Bank start-ups slowed to a trickle last year, and, if recent history (see graphic below) is a guide, it could be a while before they pick up again.

Thirty-eight charters were established in 2009 (including six that are no longer active), fewer than in more than 60 years. Start-ups nearly came to a standstill in the fourth quarter. Among the four charters established then that remain active, two were created by the Federal Deposit Insurance Corp. in connection with bank failures, and one is a trust subsidiary of Brown Brothers Harriman & Co.

The reasons for the freeze are obvious: the most severe banking crisis since the Great Depression, ample opportunities for investors elsewhere in an industry with enormous capital needs and tighter regulatory controls.

Start-up activity did not rebound after the last two slumps until well after the economy did. New charters fell 35%, to 95, in 2002, the first full year after the decade's first recession.

New charters dropped after the 1990-91 recession through 1993, when 67 were granted, and remained in a trough in 1994, when there were 68. The industry was still coping with the tail end of the savings and loan crisis at the time. Failures were heavily concentrated from 1987 to 1991, but there were still 50 bank closures in 1993.

The lag between a resumption of economic growth and start-up activity undoubtedly reflects the time it takes to organize a bank, in addition to calculations about whether the environment is favorable for a new enterprise.

The FDIC also substantially raised the bar for entrepreneurs last summer, extending the period during which new institutions are subject to stiffer capital requirements and closer supervision to seven years, from three.

The agency said that new banks had been overrepresented in the recent surge of failures. Rapid growth and unseasoned loans that concealed a potential for deterioration during a downturn were among the problems common to new banks that got in trouble, it said.

The perception that the FDIC would prefer to focus on immediate challenges and steer new capital into existing banks is widespread in the industry, though the agency has denied it.

Start-ups have also tracked closely with mergers. In part, favorable economic conditions have driven both kinds of activity, but economists have also found that merger activity itself helps propel start-ups. The displacement of executives resulting from consolidation could play a role.


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