On Oct. 27, I proudly signed and presented the first full-service de novo national bank charter since the financial crisis to Winter Park National Bank of Florida. The bank is also the first new bank in Florida to receive federal deposit insurance since the crisis. The charter symbolizes improvement and optimism in our nation’s banking system and broader economy.
Since 1863, the Office of the Comptroller of the Currency has granted charters to national banks to operate across the country under a single, uniform regulatory framework, subject to a single primary prudential supervisor. For more than 150 years since, the label of “national bank” has helped bestow confidence in individual institutions and the system as a whole because that label is accompanied by value-added supervision and access to the very best experts in regulation, risk management, compliance, legal and economics available.
But, communities, regulators and industry members have complained about the dearth of new banks for years. Even though I am encouraged that we are seeing increasing interest in developing new banks and that de novo activity appears to be thawing slowly as the economy warms, there are still far too few new banks. Low interest rates and slow growth are part of the reason behind the low numbers of new banks, but another contributor is the process for becoming a new bank itself. The processes of chartering a new bank and applying for federal deposit insurance are more onerous, lengthy and costly than they need to be. Making the process more efficient can only accelerate the recent positive trend and create more economic opportunity for consumers, businesses and communities across the nation.
Currently, people who want to start a bank have to navigate two bureaucracies — their state or federal chartering authority and the insurance application process of the Federal Deposit Insurance Corp. Applicants typically file with both agencies on the same day and both agencies receive identical information. Since 1997, the OCC has rendered preliminary approval on 68 national bank charters, taking an average of 137 days per application. The OCC will rule favorably if the application is complete and well thought out, the proposed management and board are sound (and background checks come back clean), and the field investigation of the proposed bank goes well. The OCC will deny an application if it finds any issue, such as a weak business plan, inadequate capital or liquidity, or concerns with company officers.
Despite the prudential regulator often taking the lead during the evaluation, the FDIC took an additional 89 days on average to make a decision on these applications. During the same period, there were two cases in which the FDIC took a minimum of four additional years, and two examples when the FDIC provided a decision before the OCC. There were also at least 14 additional cases where the FDIC made no decision at all on applications the OCC approved. Fourteen is more than twice the number of deposit insurance approvals granted in the past year. In addition, FDIC approvals often come with conditions that overlap with requirements imposed by prudential supervisors, creating unnecessary regulatory inefficiency and complexity for the new institution. While both agencies have worked to make the process more efficient over the years, we can still do better.
In my testimony before the Senate Committee on Banking, Housing, and Urban Development in June, I suggested changing the process to rely on the due diligence, examination and judgment of the prudential regulator during its decision making process both to grant a bank charter and grant deposit insurance, unless the FDIC objects, with reason, within a given time frame.
This approach would reduce the paperwork burden for applicants and create a clearer timeline for a final decision. Eliminating ambiguity would help de novo banks project startup costs and timing, which is critical for companies raising capital and kicking off a new business. At the same time, the suggestion preserves the FDIC’s veto power if it has reason to differ substantively with the judgment of the primary regulator. In essence, my suggestion is a middle road for those who see prudential regulators as too liberal with approvals and the federal insurer as too slow and conservative. It also prevents situations where applications linger indefinitely by providing a final decision subject to judicial review under the Administrative Procedure Act.
Few things in the economic life of a community are as important as a bank. A bank promotes lending, finances housing, supports jobs and anchors the community’s financial well-being. For all of these reasons, chartering new banks should be as efficient and transparent as possible. Today, it is neither. We have an opportunity to streamline the government’s chartering process and make it easier for entrepreneurs with the means, capital and business acumen to establish a bank, while ensuring the same level of safety and soundness in our banking system that we have now.
Advocating for a process that works more efficiently for everyone is not about turf. It is about good government, making things more efficient and getting out of the way of economic opportunity.