argument against having the FDIC in the first place. I can understand how it could boost investor confidence, but at the same time it puts all of us in a position where we feel entitled to tell other people how they should run their businesses.

I'm not going to jump on here and advocate burning down the FDIC with torches and pitchforks, as there are many many other bureaucracies that are higher on my hitlist. I just find it highly irrational that a bank with a solid, simple mode of conducting business is being told to stop being successful in the way that they are doing it, and to replace it with the more common methods used by other banks.

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I hear you, but personally I see this as an argument against having the FDIC in the first place. I can understand how it could boost investor confidence, but at the same time it puts all of us in a position where we feel entitled to tell other people how they should run their businesses.

I'm not going to jump on here and advocate burning down the FDIC with torches and pitchforks, as there are many many other bureaucracies that are higher on my hitlist. I just find it highly irrational that a bank with a solid, simple mode of conducting business is being told to stop being successful in the way that they are doing it, and to replace it with the more common methods used by other banks.

wow, no one was ever told to stop being successful. that is not what happened at all. they were told to stop being so risky if we are going to back them. they are most certainly allowed to be successful.

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wow, no one was ever told to stop being successful. that is not what happened at all. they were told to stop being so risky if we are going to back them. they are most certainly allowed to be successful.

Well after reading this:

Main Street had profits of $1 million in the second quarter and wrote off 1.25% of its loans as uncollectible. That is below the industry's charge-off rate of 1.82% in the FDIC's data for the first quarter, the latest available. The bank has earned nearly $11 million in the past year.

In July 2010, the FDIC slapped Main Street with a 25-page order to boost its capital, strengthen its controls and bring in a new top executive. Regulators also said the bank was putting too many eggs in one basket. Mr. Depping says regulators wanted the bank to shrink its small-business lending to about 25% of the total loan portfolio, down from about 90%.

I imagine that the conversation is something like this:

Depping: "Well, things are going really great. We're successful and we have an insanely low loan default rate! I bet the entire banking industry could learn a lot about where we target our lending and what criteria we use to approve loans."

FDIC: "Hi, we noticed that you are targeting your loans towards small businesses. According to our guidelines, you shouldn't be succeeding, and therefore you probably aren't. We are going to change which favors you get from the Federal Government until you change the way that you run your business."

Depping: "But we are being successful. Here, let me show you what we do to keep our default rate low... "

FDIC: "LALLALALA I CANT HEAAAAAAR YOOOOOOU!"

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Well after reading this:

I imagine that the conversation is something like this:

Depping: "Well, things are going really great. We're successful and we have an insanely low loan default rate! I bet the entire banking industry could learn a lot about where we target our lending and what criteria we use to approve loans."

FDIC: "Hi, we noticed that you are targeting your loans towards small businesses. According to our guidelines, you shouldn't be succeeding, and therefore you probably aren't. We are going to change which favors you get from the Federal Government until you change the way that you run your business."

Depping: "But we are being successful. Here, let me show you what we do to keep our default rate low... "

FDIC: "LALLALALA I CANT HEAAAAAAR YOOOOOOU!"

Probably not even close. The government asked him to take less risk with our money. He didnt want to, so he started his own business. Good for him, he can risk his own money how he wants, not mine.

At no point was he ever told he cant be successful.

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Probably not even close. The government asked him to take less risk with our money. He didnt want to, so he started his own business. Good for him, he can risk his own money how he wants, not mine.

At no point was he ever told he cant be successful.

The bank markets loans towards low-risk small businesses, making up about 90% of their customer base. The FDIC tells him that since most banks are closer to 25% of small businesses, he should stop making loans to low risk businesses and make them somewhere else instead.

What he is doing makes him successful. They are flexing their muscle to try and make him stop doing it, and more towards a conventional MO that is less successful. They are doing this intentionally, and therefore they must want him to fail.

Let me ask you this... how do you think he got on their radar in the first place? Do you think one of his happy customers complained? Or do you think that they noticed his low default rate and they looked into why it might be that way?

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Probably not even close. The government asked him to take less risk with our money. He didnt want to, so he started his own business. Good for him, he can risk his own money how he wants, not mine.

At no point was he ever told he cant be successful.

here is what is suspicious.

this banks are audited annually....I know a couple of the owners of two small banks here locally, Highland and Investar, and they are saying the same thing. The government gives tons of money to the big boys and turns a blind eye to their actions and instead targets the small business owners. How can 'small banks' be responsible for the crap we are in? they don't have a big enough share of the market for that

also explain why this bank has been getting an annual pass by the feds until now. has their bottom line changed? no evidence of that. has their business model changed? nope.

the FDIC was fine with their model until now. why?

the small banks that weren't run well failed when the economy collapsed. the banks that are being investigated now managed to weather that storm and stay open. why aren't they being given the same opportunity as the big boys?

seems to me that they are being targeted and allowed to be bought out by the big boys and a lot of that capital came from our tax dollars

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For what purpose? I am missing the conspiracy. I dont buy the big mean government theory.

