The nation's first uninsured wholesale bank has opened in Portland, Maine.
Taking advantage of a new Maine law that lets nonbanks establish banks without deposit insurance, Sinclair Financial Group of Springfield, Mo., opened Sinclair Bank and Trust on Aug. 10.
Sinclair could be the first of many so-called "woofies." Congress is debating a financial reform bill that would let securities and insurance firms own federally chartered uninsured wholesale financial institutions.
Sinclair Bank, started with $1 million in capital, is targeting wholesale customers and accredited investors. Its first products are certificates of deposit offering interest rates ranging from 6.1% to 7.97%.
"We plan to offer our depositors a higher rate than what they can get from a conventional bank," said Dave Post, Sinclair Bank's president. "We can do this because we are a niche bank not designed to serve everyone with all traditional banking services."
Sinclair Financial is a $41 million-asset consumer lender chiefly focused on the manufactured-home business.
As a consumer finance company, Sinclair is required to register in each state where it makes loans. Through its bank subsidiary, the company can take advantage of interstate banking laws and make loans nationwide without registering in each state.
Sinclair plans to use the deposits at its new bank to originate manufactured-home loans and automobile loans. Eventually, Mr. Post said, all the company's lending will be done through the bank.
Last year, Maine enacted a law creating a universal charter that allows state banks, savings banks, and thrifts to share one another's powers. At the same time, the state established a new charter for the so-called "woofies"-wholesale financial institutions set up by nonbanks or bank holding companies that do not accept retail deposits or offer deposit insurance.
"We needed to look at some new opportunities like these niche banks in order to attract more business to Maine," said H. Donald DeMatteis, superintendent of the Maine Bureau of Banking.
Though woofies are not regulated by the Federal Deposit Insurance Corp., they still have rules to follow. Among them: Customers must have a net worth of $1 million or have reported income of $200,000 per year for two straight years. With few exceptions, the minimum deposit is $100,000.
"What they don't want us to do is take checking accounts from the average citizen," Mr. Post said. "They want us to deal with people who are sophisticated enough to understand that their deposits are not insured."
Before joining Sinclair, Mr. Post was New Mexico's chief bank examiner. He left that job, which he held for more than 10 years, because he said he was excited about the possibilities offered by Maine's new charter.
"Banks must be able to do what other financial institutions are doing," he said. State governments have "historically allowed more innovation," than the federal government, he added.
But Mr. DeMatteis said he does not expect other financial services firms to rush to Maine to try setting up uninsured banks.
"I certainly view this as an experiment," he said. "It's going to have to play out in the marketplace before we can determine the level of success."