After almost two years, Green Dot Corp. has won regulatory approval to buy Bonneville Bancorp, but not without reservations from the Federal Reserve. The company entered the agreement to buy the bank in February 2010. Since then the prepaid industry has seen its shares of ups and downs. The Board of Governors, however, said that it thinks Green Dot should be allowed to buy the bank subject to some conditions.
Based on the foregoing, and in light of all facts of record, the Board has determined that the application should be, and hereby is, approved. In reaching its conclusions, the Board has considered the application record in light of the factors that it is required to consider under the BHC [Bank Holding Company] Act and other applicable statutes. The Board’s approval is specifically conditioned on compliance by Green Dot with all the conditions imposed in this order and commitments made to the Board in connection with the application.
The conditions include Green Dot committing to maintain a tier 1 leverage ratio of 15 percent for five years, meaning that the bank needs to common stock, retained profits, and paid-in-surpluses equal to 15 percent of its average loans, securities, and other assets. The company has said that the bank will not pay dividends for at least three years. Green Dot also needs to submit a plan to its regulators for meeting its obligations under the Community Reinvestment Act.
Still, Federal Reserve Governor Elizabeth Duke dissented from the approval because she believes that Green Dot’s business plan to focus the bank on GPR products is too narrow and would jeopardize the safety and soundness of the bank. She said in her dissent that the business was too concentrated and overly-reliant on one retail partner. In addition she was afraid that new technology or regulation could kill the prepaid industry.
Furthermore, I do not believe that the steps Green Dot proposed to mitigate risk, including its commitments that Bank would maintain increased capital levels for five years and refrain from paying dividends for three years and its commitment to maintain certain levels of cash and cash equivalents, adequately address the risks posed by Green Dot’s proposal to operate Green Dot Bank primarily as a GPR issuer. These commitments may increase the ability of Green Dot to absorb losses, but they do not address the fundamental source of the risk posed by Green Dot’s narrow business plan and, consequently, do not actually reduce the risks associated with that business plan.
Green Dot’s purchase may help it control costs and manage its business more effectively, though it is unlikely that all of its cards will be issued by Bonneville Bank. GE Capital Bank will likely continue issuing the Wal-Mart MoneyCard for example, which is run by Green Dot. It will be interesting to see what Green Dot does with the additional capabilities that having a bank charter gives it.
