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.
The biggest obstacle to de novo bank formation is raising capital. The FDIC believes that it should take from $15 million to $30 million to start a bank, which far exceeds what was expected prior to the economic downturn of 2008-2009. ICBA recommends phasing in its capital requirements for de novo banks particularly minority banks and those in rural and underserved areas where access to capital is limited. The FDIC must also streamline its application process for de novo banks.
The FDIC approved 12 de novo banks in 2019. During 2020, there was an uptick in de novo bank applications from financial technology banks, but the total number of applications for the year will be well below the average before the 2008 economic downturn. 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. To ease the burden of raising capital, ICBA recommends that the FDIC consider phasing in its capital requirements for de novo banks, particularly for minority banks and banks in rural and underserved areas where access to capital is limited.
At present, the FDIC expects the initial capital of each de novo institution to be sufficient to provide a tier-one-capital-to-assets leverage ratio of not less than 8 percent throughout the first three years of operation. This means that the de novo institution must have capital on day one equal to 8 percent of what it projects its assets will be three years from the opening date. ICBA recommends that the FDIC phase in the capital requirements so that the bank would only be required to have 6 percent capital on day 1, 7 percent at the beginning of the second year, and 8 percent at the beginning of the third year. This would give the community bank some extra time to meet current, strenuous capital requirements.
The De Novo Bank Application Form, and in particular the Business Plan section of the Application Form, needs to be significantly streamlined. Wherever possible, ICBA believes the FDIC should assist the applicant with answering some of the more difficult questions in the Business Plan. More regulatory feedback should be given at pre-filing conferences, and the whole application process should be shortened to no longer than four months. Once an application is approved, the FDIC should exercise greater regulatory flexibility with regard to compliance with the Business Plan.