July 14, 2008

Federal Regulators to Forbid Stupid Bank Names

By QUINN QUIMBLEY
Financial Rant

WASHINGTON -- In a move aimed at boosting confidence in the nation's banking sector, the Office of Thrift Supervision has proposed rules that will give it veto power over new banks' names, and the power to change names of banks it finds silly, officials said.

Regulators proposed the new rules after realizing a majority of bank failures, and assistance measures taken to help banks, over the past five years have involved banks with "regrettably stupid" names. Regulators believe that forcing banks to have names that convey the fact they are, you know, banks, will inspire confidence among depositors and prevent runs on institutions such as IndyMac Bank FSB.

"It sounded like a fast food restaurant," said OTS deputy director Herm Shepard. "I mean, I don't know about you, but as a depositor, I would have felt more confident if the bank was named, I don't know, the Second National Bank of Pasadena. The IndyMac name, which I think we can all agree was particularly unfortunate, offered up the impression depositors would get a free order of fries if they opened a checking account. Not exactly a confidence builder, if you ask me."

Out of the five bank failures so far this year, Shepard noted that the three with stupid names accounted for 95 percent of assets in the banks.

"With pressures related to the interest-rate environment, it's no surprise some smaller banks are having a tougher go of things, and in an economic downturn one must expect a few bank failures," Shepard said. "But that doesn't mean banks have to give depositors the impression they're run by amateurs, either."

Shepard singled out for criticism ANB Financial NA of Bentonville, Ark., and First Integrity Bank of Staples, Minn., both of which failed in May.

"ANB Financial. Yeah. Who exactly is ANB? And financial what, exactly? It sounded like a glorified check-cashing joint. As for First Integrity -- yeah, that's a winner too. I mean, if you're a bank, you shouldn't have to use the word integrity in your name. Last time I checked, integrity was supposed to go along with operating a bank," Shepard said.

"Simply put, banks must not put themselves in a position where their names and actions tell depositors, 'Go ahead! Start a run on the bank! We're insured!'" Shepard said.

If approved, the OTS's rules would require banks to do the following:

* Have the word "Bank" -- spelled correctly and not amalgamated with any other word or phrase -- as a part of an institution's name.
* Require place or origin names, relating to the location of their headquarters or originating city, in an institution's name. Alternatively, using the names of historical figures, except where otherwise already taken, would be allowed.
* When involved in mergers or acquisitions, the name of the larger merger partner or acquisition partner would be used as the name of the institution going forward. Combining names would be strictly forbidden.
* The use of initials, acronyms and similar schemes would be strictly forbidden.
* Foreign banks would be required to use their original names when buying U.S. banks, particularly if said foreign banks can print currency.

In addition, banks will be encouraged to have oil paintings of distinguished executives in their branch lobbies.

"I realize this may concern some of our trading partners, but I think they'll see this is really for their own benefit," said Shepard. "I mean, who would you rather do business with? HSBC Bank USA or The Hongkong and Shanghai Banking Corp. Ltd.? Duh."

The rules will go into effect following a 90-day public comment period. The new rules are expected to affect banks including Ted's Savings and Loan of Ionia, Mich., FDIC Insured Financial of Mayberry, N.C., and Fifth Third Bancorp of Cincinnati, Ohio.

Posted by Benjamin Kepple at July 14, 2008 09:29 AM | TrackBack
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