FDIC seeks industry help in effort to revive de novo banks

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WASHINGTON — The Federal Deposit Insurance Corp. Thursday began seeking public comment on how it should oversee applicants for deposit insurance as part of a significant effort to revive startup banks.

The request for information on the FDIC’s application process was among a series of actions the agency announced aimed at streamlining how organizers seek a de novo bank charter. The FDIC has long been criticized for approving just a handful of applications since the financial crisis, while thousands of existing banks have merged or been shuttered.

“Over the past decade, de novo activity has screeched to a historic halt. As FDIC chairman, one of my key priorities is to encourage new bank formation,” FDIC Chairman Jelena McWilliams said in an American Banker op-ed posted Thursday. “The FDIC needs to do its part to make that happen.”

Only 11 de novo banks have opened since the end of 2009 and most of those were in the past 18 months.

“To put this in perspective, prior to the financial crisis, the only time since the FDIC was established in 1933 that fewer than 20 new, insured banks opened in a single year was 1942, in the midst of World War II,” McWilliams wrote.

The FDIC is seeking input on how it can modify the application process for both traditional bank owners and fintech firms, as well as the potential risks for those new firms trying to enter the banking system. The FDIC will be accepting comments for 60 days after the request is published in the Federal Register.

In addition to public comment letters, McWilliams said the FDIC will engage in roundtable discussions across the country to seek feedback.

The agency also announced a process for interested banking groups to request a review of their proposal to form a bank before actually filing an application. In the past, interested groups would often receive preliminary feedback from the regulators at the outset but critics said it was informal and lacked transparency, which created confusion about the process.

“The FDIC will review draft proposals to identify potential issues, provide preliminary feedback, and work with organizers on their submissions before submitting a formal application,” the agency said in the financial institution letter establishing a new review process.

The FDIC also republished time frames for the agency to process applications, partly in response to past criticism that some applications were sitting for a year or more. The agency also updated its handbook and manual for groups applying for deposit insurance, and set up a new mailbox for groups to ask questions to FDIC de novo specialists.

“A pipeline of new banks is critical to the long-term health of the industry and communities across the country. The application process should not be overly burdensome and should not deter prospective banks from applying,” McWilliams said in a statement announcing the initiatives. “The FDIC wants to see more de novo banks, and we are hard at work to make this a reality.”

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