Editor’s Comment: Only one Bank has failed in Louisiana since the financial crisis began. And only one bank in the United States has commenced operations in the year 2010 — this one in Louisiana. Despite an unofficial moratorium on new bank charters of 70-year-old retiree, Hartie Spence, managed to navigate the regulations and got the only new start-up bank to open in the country, operating out of a secondhand double wide trailer.
The probable reason for the apparent safety of banks in the state of Louisiana is the rampant poverty. But it shows that even where people have very little money the financial system can be stable as long as outsiders don’t meddle in their financial affairs. Louisiana was a bad target all Wall Street and thus avoided the absurd fraudulent increases in appraisal values that lie at the core of the financial crisis. Landing was based upon the actual value of the property, the willingness of a lender to take the risk, and the ability of the borrower to repay.
For hundreds of years that was the lending model and obviously the only one that makes any sense. For 10 years that model was turned on its head in places other than Louisiana where lenders were not lenders, where inflated appraisal values were a good thing, and where the ability of borrowers to repay a loan was obstructed by layers of unknown entities never disclosed at the time of closing and obstructed by exotic terms and presumptions that were plainly wrong but which work to the benefit of the intermediaries who had arranged for the funding of the loan from investors and the buying of the loan product by unwitting borrowers.
I don’t know anything about this particular bank other than what I have read. I don’t know the people in it and I don’t know their business model. But in an economy where new bank charters are being discouraged, and new start-ups of any kind of business are made increasingly difficult while the government aids the large corporations and financial institutions that got us into this mess, I think this bank deserves the support not only of its own community but anyone who is looking for a new banking relationship. Between the Postal Service, the Internet and the telephone your bank can be anywhere.
In Hard Times, One New Bank (Double-Wide)
LAKE CHARLES, La. — The only new start-up bank to open in the United States this year operates out of a secondhand double-wide trailer, on a bare lot in front of the cavernous Trinity Baptist Church. A blue awning covers the makeshift drive-through window.
Called Lakeside Bank, it is run by a burly and balding former tackle for Louisiana State’s football team named Hartie Spence, who doles out countrified humor along with deposit slips and the occasional loan.
“This is the one place where the cause of death is mildew,” he quipped, standing outside the trailer in withering heat.
Asked how his bank in this steaming town of oil refineries and oversize casinos managed to win over federal regulators, Mr. Spence, 70, said, “I’m still thinking it’s my looks that did it.”
The dearth of new banks follows a particularly wrenching period for the industry. As the financial crisis deepened, hundreds of banks and thrifts closed and thousands more were saddled with bad loans and credit card defaults, costing the industry billions of dollars.
As a result, the number of investor groups applying to start a new bank from scratch has dropped precipitously. And for the intrepid few who have tried, regulators — sharply criticized for lax oversight in recent years — are being particularly stingy in granting approval.
So far this year, Mr. Spence holds the privilege of opening the only truly new federally insured bank. (In seven other instances, investors received regulatory approval to buy an existing bank, usually one that had failed, and reopen it).
Of course, many of the nation’s biggest banks were bailed out by the government, and have since rebounded. But since January 2008, more than 280 smaller banks and thrifts have been closed, and many community banks are struggling to recover from the real estate collapse.
Those bank failures have cost the Federal Deposit Insurance Corporation’s fund roughly $70 billion, and not surprisingly, the agency’s regulators are now giving greater scrutiny to new bank applications, according to bankers and industry officials.
Technically, banks obtain charters from their primary regulatory agency, either state banking regulators or, for national banks, the Office of the Comptroller of the Currency. But the charters are contingent on the applicants’ obtaining deposit insurance from the F.D.I.C.
The F.D.I.C. said the reduction in charters simply reflects the effects of the recession on new businesses. “There was considerable interest in forming banks before the economy deteriorated,” said an agency spokesman, David Barr. “In today’s climate we are seeing very little interest.”
However, last year the agency toughened its oversight of new banks, saying banks that had been open for fewer than seven years were “over represented” among failed banks in 2008 and 2009.
The reason, the agency said in a public release, is that many new banks strayed from their approved business plans and ran into problems because of “weak risk management practices,” among other problems.
Ralph F. “Chip” MacDonald III, a lawyer in Atlanta who advises banks on regulatory matters, said he believed the F.D.I.C. had imposed an “unofficial moratorium” on new bank charters, a charge that the agency denies.
Adam Taylor, president of the Bank Capital Group, an Atlanta company that helps investors set up new banks, said he had several recent clients, whom he declined to name, withdraw applications for new banks after it became clear that the F.D.I.C. would not approve them. He said the agency rarely denies charters — a fact confirmed by agency records — but that it places the applications in “purgatory” until the applicants give up.
The number of banks and thrifts — also known as savings and loans — in the United States has been declining steadily for 25 years, because of consolidation in the industry and deregulation in the 1990s that reduced barriers to interstate banking. There were 6,840 banks and 1,173 thrifts last year, down from 14,507 banks and 3,566 thrifts in 1984.
The number of charters has generally declined too, though there have been periodic swings. The lowest number of bank charters granted in any one year was 15, in 1942.
How, then, did Lakeside Bank win this year’s regulatory lottery?
Mr. Spence’s looks aside, he said that regulators were not ready to grant approval until Lakeside had raised enough capital, created a sufficiently conservative business plan and hired an experienced management team.
The initial idea for Lakeside Bank came from a local real estate developer, Andrew Vanchiere, who was dissatisfied with his existing bank. In 2007, he rounded up a group of local businessmen who set about raising $13 million in start-up capital and began looking for someone to run the bank.
The initial candidates were deemed too inexperienced by regulators. When the group contacted Mr. Spence in 2008, he was a few months into retirement and coming to the realization that fishing for trout and redfish just wasn’t enough to keep him occupied.
“I was bored absolutely stiff,” said Mr. Spence, who had successfully run several Louisiana banks during his career. “My response was, ‘Let’s do it!’
“You can manage a good bank in a bad economy, particularly when you are at the bottom,” he said. Noting that he has a clean balance sheet and can be selective about making loans, he added, “I thought it was a perfect time to be starting.”
Lakeside’s application was also helped by the surprising vitality of Lake Charles, a city of 72,000 roughly 30 miles from the Texas border. Lake Charles has gotten a boost from casino gambling and the oil and gas industry, as well as an infusion of new businesses, including liquefied natural gas terminals and a new plant that builds parts for nuclear reactors.
Louisiana, meanwhile, has fared better than many states during the economic downturn because of the petroleum industry and the infusion of government and insurance money to pay for damages from Hurricanes Katrina, Rita and Ike.
Only one bank has failed in Louisiana since the financial crisis began.
Regulators made it clear that Lakeside would not be approved if other banks in town were struggling to stay afloat, Mr. Spence said. But Lakeside, which opened on July 26, sits on a busy boulevard lined with about a dozen or more banks or credit unions, all of which appear to be thriving.
“There’s enough for all of us, and we are no threat to them for many, many years,” Mr. Spence said of his competitors.
Lakeside Bank is promoting itself as an old-fashioned community bank that focuses on customer service and bread-and-butter banking products, even though it also makes them available online.
Whereas loan decisions for many big banks are made in distant cities, Mr. Spence said that Lakeside will make them right there in the double-wide trailer, at least until the bank moves into a more permanent structure in a year or two.
“That’s our motto, ‘The Way Banking Should Be,’ ” he said, adding later, “It got rushed enough yesterday that I had to answer the phones and work the switchboard.”