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Bank of America Failure, Small Bank Opportunity

NEW YORK ( TheStreet) -- Bank of America's (BAC - Get Report) decision to begin charging a $5 monthly fee to customers who use their debit cards for purchases is making a big splash and providing a competitive advantage for smaller community banks.

One institution disagreeing with Bank of America's statement that the Durbin Amendment's limitations on interchange fees charged to merchants by larger banks to process debit card purchase transactions has changed the "economics of offering a debit card," is Green Bank, NA, a privately held community bank headquartered in Houston, with eight branches that reached $1 billion in total assets in July.

Green Bank EVP for Private Banking Paco Rivera said he doesn't "think a lot of the smaller banks will follow suit," on monthly charges for debit card purchases, and that "we are not going to roll out this fee," since "we are an interest-income-driven bank, and we don't have nickel-and-dime fees."

Rivera added that "Bank of America is a fee-income-driven bank," and decisions by BAC and other large banks, including JPMorgan Chase (JPM - Get Report) and Wells Fargo (WFC - Get Report) to add deposit fees "is interesting and unfortunate," because the big banks -- in the face of the government's attempt at setting price controls through the Durbin Amendment -- "will turn around and charge the consumer," in an attempt to make up lost fee revenue.

Most of the largest banks are rolling out monthly account charges irrespective of debit card use, and River saida, that since many charges are waived for customers with larger balances, the end result of new banking regulation is to "charge more money to the people least able to afford what is being charged."

Green Bank, NA is the main subsidiary of Green Bancorp, a privately held holding company, also headquartered in Houston. In June 2010, the holding company raised $100 million in capital from several private equity investors, including Freidman Fleischer & Lowe, Harvest Partners LP and Pine Brook Road Partners LLC.

The private equity deal left Green Bank NA primed for growth, with a Tier 1 leverage ratio of 13.98% and a total risk-based capital ratio of 17.75%, according to SNL Financial. Most banks are required by regulators to maintain a Tier 1 leverage ratio of 5% and a total risk-based capital ratio of 10% to be considered well-capitalized.
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