Posts Tagged ‘Too big to fail’

Do you have a relationship with your bank?

Tuesday, April 13th, 2010

Relationship: A state involving mutual dealings between people or parties…

In today’s financial environment, it is important to understand if you have a relationship with your bank or are you just doing business with them on their terms… Today at most banks, there are forces at work that may negatively impact your business, and may have nothing to do with how well you are running your business…

The “Too Big to Fail” have found that they no longer need to take any risk in making loans and instead make enormous profits borrowing at near zero percent from our own government and investing those same funds into risk free Treasury securities and have indiscriminately reduced lending across all segments of business. They have now become “Too Big to Serve.”

National Banks make lending decisions based on models that typically do not account for individual achievement or success, but rather on computer generated forecasts on the profitability, or unprofitability of a sector. The same banks, who offered express loans with no documentation, are the ones who shut off credit once the economic crises ensued.

Most banks have decided to raise fees on ordinary products as their balance sheets are shrinking due to less loan demand.

In response to increased regulatory pressure, some banks have reduced lending even to worthy borrowers in asset classes that may not be popular with the regulators.

So, an important question you must ask yourself is… Do you have a relationship with your bank?

Does your bank understand your entire business?

Do you have someone that you can talk to about your needs? Right now?

Do you have a banker that you can call for advice?

Is the bank you are doing business with continuing to lend in this environment or not? Is their primary business in line with yours?

Is your bank under regulatory scrutiny? And how might that affect your business needs?

Do you feel that your bank cares about your business?

It is time to step back, and ask these simple but tough questions before your business is affected… Most will wait until there is an issue, but the smart entrepreneur will be proactive, learn about the macro forces potentially affecting their business, and create the type of relationship necessary to survive and prosper.

Have you checked your Bank Statement lately??

Monday, July 13th, 2009

While the “Too Big to Fail” Banks make the news each and every day on issues ranging from TARP to Compensation, the real story of what is happening to the consumer goes unnoticed.

Have you checked your bank statement lately? Chances are that you are experiencing some of the following:

  • Higher Fees on bank services
  • Higher Interest Rates on Credit Cards & Loans
  • Termination of Credit
  • Termination of products (such as Passbook Saving Accounts)
  • Additional Fees on existing products
  • Branch closures with inconvenient relocations
  • Relocation of your safe deposit box
  • Loss of your experienced Bank Representatives
  • Complete, intentional disruption of longtime relationships

 The same banks that disregarded their customers are now requiring that they pay for management’s poor decisions, and reckless risk taking.

 Certainly at North Jersey Community Bank, we have always put our customers first; and do not take advantage of these times, because we can… We are interested in the long term picture, in enduring client relationships, and in keeping true to our mission of being “A Better Place to Be.”

 What has your bank done?  Do you have a personal relationship with your banker? Have you invested the time to create a relationship with a bank that understands your business, knows your history, and can react to the changes occurring in your environment?

 It is important today to not take for granted your banking relationship, especially if your bank has taken you for granted…

 There are over 7000 Community Banks in this country that are ready, willing and able to put their customers first; after all, that is the only way they know how to do it…

We live in a Parallel Universe…

Monday, May 11th, 2009

The Stress Tests are over, and now it is time to get back to business…

For the “Too Big to Fail”, the world has been a place where excessive risk taking mistakes are rewarded, or at least not punished, where regulators only suggest, and where the rules are changed so no one gets hurt.

As we move past the recently released Stress Tests, let’s understand that although the world has sighed a breath of relief that the system is not going to fail, we must insist that this uncompetitive, government supported network of “Too Big to Fail” institutions must somehow be made accountable for their actions, pay a price for the intervention, and be forced to conform to a system where the rules apply to all.

There are many changes that need to occur in this post – Stress Test world… Certainly a tiered FDIC fee structure, and a tiered capital structure based on the risk taking of an institution, a closer look at the separation between banks and commercial entities, more responsibility for all phases of mortgage products, and the ability for the FDIC to regulate all institutions regardless of size.

It is also important to understand that it is the Community Banks, who operate every day by working within the framework of the regulators that regulate them, have understood that prudent risk taking is rewarded, and excessive risk taking is punished, have not been treated fairly in these strained times. 

Community Banks have not needed a dollar of taxpayer money, have maintained proper capital ratios, and have continued to lend throughout this crises. In fact, they are the only group in the banking sector that has increased lending, and have been there to protect the “little guy” on Main Street.

Any relief given to Community Banks will certainly find its way to the communities in which they serve, and not into the excessive pay packages that have been all too common at the “Too Big to Fail.”

There are a number of regulatory and accounting improvements that could be made to support the Community Banking system. These include, Tiered Regulation, Gov’t Assisted Insurance Program for classified assets, SBA enhancements, and differentiating the Community Banks when regulators perform their examinations.

Let’s not allow those with the enormous lobbying efforts to dictate the framework of this new environment…

We need to be heard…

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…

Too Big To Regulate???

Sunday, April 26th, 2009

Interesting how convoluted and frustrating the release of the Stress Test results has become… So now supposedly, the “Too big to fail or manage” have received word on whether or not they have sufficient capital, in other words, are solvent.  It appears that by some miracle, we are all supposed to feel better about the system.  The reality is that this dance was designed to obfuscate the fact that these banks have gotten larger than any of our regulators can understand or resolve. The regulatory process has been unable to keep pace with the growth of these institutions, and have in fact allowed for the creation of institutions that pose a risk to our capitalist system and to our financial health. The FDIC simply does not have the ability to oversee, and regulate these multi-directional behemoths that no longer resemble traditional banks. There is much talk today of a super regulator to fill in the void… It is my opinion that this would be a colossal mistake, and would pit the unwieldy, super powerful, giants against the rest of the more traditional banks that have for the most part, played by the rules.

It is these traditional banks, the local community banks like ours, and many others across the nation that continue to play a significant role in the support of the vast majority of businesses today. In fact, the only increase in lending is occurring at the community bank level. While there is certainly a place for national bank players, they must adhere to the same regulatory process as it relates to risk, and if they are going to be afforded FDIC insurance coverage, must be forced to pay higher premiums as they elevate their risk profile. In turn, no bank should be allowed to grow larger than the FDIC’s ability to determine insolvency, and the ability to prosecute an orderly wind down of a failed institution. That is all but impossible today…

There are only 19 banks today with assets over $100 Billion… Almost 100% of the problems we are facing reside at those banks… For them, the Stress Tests so far have proven that it is acceptable to take outsize risk, become “too big to fail”, and then win whether your risk pays off, or seek government intervention if you failed.

On May 4th, let’s be done with the stress tests, and begin to look for a permanent solution that will benefit not only the visible 2% of banks in this country, but instead will support the transparent, vitally important 98% who are being penalized from this crisis…