The American Bankers Association is hoping to work with the Federal Deposit Insurance Corp. to make it easier to open a bank.
A task force formed by the association earlier this year just completed a report on the challenges and opportunities for de novos. The group, which featured bankers who had opened banks in recent years, presented its findings to the FDIC last week.
The ABA-backed group spent months discussing the process and brainstorming solutions, said Kenneth Burgess, the association's chairman. Burgess helped launch First National Bank of Midland in 1998.
The biggest obstacle for new banks is the lengthy, and often uncertain, application process, which makes it hard for organizers to line up personnel and capital, the group determined. Another concern is the rigidity of banking rules, especially when it comes making small changes to a business plan. Historically low interest rates have been another deterrent.
“As a trade association and an industry, one of the reasons we like de novo banks is that it brings new energy into the industry,” said Wayne Abernathy, the ABA’s executive vice president of financial institutions policy and regulatory affairs. “It brings new people, new ideas — and just a sense of being part of an industry that’s going somewhere.”
Consolidation has left many markets without local community banks, Burgess said.
"We have to make sure that we don’t lose one of the biggest assets we have — a vibrant community bank industry," Burgess said. "Community banks help fuel entrepreneurship."
To be sure, de novo activity has picked up in the last two years, and organizers have noted that regulators are more open to new charters. Three new banks have opened this year and 15 others have filed applications with the FDIC. In comparison, only two banks opened between 2011 and 2016.
Bankers, regulators and industry groups have come together to support more de novo activity, said Dan Yates, CEO of Endeavor Bank in San Diego, which opened in January, and one of the bankers contacted by the ABA to provide feedback on the application process.
“We all want de novos to be successful,” Yates said. “If you catch issues early and address them early, it’s best for the industry. That’s where the ABA is coming from. It’s all about coming together to help the industry be stronger.”
The FDIC has done its part to encourage a smooth process, said Donald Musso, president and CEO of FinPro, which is working on several de novo efforts. Some state regulators are following outdated rules and laws because many states have not seen new-bank activity in years, he added.
"The FDIC is doing what they said they would," Musso said. "I give the FDIC a lot of credit."
Still, there could be ways to improve the process.
“It’s hard enough to start a new bank," said Peter Gwaltney, president and CEO of the North Carolina Bankers Association and one of the task force's participants. "You don’t need the application process itself to be a hindrance."
North Carolina has garnered a lot of interest from bank organizers; at least five groups are in various stages of forming banks there. Organizers have detailed a "meticulous" paper-intensive process that can include up to 2,000 pages of documentation, Gwaltney said.
“It’s a serious venture, so it requires information and a great amount of detail," he said. "But we're trying to figure out how to streamline it and make it efficient and less burdensome.”
In addition to outlining challenges, the group, which included a dozen bankers, came up with three ingredients that lead to successful de novos: an experienced management team and board, a dynamic business plan and adequate funding.
“It really boils down to three things,” Abernathy said. “If you get those three right, all the rest falls into place. If you have these three things in place, the other obstacles can slow you down, but you can overcome them.”
Abernathy said the FDIC seemed receptive to the input.
“They weren’t going to tell us, ‘OK, that solves everything,’ but I think they were very interested in what we had to say and what we presented,” he said.
While an FDIC spokesman did not address the ABA's findings, he said the agency has a positive view of de novo efforts.
“The entry of new institutions helps to preserve the vitality of community banking sector, fill important gaps in local banking markets and provide credit services to communities that may be overlooked by other financial institutions," the spokesman said. "The FDIC has seen more interest in new bank formation and stands ready to promptly and judiciously evaluate all new applications.”
