DE NOVO COMMUNITY BANK FORMATION
- The FDIC’s current one-size-fits-all policy on establishing de novo institutions is inhibiting qualified individuals and communities across the United States from doing so and contributing to the dearth of new banks in recent years.
- ICBA supports a more 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 and projects forward seven years.
As the number of community banks dwindles and more communities lose their local bank, ICBA is concerned that the FDIC has not approved deposit insurance for a single de novo bank since 2010. This is a dramatic shift from many years of de novo bank formation averaging over 170 per year. Even in the depths of the S&L 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.
The recent economic downturn and challenges specific to community banking, including narrowing margins, asset quality issues, and substantial compliance costs, have all been factors deterring the formation of de novo banks. However, ICBA believes that the FDIC’s policy on de novo banks, which was adopted in 2009, has been too restrictive. The FDIC’s one-size-fits-all policy effectively prohibits qualified individuals and communities across the United States from establishing de novo institutions.
The FDIC standard policy applies to all de novo applicants for deposit insurance, regardless of charter or membership in the Federal Reserve System, and in addition, requires that the applicant raise capital prior to opening that would be sufficient to maintain its leverage ratio at a minimum of 8% for the first three years of operation based on the pro forma financials and the business plan of the applicant. In addition the institution would have to present a business plan in its third year showing how it would maintain capital for years 4-7 of its operation.
Staff Contact: Chris Cole