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July 1, 2010

Bank Talk attracted 20, 425 hits this month. That's higher than the previous peak for the year, which came in May.

Here's a small chart that graphs out that traffic.

Some of the top stories:

Green Dot Mixes it Up with Wal-Mart

Green Dot is seeking to buy Bonneville Bank, a small state-chartered bank in Utah. Bank Talk spotlighted the role of

June 30, 2010

Peer-to-peer lending programs were once heralded as a promising way for extending credit, but the initial reports suggest that the model still has a long way to go.

Prosper and Lending Club are several of the largest peer-to-peer sites. In just the last few years, both have witnessed huge huge gains in overall volume. That should underscores their appeal, both for borrowers as well as for lenders. These sites reduce many of the transactional costs involved in lending. Most of the underwriting work is shifted to lenders. The costs of hosting and maintaining sites is not de minimis, but nonetheless, it is hardly anything when compared to costs of maintaining a branch location.

One problem is that the Prosper loans are not performing. A report in 2010 said that almost 23 percent of Prosper

June 24, 2010

An issue is emerging in the Motor City: can General Motors wean itself off of subprime financing? The classic GM customer was a credit guzzler. How many GMs were purchased in the last decade on the heels of a cash-out refinance? That won't work any more. GM's credit rating has fallen way below investment grade, and there's little thirst for a chance to drink from a firehouse of sub-prime asset-backed securities.

Someone else has got to be the one saying "approve, approve, approve."

Woodrow Wilson once said "what's good for GM is good for the country, and vice versa." Maybe the unsaid rejoinder

June 21, 2010

Bank of America's decision to transition away from free checking means that even more Americans will opt out of a relationship with a mainstream bank. Most likely, those consumers will join the 80 million Americans that meet one of the definitions of "unbanked."

Bank of America plans to introduce new accounts that include a monthly service fee.  Unless a customer is profitable, meaning that they keep a large checking balance or that they use other B of A Products, they are going to face the prospect of paying $10 a month just to have the ability to write checks.

Banks have put some effort into courting the unbanked, but their efforts have not been paying off. The Bank On initiative started off well in California, but it has never become a nationwide success. In North Carolina, bankers killed the Bank On program.  Community groups, whose buy-in is necessary in order to drive unbanked households into the program, refused to agree to tell their clients to use the Bank On product unless it was free of overdrafts. The banks didn't budge. They weren't willing to even offer one overdraft refund per year.

Regulatory reform has brought some change to those positions. Bank of America's response is to punt. They're not the

June 14, 2010

There is a spectre haunting your local community bank - the Spectre of Wal-Mart.

Imagine there is a Wal-Mart Bank. Can you see the little man dropping prices on those overdrafts? Would you still be paying $2.50 for the ability to use an ATM, or $14 to get your checks printed?

Yes, you would see those prices dropping. No, you would not pay so much for an overdraft. Non-interest income, rather than constituting 30 to 50 percent of gross income, would dwindle. The drop would the most precipitous at small banks, where there is less likely to be much income from either investment banking or trust management. There's also the issue of competition. Plenty of small banks only have one or two national chains to worry about in their home town. If the Wal-Mart out on the bypass had a bank, though, it might be different.

Wal-Mart has tried to get a bank charter in the past, but it has not worked. They've applied for industrial loan charters, to no avail. This is a special purpose bank. This charter can be used as a means of in-house financing. Plenty of retailers have utilized the capacity of the ILC.  Target, for instance, has an ILC. Ditto for Home Depot.

The Independent Community Bankers Association does not like the ILC. It is only a coincidence, but here is how Terry Jorde, CEO of CountryBank (Cando, North Dakota)  put it in testimony before the House Subcommittee on Financial Institutions and Consumer Credit in 2006.

The ILC specter looms over the nation’s financial system. The flood of new applications for ILC charters threatens to eliminate the historic separation of banking and commerce and undermine the system of holding company supervision, harming consumers and threatening financial stability.

The ICBA is pretty clear.

