The last time there was a major banking crisis in the United States was in the late 1980s. As a result of that crisis, the government formed the Resolution Trust Corp. in 1989 to buy assets from insolvent savings and loans at discounted prices. During the first three and a half years of its existence it took control of 737 failed thrifts and acquired assets with a book value of $434 billion.
Real estate prices were falling, and banks were struggling with bad balance sheets, low core deposits, and poor capital ratios. But banks became so focused on getting rid of their problems and complying with increased regulatory guidelines that they could not focus on growth or their existing customers.
Good customers were forced to bank with someone new as many banks worked to reduce their balance sheet and increase liquidity.
Here are the five reasons we think it is a good time to start a bank today:
- Many large and small banks are pushing out their good customers in response to liquidity issues. They are shrinking their balance sheets to get their capital ratios in line with increased regulatory demands. A new bank with a clean balance sheet will have the opportunity to acquire good customers.
- There are talented but displaced bankers available in the marketplace.
- Because loan requirements have become stricter, bankers are now in a strong position to require borrowers move their deposits to the bank. This gives new banks the opportunity to have a lower cost of funds.
- The increased use of online banking and remote capture allows banks to have customers all over the country. Banks are not required to have archaic branches to accept deposits. New banks will see stronger efficiency and profit margins as a result of reduced overhead.
- Pension funds, hedge funds, and institutional and foreign investors hold a large amount of cash positions. They are looking to invest in new banks where they know the balance sheet and loan portfolio are clean.
A new bank with a clean balance sheet has the opportunity to learn from the mistakes others have made. More importantly, a new bank will have access to displaced customers from banks that are looking to reduce their assets.
