WASHINGTON – The Federal Deposit Insurance Corp. is receiving a rising number of new inquiries from organizations seeking to obtain a bank charter, the agency said in a report Monday.
"There may be tentative signs of an uptick in interest in forming de novos, even though interest rates remain at historically low levels," the FDIC said in the latest issue of its Supervisory Insights. "Over the past several quarters, the FDIC has seen indications of increased interest from prospective organizing groups in filing applications for new insured depository institutions."
In April the agency announced a return to the three-year heightened supervisory period imposed on de novo institutions. The term during which new institutions face higher capital maintenance requirements and more frequent bank examinations was raised to seven years in August 2009, in response to the vulnerabilities new banks faced during the crisis.
Out of more than 1,000 new banks formed between 2000 and 2008, only 634 were still operating in September 2015, the FDIC said. And the failure rates of banks created in that pre-crisis period was more than twice as high as the failure rate of previously established small banks.
To entice more new institutions to apply, the FDIC is also preparing a practical guide on applying for de novos, and has designated experts on the topic in each of its regional offices.
But the FDIC stressed that the dearth of de novo applications is largely due to low interest rates, citing a Federal Reserve report that made the case that the rate of de novo applications is closely correlated to the rise and fall of the interest rate. "If this model is accurate, one would expect the rate of new charters to rise as interest rates normalize," the FDIC said.
Industry groups have argued that new entrants have also been discouraged by post-crisis regulatory burdens. "Federal regulators made a down payment on easing entry barriers when the FDIC in April reduced the period of heightened supervisory monitoring of new banks," Camden Fine, the president and CEO of the Independent Community Bankers of America, wrote in a recent opinion piece for American Banker. "However, the agencies can more thoroughly refocus the regulatory system" by reviewing "unnecessary or unduly burdensome rules," he said.