Posts Tagged ‘FDIC’

FDIC SMALL BUSINESS LENDING FORUM – My Thoughts

Monday, January 17th, 2011

On January 13th I attended an FDIC held Small Business Lending Forum in Washington D.C which brought policy makers, regulators, small business owners, lenders and other stakeholders together to discuss the obstacles in small business lending. The forum raised more questions and problems rather than provide any substantive answers on how or what needs to be done to stimulate lending for small business…

While it was very encouraging to hear the more optimistic outlook from Chairman Bernanke on the economy, as well as an optimistic assessment of the regulatory environment from Chairman Bair, the lack of an effective plan to stimulate small and startup businesses was evident.

 There were some common thoughts and themes:

  •  There is a lack of early stage capital
  • Strong banks continue to lend
  • We need a better appraisal process
  • Banks should be relying on strong underwriting instead of collateral based loans
  • Need to remove the uncertainty in the financial sector
  • Real estate is the colateral basis for most small business loans

 

No one addressed the issue of how to provide loans to a small business that either does not have collateral, or has collateral value that is now impaired, and where cash flow is impaired because of the economic maelstrom.

If we are to support the small business sector, government will have to get involved and create the incentive to do so.

Most small and new businesses in one way or another rely on real estate to support their ventures…

Some facts:

  • 95% of small business owners own their own homes
  • 50% own the building or property that they run their business out of
  • 60% own investment real estate

 

Clearly, real estate plays an important role in the life of a small business owner…

If businesses want to use the equity in their homes or other commercial real estate, why can’t the Federal Reserve allow for a future appreciation right to be attached for the purpose of creating capital? The warrant would self liquidate by granting a tax incentive or credit for any future profits of the business..Over a long enough time horizon, it is hard to imagine a scenario where the Fed would actually lose money.

Banks would receive a fungible source of collateral, the small business owner would get the funding they need, and the cost to the system would be negligible, or if done right, nil…

So this is how it works….

Monday, May 4th, 2009

On Friday, May 1st at 5PM, North Jersey Community Bank acquired the deposits and certain assets of Citizens Community Bank in Ridgewood, New Jersey.  This was the first New Jersey bank failure since the current economic crises started, and demonstrated how the process of winding down a failed institution really works.

First, let me say that working with the FDIC exceeded any expectation that I could ever have had in working with a government entity. The professionalism, focus, preparedness, and team spirit was a site to be seen…

Citizens Community Bank failed after five years of operation due to lax management, improper underwriting of loans, and an inability to integrate the bank into the market in which it was to serve.

Once the destruction of capital reached a critical level, The State Department of Banking, along with the FDIC began the process of putting the bank into receivership. A bid process was established, qualifications were reviewed, bidders were invited to the table, and a successful successor institution was selected. In this particular case, the successor institution was North Jersey Community Bank.

As a strong, stable and growing bank, NJCB was able to capitalize on the unfortunate failure of a neighboring institution, and will bring the same simple plan of taking in deposits, and making loans to people we know, in this new market area, with the same exemplary customer service that we are renowned for.

One bank fails, another gets stronger… The depositors are all made whole, the community gets a better, stronger bank for its businesses and residents, and the FDIC oversees a process that makes it all work, seamlessly, without interruption, and at no cost to the taxpayer. This is how it is suppose to work…

However, this is very much in contrast with what we are experiencing every day recently with the “Too big to fail” institutions that are so unwieldy that the FDIC, or any other government entity for that matter are unable to manage the failure of.

Let’s make sure that we do what is necessary to return our financial system to one where the regulators can regulate, the shareholders bear the risk, as well as the rewards, and failure is not something that requires the intervention of the will of the American people, but rather an accepted outcome for poor decisions and excessive risk taking., Let’s return to a capitalist system that encourages, supports, and allows for the entrepreneurial spirit that has made this country great…