Why it matters
Could new bank applications and de novo bank openings be in the future? To encourage new applications, the Federal Deposit Insurance Corporation (FDIC) has met with state regulators to express interest in new applicants and conducted training sessions in preparation for incoming applications. The agency has faced criticism that standards for granting deposit insurance have been too high, resulting in few de novo institutions over the last few years. While 25 charters were approved by regulators in 2009, the number dropped to 13 in 2010 with near nil over the ensuing years—and just one so far in 2015. A spokesperson for the FDIC said new applicants are encouraged and "we welcome proposals for deposit insurance." Many would take the odds against either a significant uptick in applications or many new banks opening anytime soon.
Detailed discussion
Over the last few years, new bank applications have all but dried up. In 2009, 25 charters were approved by federal regulators. But the following year, the number dropped to just 13 with few applications at all in recent years. So far in 2015, just one de novo application has been approved.
But the Federal Deposit Insurance Corporation (FDIC) is looking to change that trend, meeting with state regulators, conducting trainings, and encouraging applications for de novo institutions. The regulator conducted a joint training session with the Conference of State Bank Supervisors earlier this year, for example, and has expressed interest in new charters during meetings with state banking commissioners.
Critics have charged the FDIC with keeping deposit insurance standards too high—with high initial capitalization requirements and, until recently, restrictions on growth for a seven-year de novo period—resulting in fewer applications. Others note the financial climate has not been exactly conducive to bank start-ups over the last few years as the economy struggled to recover; Dodd-Frank added to banks' regulatory compliance burden and the intensity of examinations for anti-money laundering and, more recently, consumer lending compliance increased. The challenge of raising capital in a low-earnings environment and finding qualified directors and the next generation of approvable bank executives further complicated the de novo application and approval process. The changing technology (mobile phone apps) and demographics (millennials) of banking make the viability of the three-year business plan required for FDIC insurance applications almost suspect upon arrival. The evolving competition of nontraditional entities—such as nonbank financial technology companies and peer-to-peer lenders—entering the market may also be impacting the rate of applications for traditional de novo bank charters, which must also be submitted to state regulators for state banks or the Office of the Comptroller of the Currency for national banks in parallel with the FDIC application for insurance. Unique business plans with a higher risk profile or foreign investment and ownership often exacerbate the review and approval process.
Is the time right for new charters? The FDIC meetings and trainings seem to be part of a concentrated effort on the part of the FDIC to encourage new applications. "New bank formation helps foster a vibrant community banking sector," Barbara Hagenbaugh, the deputy to the chairman of communications for the FDIC, told American Banker. "We welcome proposals for deposit insurance and staff are available to discuss the application process and possible business plans with potential applicants." Time will tell.
