- Key insight: Mounting frustration at California-chartered banks over higher assessment fees and the potential for heavier regulatory burdens may lead to more charter switches.
- What's at stake: Fewer banks to absorb the state's regulation costs would put California's Department of Financial Protection and Innovation in a position where it would need to figure out if it can keep raising assessments against a smaller base of institutions.
- Expert quote: "There's a growing chorus of discontent." — Brean Capital analyst Tim Coffey
For most of its history, Citizens Business Bank in Southern California has been chartered in its home state. But last year, it sought — and received — a federal charter from the Office of the Comptroller of the Currency, citing a desire to reduce the burden of having multiple regulators.
It's a move that other California-licensed banks may also make, some observers predict, amid two critical concerns: mounting frustration with the rising cost of the state's assessment fees and expectations of aggressive oversight by state regulators.
The latter concern stems from last month's announcement that Rohit Chopra, the former director of the Consumer Financial Protection Bureau during the Biden administration, will
The hiring of Chopra, who will become secretary of the newly created Business and Consumer Services Agency on July 1, was "the last straw" for some of California's 90 state-chartered banks, according to Tim Coffey, an analyst at Brean Capital. Chopra was widely disliked by the banking industry for
The combination of higher assessment fees, which climbed after the 2023 failures of two state-chartered banks,
"There's a growing chorus of discontent" at state-chartered banks, Coffey told American Banker. "No one I know has filed paperwork, but it's a live issue, and boards are actively looking at it."
American Banker reached out to several California state-chartered banks to gauge their interest in switching to a national charter. Some did not respond, while the others declined to comment.
It won't be a surprise if certain banks decide to make the jump, according to David Brager, CEO of Citizens Business Bank and its holding company, CVB Financial, in Ontario, California. While the cost of OCC annual assessment fees used to be much higher than the yearly fees charged by the state's Department of Financial Protection and Innovation, the increases in California in recent years have made the price differences between the two regulators "negligible" at some banks, including Citizens Business Bank, he said.
"There are [other bankers] reaching out to me, asking 'How did it go?' and 'What was the process?'" Brager told American Banker. "So I do think there is a possibility of more."
Rising costs, fewer payers
The number of California state-chartered banks has fallen in recent years, largely as a result of acquisitions, but also due to charter conversions and failures. As of Dec. 31, 2020, there were 108 such banks, according to the DFPI's website. As of late 2025, the count was down to 90.
Since 2019, three formerly state-licensed banks have converted to national charters, Coffey said in a research report. In addition to Citizens Business Bank, whose conversion was finalized in December, Pacific Premier Bank in Irvine, California, converted to an OCC charter in 2024.
Pacific Premier was
The two state-chartered banks that failed in 2023 — Silicon Valley Bank and First Republic — were the two largest California-regulated banks at the time, and therefore the largest assessment payers into the DFPI, according to Coffey's analysis. In addition to banks, the DFPI oversees credit unions, payday lenders, debt collectors, student loan servicers and escrow agents.
At the same time, the DFPI's budget and the number of DFPI employees has increased, according to Coffey's report, which cited data from the California Legislative Analyst's Office. Since 2020, the department's budget has increased just under 80%, while the number of DFPI employees has increased from about 650 to roughly 878 in 2025, according to Coffey's analysis.
Assessment fees from banks make up a large portion of the department's budget. In part to make up for the loss of Silicon Valley Bank and First Republic, DFPI's "rates did change recently," the DFPI said Wednesday in an email. The department did not specify the rate increase in 2023-2024, but according to its website, the 2025-2026 assessment rate was $2.08 per $1,000 of assets, the same as in 2024-2025.
At the OCC, regulators have reduced annual assessments. Last fall, the agency said it would lower rates for the Sept. 30, 2025, semiannual assessment, citing heightened efficiency. In a press release about the change, Comptroller Jonathan Gould said the OCC "is passing cost savings on to our regulated institutions so they may better support a thriving U.S. economy."
The rate change reduced general assessment fees by 30% for banks with up to $40 billion of assets and 22% for those with more than $40 billion of assets. In December, the OCC said it would maintain those rates for 2026.
Brager declined to provide specifics about the cost difference that Citizens Business Bank, which has about $20 billion of assets following its most recent acquisition, has realized in switching charters. The bank
"It is such a small cost differential, especially when you look at it per share," Brager said. "It is not material at all."
Citizens Business Bank had been considering a charter conversion for a few years, mainly to streamline the bank's regulatory burden, Brager said. As a state-chartered bank, Citizens was also regulated by the Federal Deposit Insurance Corp., which required multiple exams per year.
He said the switch wasn't a factor in getting the Heritage deal across the finish line. The acquisition was announced shortly after the OCC conversion was completed.
The DFPI website provides a calculator to determine estimated assessment fees. Coffey used the tool to determine the fee differences for dozens of California-chartered banks, under a scenario where they switched to an OCC charter. The hypothetical results range from a 70% increase in fees for East West Bancorp, one of the largest state-chartered banks in the Golden State, to double-digit decreases at several of the smallest banks on the list.
State-chartered banks in California have on average about $2.5 billion of assets, Coffey said.
"The cost of switching is pretty much neutral to [earnings per share] for now, and that should be a red flag for California regulators," he said.
American Banker sought comment from Chopra, whose public relations staff redirected the request to California Gov. Gavin Newsom's office. Newsom's office did not respond prior to publication.
'A palpable contrast'
The DFPI "looks forward to Secretary Chopra joining BCSA when he officially assumes his position later this summer," the department said in Wednesday's email.
"We continue to value our relationship with state charter banks and the services they offer to California," it added.
But a number of factors are contributing to the growing tension between banks and the DFPI, according to the California Bankers Association. In addition to rising costs for state-regulated banks, state and federal regulations are diverging in terms of requirements, Kevin Gould, the lobbying group's president and CEO, said in an email.
"There is a palpable contrast between the legislative and regulatory philosophy at the state and federal level," Kevin Gould said. "While there is a recognition of legislative and regulatory overreaction federally following the Great Recession, California continues to advance new laws placing state-chartered banks at a disadvantage."
Those laws include recent legislation that expands DFPI's power to take enforcement actions against unfair, deceptive or abusive acts or practices, according to a spokesperson for the California Bankers Association. Another example is
Kevin Gould said that "public policy that appears politically motivated is punitive and deflating to community banks who have always been deeply committed to serving their customers and communities." He said the lobbying group has "encouraged the DFPI to underscore its value proposition to its licensees," as some may be debating the benefits of converting charters.
"Hypothetically, if more banks convert their charter, the DFPI will need to decide whether they increase assessments against a presumably smaller base to maintain their current operations," Kevin Gould said. "After significant increases a few years ago, further increases are not good for state-chartered banks, not good for the DFPI if it results in fewer licensees, and ultimately not good for California consumers and communities who depend on locally chartered institutions."
Coffey believes that — excluding East West and Banc of California, the other large state-chartered institution whose assessment would rise substantially if it switched to a federal charter — "everybody else is fair game."
East West and Banc of California did not respond to a request for comment.
With Chopra leading the agency that will oversee the DFPI, some banks are taking the view that the state "looks at the industry as an enemy," Coffey said.
"If there are additional regulations for state-chartered banks, there will be additional costs [for them] that [non-state-chartered] competitors don't have to bear," he said.
