For years, new banks opened across the country at a steady pace, with between 100 and 200 de novo charters coming online each year. Today, that number has been reduced to 10 or 20, if that. New banks have long kept the community banking industry competitive and given consumers more choice. Absent new bank formation, there is reduced credit availability within a more concentrated banking system.
The sharp decline in de novo bank formation is of particular concern to community banks, because most de novo banks start as community banks. Local organizers build them to serve local customers, and they grow on relationships. When fewer of these banks open, communities lose options and access. The shift traces back to the rules put in place after the 2008 financial crisis, when the Dodd-Frank Act changed the rules for starting and running a bank.
That’s when the economics of starting a bank changed. It used to take single-digit millions to get a de novo off the ground. Raising $7 million to $9 million was enough to get approved and open the doors. Today, that starting point is closer to $25 million or $30 million, and regulators often want more. That kind of upfront capital makes the math harder, especially when a new bank isn’t expected to turn a profit for three to five years. In addition, regulators have heightened the supervisory expectations for de novo banks in ways that do not correspond to the level of risk and that are not appropriate for institutions just starting out.
That higher barrier has thinned the field. Fewer groups are willing to commit that level of capital and wait that long for a return, which often doesn’t come until the bank is sold or goes public. As a result, most new bank activity tends to cluster in larger markets where growth can support those numbers. Smaller communities lose the chance to build new banks that fund local businesses and serve local borrowers.
The Impact of Bank Mergers on Local Communities
Each year, the number of bank charters declines as banks merge and the industry consolidates. According to law firm Reed Smith, more than 150 bank mergers and acquisitions were announced in 2025 alone. The industry has gone from more than 14,000 banks at its peak to around 4,000 today. That means fewer choices for customers, many of whom suddenly find themselves working with a larger entity after dealing with a community bank for years or even decades.
Many of these deals also lead to branch consolidation or closures as the combined institution looks for scale. These realities affect smaller and rural communities the most. Fewer branches mean less access to services and fewer local relationships. Without new banks to replace those that disappear, the community banking sector keeps shrinking. Over time, that raises a bigger question about what’s left if the number of charters keeps falling year after year.
This trend won’t magically reverse itself. A healthy pipeline of new charters keeps our industry competitive, supports local lending and ensures communities of all sizes have access to relationship-based banking. Regulators need to recognize the role new community banks play and create a path that makes formation possible again. Put simply, if we want a strong and diverse banking system, we can’t allow new bank formation to stall out.
Successful De Novo Banks and Mutual Banks in Action
Even with the regulatory headwinds, there are some bright spots. Locality Bank in Fort Lauderdale, Florida, is one example. Cofounder Keith Costello and his team raised the capital, worked through the approvals and opened a bank focused on local businesses. Locality Bank combines relationship banking with digital tools, but at its core, it does what community banks have always done. It lends to and supports businesses in its market.
Walden Mutual Bank in Concord, New Hampshire, took a different route. It’s a mutual bank, owned by its customers instead of shareholders, and the first of its kind to be formed in decades. To get there, organizers created a new capital structure and raised about $24 million from more than 200 community investors. This community-owned bank lends to local farms and food businesses and keeps that capital close to home.
ICBA Community Bank Advocacy and Legislative Efforts
Here at ICBA, we’re working on this issue on several fronts. We’ve presented the challenges of de novo bank formation to Capitol Hill, including in a hearing before the House Financial Services Committee, and we’re supporting legislation aimed at easing some of the capital requirements tied to new charters. We’ve also met with FDIC leadership, including chairman Travis Hill, to raise our concerns directly with regulatory agencies. Regulators want to limit failures, and higher capital requirements are one way to do that. The trade-off is that fewer new banks get started.
By their very nature, new entrants are usually small community banks, so the potential losses from a failure are limited. At the same time, de novo banks stoke competition and bring fresh ideas into the market. That benefits customers and communities and drives industry-wide improvements.
ICBA members that want to get involved can support the legislation and stay in touch with their representatives to keep this issue in front of policymakers.
Many new community banks also come from experienced bankers who decide to start something new, often after a merger. That pipeline matters, and we need more of it.