So President Obama is pushing back that his Administration is only for "common sense" regulations – all 80,000 pages of them last year. To date, while acknowledging (or is that ‘patronizing’?) that regulations can strangle businesses, he has refused to actually decrease the number of regulations. Federal actions count and matter greatly – on small businesses:
Main Street Bank lends most of its money to small businesses and is earning decent profits. But the Kingwood, Texas, bank is about to get out of the banking business.
In an extreme example of the frustration felt by many bankers as regulators toughen their oversight of the nation’s financial institutions, Main Street’s chairman, Thomas Depping, is expected to announce Wednesday that the 27-year-old bank will surrender its banking charter and sell its four branches to a nearby bank.
Mr. Depping plans to set up a new lender that will operate beyond the reach of banking regulators—and the deposit-insurance safety net. Backed by the private investment firm of Microsoft Corp. co-founder Paul Allen, the company won’t be able to call itself a bank, but it will be able to do business the way Mr. Depping wants.
"The regulatory environment makes it very difficult to do what we do," says Mr. Depping, who last summer saw his bank hit with an enforcement order from the Federal Deposit Insurance Corp.
This bank was tightly focused on lending to small business – almost exclusively. It was doing well at what it did but got in trouble as it "didn’t fit the mold". When the Government regulates, there is often little wiggle room for those that might be in a category ("I’m a bank") but operates in a way that is far from normal ("we don’t do deposits"):
…Mr. Depping has been on a collision course with regulators since 2009, when FDIC examiners began questioning the bank’s large concentration of small-business loans. Nearly all of Main Street’s $175 million loan portfolio has gone to customers like dentists, owners of fast-food franchises and delivery-truck drivers, who use the loans to purchase equipment. The bank’s average loan size is $100,000 to customers who have less than $1 million in annual revenue, Mr. Depping says.
Mr. Depping says that Main Street’s focus on small-business lending has sheltered the bank from much of the devastation that has swept the industry, including 385 bank failures since the start of 2008.
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.
So, it’s a profitable place – having found a niche in the marketplace, it is trying to exploit that to the fullest to the extent of ignoring other avenues of revenue and products that other organizations don’t. And it is clear that the government only has one way to deal with "out of the box":
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%.
So they are going Galt – and ditching the Government as "a partner" at the same time (bet THAT would have been a great conversation to have participated in!).
