Magazine article American Banker

Slowdown Seen in Applications for Start-Ups

Magazine article American Banker

Slowdown Seen in Applications for Start-Ups

Article excerpt

The breathtaking rise in the number of start-up banks is finally showing signs of leveling off.

So far this year, 216 applications to insure a new bank or thrift have been filed with the Federal Deposit Insurance Corp. At this rate, 355 applications would be filed this year, 4% below last year. Since 1992, applications for insurance have increased an average of nearly 34% a year, according to the FDIC.

Industry experts attribute the slowdown to an oversaturation of new banks in some of the hottest markets.

Florida, with 21 applications pending, and Georgia, with 18, are still by far the leaders in projected start-ups. But the rate of growth is much smaller than in the past few years.

The Southeast, consultants said, is simply running out of the capital and qualified people needed to organize new banks.

"The banks that have opened simply have used up most of the resources that were available," said Richard P. Hunt, president of Kendrick, Pierce & Co., a Tampa-based consulting firm that specializes in start-ups.

"All of the good people have already been cherry-picked by other groups."

Mr. Hunt said the shortage of capital in Florida has forced him to be more selective in taking on new clients.

After watching three organizing groups within 50 miles of each other struggle to raise the necessary capital, he will now accept only clients whose boards of directors are willing to commit 40% of the start-up funds.

"I am telling people that if their boards are not confident they can put together the $6 million, they should probably not be starting a bank," he said.

Nationwide, other factors are tempering the enthusiasm for new banks, according to Arnold Danielson, a Rockville, Md.-based investment banker.

With stiff competition shrinking margins industrywide, new entrants into a market cannot afford to offer the high rates needed to entice new customers. …

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