FDIC weighs action against N.J. bank's 'unsafe' practices

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FDIC weighs action against N.J. bank's 'unsafe' practices Powered By Docstoc
FDIC weighs action against N.J. bank’s ‘unsafe’ practices
But First State disputes charges as the work of ‘overzealous regulators’                                         an institution that offers a competitive rate              ously served as a credit analyst at the Federal
                                                                                                                 of return.                                                 Home Loan Bank of New York, where he
              By Martin C. Daks                                        Banking                                        The problem, according to the FDiC, is                monitored banks in New Jersey, New York and
a CraNForD BaNK’s efforts to expand its                                                                          that certain banks, including First state, are not         Puerto rico.
business may have crossed the line into unsafe       mercial real estate loans, subprime automobile              supposed to accept those kinds of accounts.                      “i’ve recently seen some cases where
practices, according to the Federal Deposit          loans originated by third parties and “high-cost                 Further, according to the FDiC, the bank              banks that participated in the CDars program
insurance Corp.                                      deposits … that were more than 75 basis points              “repeatedly failed to comply with FDiC regula-             were cited for accepting third-party brokered
      The FDiC said it believes First State Bank     [three-quarters of 1 percent] over the deposit              tions” that required it to report the brokered             accounts,” van Doorn said, referring to the Cer-
“engaged in unsafe or unsound banking prac-          rates offered in the bank’s normal market area,”            deposits in its call reports, which are detailed           tificate of Deposit account registry service that
tices, as well as violations of law,” according to   according to the FDiC.                                      reports to the FDiC.                                       lets banks join a network and place funds into
a notice announcing the federal agency’s plans              The bank has since phased out its third-                  “Not one of the call reports filed by the             certificates issued by other network-member
to determine whether it will issue a cease-and-      party car loan business, and while Kest                     bank during the time periods pertinent to this             banks. “it’s still an open issue.”
desist order against First state.                    acknowledged problems with the loan portfo-                 proceeding included and accurately reflected                     meanwhile, First state is using valuable
      on oct. 5, the bank and its attorneys from     lios, he blamed much of these problems on the               the bank’s brokered deposits,” the FDiC said.              resources defending itself against the FDiC’s
the montclair law firm McKenna, McIlwain             depressed economy.                                               Kest disputed the FDiC’s charge, noting               charges, Kest said.
LLP are scheduled to meet with the FDiC and                 First state lost $1.9 million in 2008, and $1.4      that “the FDiC uses a broad definition of bro-                   “We’d like to use our capital to build
an administrative law judge. a location for the      million in the first half of 2009. it had “a heavy          kered deposits. i can’t be too specific, because           the bank’s operations,” Kest said. “instead,
hearing has not yet been announced.                  reliance” on short-term, expensive and poten-               we are in litigation with the FDiC, but we don’t           we’ve had to use some funds to retain expert
      “We contest the unwarranted claims made        tially volatile deposits, according to the FDiC.            believe that our activity falls under the ‘bro-            consultants with significant regulatory
by the FDiC,” said Theodore M. Kest, First                  The bank also relied on so-called third-             kered deposits’ label.”                                    experience to help us deal with some over-
state’s chief financial officer. “We look forward    party brokered deposits, or money gathered                       and he may have a point, according to                 zealous regulators.” u
to proving our case in court.”                       by stock market and other nonbank brokers                   Philip W. van Doorn, a senior bank analyst                                       E-mail to mdaks@njbiz.com
      First state’s growth was funded with com-      that are then aggregated and deposited in                   with TheStreet.com Ratings Inc., who previ-

Entrepreneurial design program
                                                                                                              Photos by Christina Mazza

suits these students to a T-shirt
Rutgers Future Scholars create apparel to be sold at campus bookstore
             By BEtH FitZGEraLD
as CASSIDY CHRISTOPHER, 14, used a com-
puter to tinker with her entry in a T-shirt design   ance and training, teenagers can do what
competition, the seeds of entrepreneurship
were being planted.
                                                     advertising executives and market research-
                                                     ers are doing at the professional level.
                                                                                                                                                                                    Students in action
      “i like an environment where everything is     at the same time, they are learning skills                                                                                     Students in
Description: Headnote:But First State disputes charges as the work of'overzealous regulators' BankingA CRANFORD RANK'S efforts to expand its business may have crossed the line into unsafe practices, according to the Federal Deposit Insurance Corp.The FDIC said it believes First State Bank "engaged in unsafe or unsound banking practices, as well as violations of law," according to a notice announcing the federal agency's plans to determine whether it will issue a cease-anddesist order against First State.
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