The FDIC is considering regulatory changes to spark more de novos, said Acting Chair Travis Hill last week during the American Bankers Association Washington Summit.
The FDIC is considering adjusting upfront and ongoing capital expectations to make it easier to form new banks, especially traditional, smaller ones in areas of the country that lack local banks.
“To preserve the long-term viability of the community bank model, we need to find ways to encourage more new bank formation, and we are actively considering several ideas to achieve this objective,” Hill said.
Speaking April 8, Hill said the lack of new banks has sparked a nearly 50 percent drop in the overall number of bank charters since 2008, from 8,500 to 4,500. From 1995-2007, the lowest number of new banks established was 93. Since the start of 2010, an average of less than six banks have been formed per year.
The FDIC is also reviewing how it processes deposit insurance applications from organizers of new banks with innovative business models. “While applicants will still need to meet the full suite of regulatory obligations of being a bank, we will, in collaboration with the chartering authorities, approach these types of applications with an open mind,” Hill added.
Congress is also considering easing the de novo process. In January, Rep. Andy Barr (R-Ky.) and Sen. Cindy Hyde-Smith (R-Miss.) proposed a bill to spark the formation of new banks in rural communities. The bill, which has been referred to the Senate Banking Committee, 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.
Asset thresholds/supervision
Hill said the FDIC’s $10 billion asset threshold to differentiate between large and small banks has not been changed since it was set following the 2008 financial crisis.
“After multiple years of inflation well above the Federal Reserve’s 2 percent target, it is worth exploring whether regulatory thresholds should be raised — and potentially indexed — to reflect inflation and/or macroeconomic and industry growth,” Hill added.
Hill said the FDIC is preparing rulemaking to ban FDIC supervisors from criticizing or taking adverse action against banks based on reputational risk; or “requiring, instructing, or encouraging institutions to close, modify or refrain from offering accounts on the basis of political, social, cultural or religious views.
“We are also exploring additional ideas to comprehensively put an end to debanking,” he added.
Digital assets
Hill said the FDIC should take an “open-minded” approach to digital assets. Last month, Hill clarified that banks no longer need to secure FDIC approval for certain crypto-related activities. Covered activities include being crypto-asset custodians; keeping stablecoin reserves; issuing crypto and other digital assets; and participating in blockchain- and distributed ledger-based settlement or payment systems.