That is why I am surprised that they did not notice when Green Dot applied to purchase Bonneville Bank in Utah earlier this spring.Bonneville Bank is very small. It has one branch. Yet, it does have a charter, and one in a state with a very bank-friendly regulatory environment.

Green Dot makes debit cards. Those cards include reloadable cards. Currently, Green Dot partners with Columbus Bank & Trust. CB&T holds the deposits and provides its charter. Buying Bonneville Bank changes all of that.  Green Dot's acquisition poses the possibility that those cards will be one step closer to the new

June 3, 2010

Regulators in England slapped a $48.5 million fine on JP Morgan Chase today, citing the bank's failure to segregate customer deposits from their own accounts.

June 2, 2010

African-American households have lost wealth in the last decade, and now stand on the edge of widepread insolvency. The lack of assets is most evident among single parent households headed by African-American women.

The new data, culled from the 2007 edition of the Federal Reserve's Survey of Consumer Finances, reveals how inequalities in wealth between white and black households have grown since 2004.

African-American women that are the sole head of households have a median net worth (MNW) of five ($5) dollars during their prime earning years - ages 36 to 49. The same subset of single white women have a MNW of more than $42,000.

The stress implied by living under these kind of budget constraints would be incredible. It means that not only can a parent not afford to miss a day of work or pay for a repair, she can't even afford to hire a babysitter for one hour without going into debt. Back to the unbanked, this also underscores why she can't afford even one overdraft charge.

February 22, 2010

While the Department of Housing and Urban Development has intimitated that it will seek way to help America's housing stock "go green," it is yet to provide concrete results in that direction.

HUD Secretary Shaun Donovan established a new department, known as the Office of Sustainability," to research how HUD could lower the combined costs of housing.  HUD's new rubric incorporates both direct housing costs as well as transporation costs.  It notes that the two now consume as much as 60 percent of household income.

This is a good idea.  For years, people have chosen to "drive 'til you qualify." They have moved out to the suburbs and commuted to their jobs in the city.  It led to sprawl, and it masks the real costs of housing. Those Beazer "homes from the 130s" were located at the end of long commutes. In this framework, low-income households don't really lower their housing costs so much as they shift housing costs over to transportation costs.

Section 8 does not tap into drive to you qualify, but it does work on some of the same prinicples. In the last entry of BankTalk, I speculated on the current problem: there is no incentive in place to encourage landlords to pay the costs of lowering the utility bills of their Section 8 tenants. It costs a lot of money to put in insulation. It costs a lot of

November 17, 2009

Although there is no Wal-Mart Bank, there is a Wal-Mart Banco, and its success should tell us something about pathways for resolving the ongoing challenge in the United States to get more people into the banking system.

Wal-Mart is a disruptive force, capable of tranforming not just downtowns but also the business models of any market that it competes in.  Wal-Mart wants to get into banking in the United States, but regulators have not allowed it.  It is a shame.  Wal-Mart would likely create a low-cost financial products that appeal to working class consumers.  This is a demographic that doesn't go to banks right now.

In Mexico, it is a different story.  Mexico has allowed Wal-Mart to start Wal-Mart Banco.  Banking is unusual in Mexico.  Fixed-rate mortgages are an innovation that has only developed recently, in the aftermath of the nation's banking crisis in 1994.  In any case, Wal-Mart's strategy in Mexico is not surprising.  It undercuts its local competitors. Undercutting means something very diffferent south of the border.  Loan defaults are very rare, thanks to some unusual debt collection laws, but interest rates are generally very

August 4, 2009

A North Carolina city proposes to obstruct a new affordable housing projectKnightdale, North Carolina opposes the project on the grounds that its location would not adequately meet the needs of potential low-income residents, would place undue burdens on schools, and that the needs of seniors should come first.

Knightdale, intends to turn down an application, set forth by the Evergreen Construction Company, that would allow the developer to break ground on a 92-unit apartment complex.

The project was experiencing trouble getting financing, but now the Wake County Commissioners

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