I am just looking at facts

1)large banks are a good part of the reason that our economy is tanked

2)the large banks were given a lot of tax dollars to help them

3)the large banks are not going under. the largest one that I can think of off the top of my head is Lehman Bros. and that was a complete sham. It has a new name, but the same people running it. The only people who got damaged by that mess were Lehman Bros stockholders who lost a lot of money in what was essentially a fraud (That is who my building mortgage is through)

4)small banks that were strong enough to weather the crisis without federal assistance are being shut down in large numbers despite doing things no differently than before and being bought up cheaply by the big boys.

I can't think of a good reason for this double standard. I hate jumping to conspiracy theories but I can't see a logical reason for this. The two guys I know who own part of Investar are getting out because ever since the economy crashed the feds have been on a with hunt with them and other small banks. They are tired of fighting the baseless allegations that have been thrown at them.

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For what purpose? I am missing the conspiracy. I dont buy the big mean government theory.

Personally I don't think it's a conspiracy in the way of cackling cronies smoking cigars and counting their stacks of cash or anything like that. I believe that the FDIC truly believes that they are doing what they consider to be the just and moral thing. In my theory, they have bought into a flawed morality and they have evaded reality in order to support it.

They see themselves as being like polite officers protecting consumers from potential exploitation from bankers. In their view, the reason that these bankers are successful must be because they are taking wealth from someone else; that wealth creation is a zero-sum game. Like any cop or Six-Sigma Black Belt will tell you, if you want to end the funny business, look at the anomalies. The bank in question is indeed an anomaly in that it has somehow excelled at picking low-risk loan approvals, so it gets noticed.

Once the FDIC does take a look, what they see is very different than the explicit criteria that they believe leads to success in banking. It's worked hundreds of times for hundreds of successful banks. They ignore the hundreds of banks that it didnt work for, which were overrun with defaults, and mentally chalk those up to the "deregulated free market". At this point they do their job description to the letter; they protect us from a market anomaly that could cause even more failures and insurance payouts. They respond with their primary tool of justice: coercion.

Their premise that this bank should fail has been challenged. What do they do? They assume the bank is only successful due to a flaw in perception.

They look for a problem, such as a fraudulent transaction.... but none can be found. What they do? They create a problem since one must exit.

They encounter an example of a bank defying their expectations. What do they do? They ignore it rather than adjust their expectations.

This bank succeeded despite their criteria rather than because of it. When the premise of an irrational person is legitimately challenged, they will irrationally choose to ignore it.

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those are ideas, but i tend to believe that usually the simplest explanation is probably the true one.

the FDIC simply assessed that the bank did not have the capital for the risk it was taking. they told the bank to increase the capital and lower the risk. the chairman of the bank attempted to comply with this order, but found that is not the business he wanted to be in. so what does he do? he gets out of banking and starts his business of small business lending. Win win for everyone involved. He gets to do what he wants, you and I don't have to back his risk.

no government officials came and told this guy he was being too successful. no one wants him to fail so the big banks can take him down. There is no coercion going on. No smoky back room deals. There was no conspiracy to create made up problems with the bank. more then likely it was simple actuarial science.

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those are ideas, but i tend to believe that usually the simplest explanation is probably the true one.

the FDIC simply assessed that the bank did not have the capital for the risk it was taking. they told the bank to increase the capital and lower the risk. the chairman of the bank attempted to comply with this order, but found that is not the business he wanted to be in. so what does he do? he gets out of banking and starts his business of small business lending. Win win for everyone involved. He gets to do what he wants, you and I don't have to back his risk.

no government officials came and told this guy he was being too successful. no one wants him to fail so the big banks can take him down. There is no coercion going on. No smoky back room deals. There was no conspiracy to create made up problems with the bank. more then likely it was simple actuarial science.

his business model has been the same for years and the feds never had a problem with it before

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he gets out of banking and starts his business of small business lending. Win win for everyone involved.

As I stated in an earlier post. I believe that is what his business has been all along, and not that of a traditional bank. Whether or not he started out as a traditional bank, or just got his bank charter because the nature of his business is helped by that is irrelevant. His business is not really that of a bank, and he should have been doing this all along. For this to be news related seems like an attempt to further the talks of deregulation on an industry that clearly needs it.

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