De novo applications are up, but the tide isn't turning back

• Key insight: Technological and structural changes mean chartering is unlikely to return to pre-crisis levels.
• Supporting data: From 2010 through 2024, fewer than seven de novo banks were chartered annually on average, compared with 185 per year from 1960 through 2006.
• Expert quote: "Although economic and regulatory policy changes may be able to increase the number of de novo banks, they are unlikely to be sufficient to return this number to its pre-recession level." — Research from the Federal Reserve Bank of Kansas City.

After years of decline in the number of new banks approved by regulators, startup banks — often called de novos — are ticking up under President Trump's second administration. 

The number of new charters, however, is not the ultimate measure of the health of the banking system and despite the very real increased regulatory burden, higher regulatory standards alone can't explain why traditional de novo formation has fallen so sharply. 

A May study from Federal Reserve Bank of Kansas City researchers Steve Jones, Forest Myers and Jim Wilkinson found that technological changes appear to have been the primary driver of the recent decline in new bank formation and that even sharp deregulatory measures won't produce a rebound to pre-crisis levels. 

"Technological changes appear to have primarily driven the recent decline in de novo bank formation," the researchers wrote. "Although economic and regulatory policy changes may be able to increase the number of de novo banks, they are unlikely to be sufficient to return this number to its pre-recession level."

The decline in new bank formation is pronounced. The Kansas City Fed paper found that from 2010 through 2024, less than seven de novo banks were chartered per year on average, representing the lowest rate in half a century. In comparison, an average of 185 de novo charters were granted annually from 1960 through 2006. New bank formations over that period tracked the business cycle, with sharp successive peaks and declines. But while the 2008 financial crisis hastened the decline in new bank formation, the trend had been going downward well before then.

"Since 1983 … the number of de novo banks has rebounded to successively smaller peaks, suggesting new bank charters had begun to wane long before the current charter decline began in 2009," the research said. 

Five de novo banks were approved in 2025, and another seven have been granted so far this year, putting 2026 on pace to have the most new entrants since 2023, when eight new firms were approved, according to Federal Deposit Insurance Corp. data. The revival has been encouraged by federal regulators, who have argued that past regulation in the wake of the financial crisis stifled new bank formation.

"De novo chartering helps ensure that the banking system continues to keep pace with the evolution of finance and supports our modern economy," Comptroller of the Currency Jonathan Gould said in a December 2025 speech. "This increase signals healthy competition, a commitment to innovation, and should be encouraging to all of us. Further, it is a return to the norm for the OCC and consistent with prior experience and practice."

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In June, the Federal Financial Institutions Examination Council, which includes the leaders of the federal banking agencies, pointed to the post-crisis environment, high startup costs and regulatory sluggishness as factors slowing new bank applications, even as the overall banking system has continued to grow in asset size. 

"Since the financial crisis of 2008, the number of de novo formations has stagnated, which contributes to the declining number of depository institutions," the FFIEC said. "Further, based on industry feedback, the FFIEC member entities understand that unnecessary delays, costs, or unpredictability in application processes may discourage potential organizers from seeking to form new depository institutions."

Consumer Bankers Association Senior Vice President and Regulatory Counsel Michael Emancipator said the cumulative post-crisis regulatory burden has "undoubtedly led" to bank consolidation.

"Banking agencies have required so much capital for de novo applicants that the value proposition is now far less alluring," Emancipator said. "More than $25 million in upfront capital makes the math harder, especially when a new bank generally won't turn a profit for three to five years."

The Conference of State Bank Supervisors pointed to their own research showing that small banks face a disproportionate compliance burden, with community banks spending 11% to 15.5% of total payroll on compliance tasks between 2015 and 2024, compared with 6% to 10% at larger institutions. But the group said the decline in de novo formation has complex, multifaceted causes.

Nathan Ross, CSBS's Vice President of Policy, said that the raw number of new banks isn't a "magic number," but that "since the 2008 crisis, exits have far outpaced new entrants," in part due to these high startup costs.

"A sign of any healthy industry — banking included — is a steady flow of new entrants and planned exits," Ross said. "In the context of banking, that illustrates that investment capital views owning and operating a bank as a profitable endeavor."

But the number of new charters is not necessarily a standalone measure of the health of the banking system. Jason Chorlins, an accountant and Principal at accounting firm Kaufman Rossin, says a healthy banking system is one where well-capitalized, well-governed institutions can reasonably apply to satisfy unmet consumer demand, but notes the number of de novo banks is not necessarily the most important statistic. 

"The number of de novo banks is a useful signal, but it is not a standalone measure of banking-system health," Chorlins said. "The better metric is whether entry is producing viable institutions that expand meaningful banking options, serve identifiable customer needs, and can withstand an economic downturn."

The Kansas City researchers study also found that, while regulatory burden and opening capital requirements do have statistically significant effects on de novo formation, overhead costs for community banks actually fell in the wake of the 2008 crisis. 

"Contrary to the prevailing narrative regarding regulatory pressure … noninterest expense relative to assets for community banks fell after the Great Recession," they wrote. "Subsequently, overhead increased but remained below historic levels."

The researchers acknowledged that changing regulatory policy for startup banks could help spark some new de novo formation. However, their model showed that even significant reductions in regulatory burden — which they measured in their research by the number of Federal Register pages published by banking agencies over the relevant period — and a substantial reduction in initial capital requirements would not produce a full rebound in chartering levels. 

"Based on our model, a one standard deviation reduction in both opening capital and Federal Register pages results in only about five to six more de novo banks opening each year," they wrote. "While relaxing policies, such as capital requirements, may help in encouraging de novo formation, the benefits should be weighed against costs of the increased failure risk early in the de novo lifecycle."

At the same time, technology has opened new ways into financial services for consumers and businesses alike. The current wave of applicants look different from a startup community bank in the popular imagination, notes ICBA's Emancipator. 

"The current wave of de novo bank applicants is overwhelmingly coming from nonbanks, which are typically narrow-purpose trust or payments charters rather than full-service community banks, and that is not ideal for consumer choice and system health," Emancipator said. "If the goal is more local, full-service community lenders serving small businesses and underserved markets, the applicant mix so far skews toward fintech and crypto infrastructure and not as many community banks."

Kip A. Weissman, a Partner at law firm Luse Gorman, says that the trend of new banks being more involved in fintech and/or crypto ventures, rather than traditional community lenders, could have an impact on consumer credit availability. Community banks can offer consumers more personalized services and are more likely to lend through the business cycle than fintechs, he said. 

"Fintechs have a long history of expanding services during the good times but not being available to customers when financial services are most needed — the tough times," Weissman said. "This has not been the history for depositary institutions, including de novos."