Frustrated by the lack of new banking charters, two banking trade groups are urging the Federal Deposit Insurance Corp. to relax restrictions on startup institutions.

The agency has established unrealistically high requirements for granting de novo applications, the Independent Community Bankers of America and the American Association of Bank Directors argue in a joint letter to FDIC Chairman Martin Gruenberg, dated Monday. These requirements, along with the failure and consolidation of community banks, have constricted the flow of credit to rural and small-town America, the trade groups say.

In the letter, the two groups request that the FDIC review its policy toward startups to determine if they are too restrictive, and argue for a supervisory process that takes into account the projected size and goals of applicants.

“[A] a policy that effectively prevents the formation of de novo banks …raises questions whether that kind of restrictive policy is necessary and whether the public interest is served by making it virtually impossible for de novo community banks to be formed,” the groups write.  

Since 2011, the agency has cleared only one de novo applicant for deposit insurance: the proposed Bank of Bird-in-Hand, which plans to cater to the Amish and Mennonite communities of Pennsylvania Dutch country. By contrast, an average of 172 new charters were approved between 1984 and 2008, according to the trade groups.

The ICBA and AABD blame the lack of new banks on a 2009 FDIC policy change that extends the business-plan requirements from three to seven years and requires applicants to raise enough money to keep a leverage ratio above 8% for the full seven years.

The result, the groups say, is that it can be difficult for applicants to raise the sums needed, particularly for banks in smaller communities where it is hard to attract outside capital. The proposed Bank of Bird-in-Hand, which the FDIC approved last week, raised about $20 million from investors.

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