FDIC Plots Ways to Address De Novo Drought

WASHINGTON — Concerned about the dearth of de novos chartered in the past few years, the Federal Deposit Insurance Corp. is planning to update its requirements and launch an outreach effort in an attempt to address the problem, the agency's chairman said Tuesday.

In an interview with American Banker, Martin Gruenberg said low interest rates and poor market demand have dried up de novo applications, but said the agency would like to see more new banks.

"There's room in the market for more community banks," Gruenberg said. "The FDIC has a role to play."

The FDIC will work with industry players including banking associations, state commissioners and "any group that's out there interested in starting a new community bank. We're going to make every effort to work with, and provide assistance to deal with the application process," Gruenberg said.

There has been a dearth of new banking applications following the financial crisis, with just a handful of de novos chartered since 2011.

Some critics have blamed the FDIC, arguing that its conditions for granting deposit insurance are too stringent. (The FDIC does not act as a chartering authority for new banks — that is done by state regulators or the Office of the Comptroller of the Currency — but must agree to provide deposit insurance.) The FDIC has argued that the problem isn't regulatory requirements, but the lack of interest from outside groups in chartering a bank, given the economy.

"It's been a challenging environment to start new banks," Gruenberg said.

The agency will announce its new push Wednesday during an all-day event designed to bring together community bankers and regulators on ways to help small institutions.

The event is meant to highlight that community banks have "really proven resilient and adaptable" to the economic crisis and business model limitations they face, Gruenberg said.

The event will explore four areas of potential challenges to the industry: the community bank business model, supervision and regulation, information technology and the ownership structure of community banks.

Some observers question the ability of small banks to stay competitive in an arena where big banks and fintech firms continue to gain prominence.

But Gruenberg said it's early to call fintech firms an immediate threat to banks.

"It remains to be seen — both the viability of the technology in terms of serving borrowers, and how adaptable that technology may well be for the community banks themselves," he said.

Tools like algorithmic lending and the funding sources of fintech companies have yet to prove they can hold up during a full business cycle, he added.

Gruenberg also indicated that regulators are keeping community banks in mind in crafting regulatory relief recommendations, as required by the Economic Growth and Regulatory Paperwork Reduction Act.

That includes re-examining the complexity of capital requirements.

Regulators are "looking hard at ways to reduce and simplify risk-based capital compliance for community banks," Gruenberg said.

The FDIC chief also stressed that the agency provides banks with technical support for accounting. As for banks trying to work through the Financial Accounting Standards Board's new current expected credit loss standards, he said, "We're going to be very focused on trying to implement that in a way that will allow the banks to comply."

The FDIC's last community banking conference was held in 2012.

"This is now four years later, we've really gone beyond the crisis," Gruenberg said.

The agency has since made efforts to refine the definition of community banking beyond a typical asset-sized categorization. It views community banks as "institutions characterized by careful relationship lending funded by stable core deposits, focused on a local geographic community that the bank understands well," Gruenberg said.

The all-day conference Wednesday will be followed by an FDIC Advisory Committee on Community Banking meeting on Thursday.