Enlarge This ImageShelter Insurance in Columbia, Mo., is the latest insurance company to chart an exit out of banking. Perhaps not surprisingly, the insurer is blaming the Dodd-Frank Act.
The insurer has agreed to sell $26 million in deposits and $16 million in loans to the $10.2 billion-asset Central Bancompany in Jefferson City, Mo. The companies did not disclose a price for the transaction. Shelter will pay off its bank's remaining depositors, and continue to service the remaining $137 million of loans.
Shelter follows other insurance companies that have bailed on banking in the past two years, including MetLife (MET) and Allstate (ALL). MetLife has said that its decision in 2011 to sell its bank involved "regulations written for banking institutions."
Management at Shelter also determined that it was no longer cost-effective to run a bank, given the higher expenses associated with the Dodd-Frank Act, says Ron Wheeling, chief executive of Shelter Financial Bank.
"We were a very soundly run, profitable, growing bank that provided great rates and services," Wheeling says. "The government is putting us out of business."
Shelter's specific beef is that Dodd-Frank would require it to provide regulators with two sets of financial statements, each based on different accounting principles. Those filings would have added $1 million in annual expenses, Wheeling says.
Dodd-Frank should have exempted insurers that act as thrift holding companies, such as Shelter, from having to submit consolidated financial statements to the Federal Reserve Board, says Doug Faucette, a banking lawyer at Locke Lord.
Rather, insurance companies face an "impossible position" of having to submit two sets of books. "There will be an increasing reluctance by insurance companies to hold onto" their banks, as a result of Dodd-Frank, Faucette says.
Shelter, which primarily sells property/casualty and life insurance, opened its bank in April 1999, the same year that lawmakers repealed the Glass-Steagall Act. Shelter has gradually been shrinking its bank, starting around the time that Dodd-Frank was passed.
The bank's assets, which peaked at $200 million in early 2010, totaled $160 million at Sept. 30.
Dodd-Frank would have required Shelter to provide the Fed with financial statements using "full-accrual" generally accepted accounting principles, Wheeling says. The company already files financial statements to its state insurance regulator in Missouri based on the statutory accounting principles used by insurers.
Shelter raised the issue of higher costs with the Fed, but the regulator would not budge on the requirement, Wheeling says.
Representatives for the Fed could not be reached for comment.
Shelter's management is particularly incensed because the old way the company had been reporting financials, under statutory principles, "is actually much more conservative than GAAP," Wheeling says.
"The GAAP books would actually have lower capital than the statutory books," Wheeling adds. "We're well capitalized by every measure in the regulatory tool kit and we had sterling asset quality."
