FDIC to Slash Probation Time for New Banks

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WASHINGTON -- The Federal Deposit Insurance Corp. plans to reduce the period of heightened regulatory scrutiny to which newly chartered banks are subjected to three years, down from the seven-year period established in the wake of the financial crisis.

“We have seen the number of de novo applications decline to a trickle in receipt years,” Gruenberg said in a speech at an all-day conference on community banking organized by the agency. “In the current environment, and in light of strengthened, forward-looking supervision, it is appropriate to go back to the three-year period.”

Gruenberg reiterated comments he made in an interview with American Banker on Tuesday, in which he said there is plenty of space for new banks.

“There is ample room for new community banks with sound funding and well-conceived business plans to serve their local markets,” Gruenberg said in his speech. “It is essential that they have a clear path to approval.”

Additionally, Gruenberg said the agency had appointed subject matter experts and committees in the agency’s regional offices “to serve as points of contact for deposit insurance applications.”

He added the FDIC is “planning outreach meetings with the banking industry to ensure that they are well informed about the FDIC’s application approval processes and the tools and resources available to assist them.”

Gruenberg said the agency is also developing a handbook to guide applicants through the review process.

There has been a dearth of new banking applications following the financial crisis, with just a handful of de novos chartered since 2011.

Some critics have blamed the FDIC, arguing that its conditions for granting deposit insurance are too stringent. (The FDIC does not act as a chartering authority for new banks — that is done by state regulators or the Office of the Comptroller of the Currency — but must agree to provide deposit insurance.) The FDIC has argued that the problem isn't regulatory requirements, but the lack of interest from outside groups in chartering a bank, given the economy.

"It's been a challenging environment to start new banks," Gruenberg said in the interview on Tuesday.

Gruenberg told reporters after his speech that the 3-year probationary standards for de novo institutions “are reasonable.”

“If a new bank is formed we want to be sure that it has both the financial resources and the managerial capabilities to succeed,” he said. “There’s not much upside in a new institution getting started and not succeeding.”

He advised banks interested in starting a new charter to communicate with the FDIC early on in the process.  “If a group’s interested in starting a new bank, the first place they should start is us,” he said.

To cut initial costs, groups with a de novo bank interest should first “understand the requirements, understand the expectations, establish if I may suggest a working relationship with our staff -- and then assess what resources they need to invest in order to make this happen.”

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