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It has been more than a year since Monterey Credit Union submitted paperwork to become a state-chartered bank. Have regulators "raised the price of admission" by insisting on healthier metrics from credit unions?
October 14 -
Regulatory approval of Primary Bank in New Hampshire does not make a trend, but observers are hopeful it signals a more promising near future for the chartering of new banks.
March 23 -
With new bank chartering at a standstill, the Federal Deposit Insurance Corp. has issued new guidance on de novo capital requirements and other issues in part to "demystify the application process."
November 24 -
Camden Fine at the Independent Community Bankers of America believes entrepreneurial bankers will return to starting new banks in the latter half of this decade as the industry adjusts to the new business conditions and as consolidation creates voids.
September 5
WASHINGTON — Federal regulators are getting ready for new bank applications to pick up steam after a dearth of de novo institutions during the past six years.
The Federal Deposit Insurance Corp. recently held meetings with state regulators in which agency officials emphasized that they are open to new applicants, responding to criticism that the standards for granting deposit insurance have been too high.
"The FDIC met with all of the commissioners at one of our regularly scheduled meetings and they said they welcome new charters and are ready to quickly process applications," said Richard Riccobono, the banking commissioner for Washington state. "Since then, they have held a training session so that the states and the FDIC are on the same page on what information needs to come in and what it needs to look like to pass muster."
The FDIC held a joint training session with the Conference of State Bank Supervisors in September at the agency's Dallas regional office in order to make sure federal and state regulators were on the same page when it comes to start-ups.
Michael Stevens, senior executive vice president of the CSBS, described it as an opportunity to "dust off our books…it has been a long time since we have done any of these."
Some industry representatives see it as a clear sign that the FDIC is dialing back requirements for de novos in recognition it has tightened them too far.
"They were requiring too much of these applicants and in the process were discouraging them," said Chris Cole, executive vice president of the Independent Community Bankers of America. "I think that they have heard from enough bankers at these [Economic Growth and Regulatory Paperwork Reduction Act] outreach meetings…they are getting the message that they need to loosen up on some of their regulatory requirements."
The number of de novo banks has fallen sharply since the financial crisis. In 2009, regulators approved 25 charters, followed by 13 a year later. Since then, only a handful of charters have been approved — including just one this year to date.
FDIC officials say they are open for business for new applicants, as long as appropriate requirements are met.
"New bank formation helps foster a vibrant community banking sector," said Barbara Hagenbaugh, the FDIC's deputy to the chairman for communications. "We welcome proposals for deposit insurance and staff are available to discuss the application process and possible business plans with potential applicants."
But critics said that in the past, the FDIC has been too exacting, preventing new charters from being granted.
"The FDIC claims it is open for business, but there are still a number of prohibitive guidelines that are out there that make it tough to get a number of de novos done," said Donald Musso, president of FinPro, a community bank advisory firm that worked with Primary Bank, whose de novo application was approved this year. "It has got to be a round peg in a round hole."
Riccobono said that Washington state has seen "a couple of groups come in to discuss new charters."
"We were honest with them and said even if we work with you and give you a charter, you are not going to get deposit insurance," he said. "So it didn't go anywhere."
To be sure, there are other factors that have clearly discouraged new bank start-ups, including the overall compliance burden in the wake of the Dodd-Frank Act's passage in 2010, ongoing fears about interest rates and a poorly performing economy. Some said it's the lack of demand, not FDIC rules, that have resulted in so few de novos.
"I haven't heard of anyone too interested in starting a bank," said Warren Nunn, who runs $852 million-asset Security Bancorp. in Halls, Tenn.
With record low interest rates and a slowly growing economy, Nunn questioned whether entrepreneurs would seek charters even if they believed regulators were more inclined to grant them. Some state regulators agree.
"I don't think that the lack of applications is the fault of any policies of the FDIC," said Michael Mannion, director of the division of banking at the Illinois Department of Financial and Professional Regulation. "Many factors have to be weighed and considered prior to deciding to submit an application."
David Baris, a partner at BuckleySandler LLP who has worked on over thirty de novo bank charters, said interest rates are a factor but "there may be other changes in community banking that are more fundamental," adding that cost of compliance has risen significantly and that banks "need to get to a larger size to cover their overhead."
Richard Magrann-Wells, executive vice president with the financial institutions group at Willis Group said "If you look at the banking industry right now, there is a lot of risk."
Magrann-Wells said that community banks are facing tough competition on a number of fronts, including from big banks, credit unions and nonbank financial technology companies. For those companies that do want to start a bank, it's often cheaper to buy an existing institution.
"The people that have wanted to get in the banking industry have preferred to buy existing banks that are troubled so that has been an easier cheaper way to break into the business," Magrann-Wells said.
Still, some said that could soon change, and that regulatory efforts to make it easier to apply could have a sizable impact.
Tom Dresslar, a spokesman for California's Department of Business Oversight, where the most recent de novo was approved, said "other folks have approached us about applying." Likewise, Jamie C. Mongiovi, director of communications and governmental relations for Florida's Office of Financial Regulations said officials there "continuously hear rumblings of potential de novo activity."
Lauren Kingry, superintendent of the Arizona Department of Financial Institutions said, "We have seen a renewed interest in a few groups wanting to organize and to start a de novo bank.
But the Arizona regulator is being "methodical and deliberate about their steps" because of the state's "modest economic recovery," she said.
Walter Moeling, a banking attorney, said he attended a seminar with FDIC officials in Atlanta.
"One of the deputies raised the de novo question before I got to it in my planned remarks," said Moeling, a senior partner at Bryan Cave. "While he acknowledged that the process would be tougher than in the early 2000's, he also said that given a good application, he thought FDIC would be very interested in processing it… In any event, we came away thinking that the time has come."
