De Novo Community Bank Formation

Position

  • ICBA supports a flexible and tailored supervisory policy with regard to de novo banking applicants. Capital standards, exam schedules, and other supervisory requirements should be based on the pro forma risk profile and business plan of the applicant and not on a standard policy that applies to all de novo bank applicants.
  • ICBA commends the Federal Deposit Insurance Corporation (FDIC) for guidance clarifying the capital and business plan requirements for de novo bank applicants and continuing to hold outreach meetings during 2017.
  • The FDIC must streamline its application process for de novo banks.
  • ICBA believes that only the FDIC should approve deposit insurance applications. That authority should not rest with the chartering authority or the de novo bank’s primary regulator.

Background

As the number of community banks dwindles and more communities lose local banks, ICBA is concerned that the FDIC has approved only nine applicants for deposit insurance in the past four years. This is a dramatic shift from many years of de novo bank formation averaging over 170 per year. Even in the depths of the savings and loan crisis in the 1980s, when 1,800 banks and savings institutions failed, an average of 196 de novo banks and savings institutions were formed annually from 1984 through 1992. 

ICBA supports a flexible and tailored supervisory policy with regard to de novo banking applicants that is based on the pro forma risk profile and business plan of the applicant. There should be no arbitrary requirement for “upfront” capitalization, rather, it should be based on the risk profile of the applicant. ICBA won a victory when, in response to our advocacy, the FDIC changed its de novo bank policy and stated that applicants do not need to provide upfront capitalization sufficient to maintain a Tier 1 leverage capital ratio of at least 8 percent for the first seven years of operation. Instead, the initial capital raised by a proposed institution can be a Tier 1 leverage capital ratio of 8 percent through the first three years of operation. Also, the business plan submitted with the application can cover the first three years of operation, not the first seven years.  However, the FDIC must do more to streamline the de novo bank application process.

Only the FDIC should have the authority to ultimately approve a deposit insurance application. This authority should not be given to either the chartering authority or the primary regulator of the de novo bank. The FDIC can best evaluate the risks to the Deposit Insurance Fund from the approval a de novo bank application.

Staff Contact: Chris Cole