ICBA Policy Resolution: 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 its recent initiatives concerning de novo banking. These include the agency’s Request for Information on the Deposit Insurance Application Process and convening a roundtable discussion with relevant trade associations. The FDIC plans to hold six additional outreach meetings around the country.
  • 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

The FDIC has approved 14 de novo banks during 2018, the largest number since the financial crisis of 2008/2009. However, this is still not close to the average number of de novo banks approved annually by the FDIC before that time. 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. Capitalization 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 so that that applicants now must provide upfront capitalization sufficient to maintain a Tier 1 leverage capital ratio of at least eight percent for the first three years of operation, rather than the first seven years, as had previously been required. Also, the business plan submitted with the application may cover the first three years of operation, rather than 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

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