Small Bank to BIG to FAIL?

The Federal Reserve seems to believe that even a small bank may be too big to fail. The central bank spent nearly two years scrutinizing the takeover of the tiny Bonneville Bank by the prepaid debit card firm Green Dot. The soundness of even niche banks matters. But in the too-big-to-fail era, the watchdog’s slow process is an unneeded deterrent to the sector’s small institutions.       Green Dot, a $1.3 billion market-value company whose cards are sold by Wal-Mart and other retailers, bought Bonneville, which is based in Utah, partly to secure bank holding company status. The Fed’s regulatory approval should give Green Dot investors more comfort. Owning a bank will also enhance operating efficiency and innovation. Green Dot can now collect interchange and other fees directly and introduce products without waiting for the go-ahead from a third-party bank.       Shareholders liked the development, and Green Dot stock went up 10 percent on the news of the Fed’s approval of the deal. The deal should also be good for Americans without traditional bank accounts. Green Dot can now afford to cut fees and still remain profitable. Yet despite Bonneville’s paltry $36 million of assets, the Fed deliberated over the transaction for 21 months. One of the bank’s five governors, Elizabeth Duke, even voted against it.       She expressed concern that Green Dot’s business model wasn’t diversified enough — so, in a sense, arguing that it might be too small to survive. The safety of small lenders is a legitimate concern. But there’s a new agency to help ease some of the Fed’s burden with regards to consumer protection. What’s more, with big banks having grown bigger since leaning on taxpayers to survive the crisis, systemic concerns should be where the central bank is focused.       Though the Fed ultimately approved the Bonneville sale, the delay and dissent suggest an unusually tough path for certain financial institution deals. It might unnecessarily frighten off smaller banks in a position to develop underserved markets as their larger brethren wrestle to avoid crippling the system again. Given those circumstances, it doesn’t seem the best message — or use of resources — from the regulator.       www.generationsgogreen.com

Advertisement