Banks get fast-tracked
Anticipating a federal fire sale of troubled banks and accounts, under a new law the Connecticut Department of Banking can process applications for new state-chartered banks on an expedited basis.
The law was passed on expectations of the Federal Deposit Insurance Corp. pushing beleaguered banks under its oversight to find companies willing to assume their assets and liabilities. That could provide an opportunity for investors in Fairfield County, many of them with the experience and connections to raise funds in a hurry to capitalize on acquisition opportunities.
The law eases some of the requirements for forming a bank for a two-year period beginning in October, and allows the state banking commissioner to temporarily waive some requirements if they would impede an immediate acquisition opportunity.
Banking Commissioner Howard Pitkin must determine that investors have sufficient funds to form a bank, but frees organizers from some of the time-consuming processes that accompany bank formation.
Under the law, the commissioner can approve an application after reviewing:
Ӣ the sources of capital that would be available to the bank;
Ӣ the ownership structure and holding companies, if any, over the bank;
Ӣ the banking experience of the initial organizers, directors, and senior executive officers;
Ӣ the overall strategic plan of the organizers and investors for the bank; and
Ӣ a preliminary business plan outlining intended product and business lines, retail branching plans and capital, earnings and liquidity projections.
Bank organizers must furnish information on an ongoing basis for the commissioner”™s review.
Connecticut law currently requires full-service depository banks to raise at least $5 million in initial capital; more-limited community banks must have $3 million in their coffers.
It takes more than money, however. The process of organizing a bank is intended to be rigorous and take considerable time, energy and money to complete, with the goal of forcing organizers to prove their planning skills and ensure that the resulting bank be fundamentally strong during the initial stage of its existence.
In addition to experience, the state banking commissioner, comptroller and treasurer are supposed to consider the necessity of any proposed bank to the public and the adequacy of existing institutions.
Organizers must follow a parallel process in order to gain clearance from the FDIC.
Two banks received preliminary charters in June to operate in Connecticut, neither in Fairfield County: First Community Bank of New Haven and Sachem Bank of Madison. The latter bank is not related to a onetime bank in Guilford called Sachem Trust.
If established as planned, they would be the first new banks to open statewide since August 2008 when Bank of Fairfield opened for business as a subsidiary of New Canaan-based BNC Corp.
The previous April, Greenwich-based Fieldpoint Private Bank & Trust debuted.
While bank formation has slowed, new investors as well as longtime companies are eying opportunities to cherry-pick books of business from the financial turmoil of the past year.
“There are some very good opportunities right now, particularly in commercial real estate; very high quality credits and spreads that are in many cases maybe two times what they were two or three quarters ago,” said Brian Dreyer, head of commercial banking for People”™s United Financial Inc., in a conference call with analysts last week. “(There are) lots of well seasoned loans coming to maturity points in other people”™s portfolios, people who would prefer to shrink because of capital considerations and we would prefer to grow. So, you are seeing some pretty good growth particularly in commercial real estate finance. It”™s not everywhere in our trade area and we don”™t see those kinds of opportunities today in our northern markets, but certainly in our Connecticut and New York markets we are seeing those opportunities.”