second floor of a suburban office building in Fairfield, New Jersey, not far from Interstate 80 and just down the hall from an opthalmology center, are the offices of Financial Northeastern. Its chief executive, Jeff Zage, 60, could be one of the saviors of the troubled $23 trillion U.S. banking industry. Zage is a money broker, and for the past 38 years, his firm has specialized in underwriting certificates of deposits for needy banks.
Part of the problem comes from clinging to old-fashioned banking ideals like “core” deposits, thought to be foundational to community banking and the soundness of our system. SVB and First Republic were far from the only banks caught flat-footed when the Fed hiked rates 10 times in the last year.
“They’re politically powerful because they’re on every single corner,” says bank consultant Mayra Rodríguez Valladares. “There’s actually rare bipartisan support for community banking.” Moreover, because regulators were never especially precise in their definition of core deposits, except for the fact that brokered deposits should mostly be avoided, clever entrepreneurs and financial institutions over the years have figured out ways around the prohibitions and FDIC insurance limits.
In Toyota We Trust: Says Toyota Financial Savings CEO Mara McNeill, “We want to be the bank that acts like a hospitality company. There is a word in Japanese: omotenashi.”Then there are the multiple, and often confusing, brokered deposit “exemptions” granted by the FDIC to various banks, including those working exclusively with fintechs. FDIC-insured $1.
Sometimes referred to as industrial loan companies , these banks are FDIC-insured and -regulated, but their parent companies are typically commercial or financial institutions. The first ILC was formed in 1910 to make loans to industrial workers who couldn’t obtain credit elsewhere. Over the years companies like General Electric, Target and Goldman Sachs have owned ILCs. Today their owners include Harley-Davidson, Pitney Bowes, UnitedHealth Group, BMW, Square and USAA.