Tuesday, April 17, 2012

Reorganization State Banks

There are 177 banks in California operating under state Charter issued by the Department of Financial Institutions[DFI]. Based on a reorganization plan submitted by the Little Hoover Commission the Governor has put forth a reorganization plan to create a new Department of Business Oversight through a merger of the Department of Corporations[DOC] and DFI.

According to a blog by Keith Bishop former head of DOC and the Department of Savings and Loan this reorganization could be a real problem for state chartered banks and small business.. Many of these state chartered banks are small community banks which are a significant source of lending to small businesses. Mr Bishop says “the U.S Small Business administration released data in February 2011 that show since 2009 there has been a decrease in small business loans by the largest banks. At the same time lending by small banks[those with less than $500 million in assets] remained stable.”

“Small business owners whose primary institution is a regional community bank were more successful obtaining a new loan than those whose primary institution is a larger bank. Fifty-one[51%] of the former received approval and obtained their new line compared to 33percent of the latter.”

Mr Bishop goes on to point out that the as a result of the merger regulatory effectiveness will be reduced causing many of the larger state chartered banks to convert to a national charter leaving the Department of Business Oversight with smaller and perhaps weaker banks. The result will very likely be the demise of the state bank charter”

The Governor has fast tracked this and unless the Assembly or Senate adopts by majority a resolution rejecting the Governor’s plan it goes into effect 61 days after introduction to the legislature.

To those involved in small business leading that are on this email what are your thoughts?

To small businesses who are doing business with small community banks does this concern you?

Scott Hauge
Small Business California
2311 Taraval Street
San Francisco, CA 94116

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