Executives launch a lending cooperative for community banks
Friday, January 21, 2011
John Delaney, executive chairman of a Chevy Chase finance firm, and Lee Sachs, a former adviser to Treasury Secretary Timothy F. Geithner, announced Thursday the formation of BancAlliance, a cooperative for community banks seeking to get a piece of larger lending opportunities.
BancAlliance plans to recruit institutions and use their combined financing capabilities to compete for consumer and business loans that otherwise might be too large for them to handle.
On their own, small banks often must settle for smaller loans, leaving some to become overly dependent on building their portfolio around real estate. As a collective, these institutions could pool their resources to diversify and spread their risks among a greater variety of borrowers.
"Small banks have been disadvantaged, relative to big banks, in the aftermath of the financial crisis, and they need solutions," said Delaney, head of CapitalSource, a business finance company. "One solution is to band together and have big-bank capabilities."
BancAlliance is targeting healthy institutions with less than $10 billion in assets and hopes to launch with 100 banks. Delaney and Sachs are hitting the highways in March to attract participants. Member banks will be offered financial services, including risk management and investment portfolio oversight, through Sachs and Delaney's management company, AlliancePartners in Chevy Chase, which has added former vice chairman of the Federal Reserve Donald L. Kohn to its board.
The firm will, most notably, evaluate, structure and place larger loans, a portion of which will be underwritten by each bank.
Delaney is keen on helping small institutions reduce high concentrations of any particular class of loan, especially real estate. To that end, BancAlliance will organize funds to acquire real estate loans from the banks.
BancAlliance is not without its risks. Regulators might bristle at the idea of banks not underwriting the risk of the loans on their books, or there may not be much of a market.
"There are risks to everything," Delaney said. "But in five years, if we were to realize in the aftermath of the financial crisis and all of the reforms that have come with it that all of the small banks were materially reduced, that would be very bad for the economic health of this country."