The Federal Deposit Insurance Corp. has put the brakes on approvals for new banks in several states hard hit by the real estate crisis, according to consultants and attorneys who advise investors trying to charter new banks.
Though the ban is not official, several industry sources said groups looking to start banks in Florida, Georgia, California, Nevada, or Arizona have been told by FDIC officials that applications for deposit insurance will not be considered for up to a year — even if organizers have already raised capital and their charter applications have been approved by their primary regulator.
The reason, they say, is that the FDIC is wary of creating more competition for loans and deposits in markets where many banks are already struggling, because it wants to limit the number of potential failures.
It is also worth noting, they said, that seven of the 25 banks that failed last year were less than eight years old and most were done in by overaggressive lending and relying too heavily on brokered deposits.
Still, organizing groups insist that now is a good time to start a bank because they have money to lend right off, while many established banks are focused on cleaning up loan portfolios and preserving capital. Depositors might also view them as safe havens because they are flush with capital.
One frustrated banker is D.R. Grimes, the chairman and chief executive officer of Perimeter First Bank, an Atlanta-area thrift in organization.
He said last week that, after Perimeter got charter approval from the Office of Thrift Supervision in April, he was told by FDIC officials that his application for deposit insurance would be approved. But after $20.5 million of capital was raised, the FDIC on Dec. 18 said the application would be rejected.
"There was never any reason given," Mr. Grimes said. "There was never any issue with our business plan or our organizers. There was no logic."
The failure to obtain insurance ended up costing the organizers almost $2 million, Mr. Grimes said.
"This is a tremendous amount of money," he said. "And every step of the way they had committed to approving us. If they would have told us, we wouldn't have spent that money."
An FDIC spokesman said Friday that the agency is examining applications on a case-by-case basis and "absolutely" has not adopted "a formal or informal moratorium."
"We must review seven statutory factors, including earnings prospects and risks to the insurance fund, before we can approve any pending application," the spokesman said.
As an example of this approach, the FDIC might not award deposit insurance to a bank that intends to focus heavily on construction and commercial real estate lending.
Though few markets have been as badly battered as Atlanta's, Mr. Grimes said he was surprised that Perimeter First's insurance application was rejected because it planned to focus on commercial and industrial lending. Moreover, he said, the organizers had more than 30 years of bank CEO experience among them, including that of Ray Christman, the former CEO of the Federal Home Loan Bank of Atlanta.
Overall, the FDIC is denying more deposit insurance applications than in recent years.
Last year it rejected 33% of the applications it received, up from 21% in 2007 and 20% in 2006. And the 15 banks that opened in the fourth quarter were the fewest for any quarter in at least 12 years, according to FDIC data.
Nine of those banks were in Florida, Georgia, California, or Arizona — though observers were quick to point out that the charters had probably been approved last summer or earlier, before the pace of bank failures accelerated.
Four Georgia banks failed in the fourth quarter alone, and roughly two dozen other banks in the state are seen as troubled. In California, three banks failed during two weeks in November.
Dan Hudson, the president and chief executive officer of the start-up consulting firm NuBank Group in Dallas, said the FDIC is exercising a "high level of caution" in states "where you shouldn't be promoting banks … because they are failing left and right."
Lee Bradley, a managing director at the Dallas investment bank and consulting firm Commerce Street Capital LLC, regularly works with bank organizers to raise capital. He said that, in the last month, five clients — all in states where real estate conditions are particularly dire — were told they would not get deposit insurance.
"All of them either had OTS, [Office of the Comptroller of the Currency], or state charter approval and were told 'no' by the FDIC," he said.
Still, Mr. Bradley said, he is confident that other organizing groups in regions where the economies are less stressed will be approved.
"They won't be as harsh on them as the regulators in harder-hit areas," he said.
