FDIC Relents on Highly Restrictive De Novo Requirements

The FDIC announced today that it is [finally] concerned about the dearth of de novo charters and is planning to revise its deposit insurance application process. FDIC Chairman Martin Gruenberg made this announcement at the FDIC Community Banking Conference and indicated their new initiatives would include an application handbook, regional points of contact for applicants, and outreach meetings with the banking industry.

The FDIC also rescinded its FIL 50-2009, Enhanced Supervisory Procedures for Newly Insured FDIC-Supervised Depository Institutions which among other measures extends the ‘de novo’ period from 3 to 7 years for examinations, capital maintenance and other requirements. CBAI welcomes this long overdue change in attitude and policy and encourages the FDIC to swiftly move forward to implement the new de novo initiatives and approve deposit insurance applications for qualified applicants.

CBAI vigorously disagrees with the FDIC’s inhibiting de novo community bank formation during the financial crisis as potential investors were directed to existing ‘problem’ banks versus new opportunities. Even in the depths of the S&L crisis (1984-1992), when 1,800 banks and savings institutions failed, an average of 196 de novos were formed annually. The FDIC approved only a handful of de novo bank charters since 2010, compared to an average of 170 new charters a year during the previous two decades.

In October of 2015, CBAI’s Vice President Federal Governmental Relations, David Schroeder, attended the Chicago’s Economic Growth and Recovery Paperwork Reduction Act (EGRRA) outreach meeting which was attended by senior banking regulators including FDIC Chairman Gruenberg. During the public comment period Schroeder stated the need for de novo bank formation to maintain a strong, growing, evolving and vibrant banking profession. CBAI fully understands the importance of prudently approving de novo charter applications but it is completely inappropriate for regulators to be practically demanding that de novo banks be failure-proof, particularly while they permit mega banks to take huge risks that are backstopped by American taxpayers. Read FDIC Press Release.

April 6, 2016