Frontier Bank
Last night the Feds came in and closed Frontier Bank. In my opinion this is an example of how the regulatory system caused this problem. Frontier Bank had a private investor a number of months ago will to put in over 500 million in new capital. The reason the deal didn’t go is because it pass regulatory approval. I am not sure about the reason given other than the fact the Feds felt the private equity partner was acquiring too much of the bank. The bottom line is the FDIC puts much more restrictive requirement on private equity than they do tax payer funded take overs and bail outs. This deal should have been allowed to go forward and given a chance. The worst that would have happen is that the 500 million would have been used up in write downs on their new construction assets. The best that would have happened is that new management would have expanded the franchise and potentially avoided the financial collapse. Frontier has a good local franchise and branch network. Instead what we have is a case where the government has shout down the bank at a cost of 1.8 billion. The irony is now that the Feds are being more lenient with private equity and probably would allow the deal. The only good news is that Union Bank from California has acquired Frontier. They are looking for a local presence so hopefully they will keep most of the branches in place and keep making loans to the small businesses which was Frontier’s main source of revenue in addition to real estate lending. Hopefully this will cause the least disruption in jobs and with new capital they can supply the needed credit to these small businesses but the bottom line is this deal cost the tax payers 1.8 billion that it should not have.