Rep. Andy Barr (R-Ky.) and Sen. Cindy Hyde-Smith (R-Miss.) recently proposed a bill to spark the formation of new banks in rural communities.
Introduced Jan. 16, the bill would establish a three-year phase-in period for de novo banks to comply with federal capital requirements and provide relief for new banks in rural communities. De novo banks would be able to request a deviation from their business plans during their first three years in business. If federal banking regulators don’t approve or deny the request within 30 days, the request would be automatically approved. During the three-year period, rural community banks would have capital relief to keep an 8 percent leverage ratio.
The bill requires federal banking agencies to study the main causes for the low number of de novo banks over the past decade and promote the forming of new banks in areas currently underserved by financial institutions.
Federal banking agencies would be required to study the main causes for the low number of de novos over the previous 10 years and promote forming new banks in areas currently underserved by financial institutions. Barr and Hyde-Smith said the legislation responds to the substantial drop in newly-chartered banks following the enactment of the Dodd-Frank Act 15 years ago. More than 180 new bank charters were issued in 2007, but that number fell to an annual average of less than six from 2010-23.
Barr and Hyde-Smith’s bill, The Promoting New Bank Formation Act, is the latest of several related to de novo banks authored by Barr since 2021. Last year, Barr’s bill advanced out of the House Financial Services Committee, where he chairs the financial institutions subcommittee.
Barr and Hyde-Smith say the bill would ease federal regulatory requirements that have limited the availability of banks and capital. “The availability of local capital and basic banking services is necessary to sustain and grow economic vitality, more so in rural communities,” said Hyde-Smith. “This legislation creates a pathway to chartering new banks for rural areas that continue to lose community banking options.”
“I believe it is necessary because regulations intended to police big banking institutions are killing small-town banking, which makes it harder to live and thrive in rural America,” she added.
Both the American Bankers Association and Independent Community Bankers of America support the bill. ICBA President and CEO Rebeca Romero Rainey said it will “make other needed changes to ensure continued access to financial services for consumers and small businesses in local communities nationwide.”