Don't Blame Regulators for Dearth of New Banks

By Bonner, Joseph C. | American Banker, December 21, 2015 | Go to article overview

Don't Blame Regulators for Dearth of New Banks


Bonner, Joseph C., American Banker


Byline: Joseph C. Bonner

Standing up de novo institutions to replace community bank charters absorbed by mergers and acquisitions has been a well-documented pattern over several decades. But like many other industry traditions once thought unassailable, this one has drowned in the period following the financial crisis and it won't be coming back.

There have been nearly as many community bank charters lost to M&A in the past year as the annual average lost to failure during the financial crisis. With a stabilized economy, healthy housing market and ongoing distrust of the largest banks, why aren't the shrinking ranks of community banks being replenished by de novos? Contrary to popular -- and perhaps political -- belief, the answer is not the unwillingness of regulators to consider de novo applications.

Regulators have in fact sounded open to wanting more de novo bids. The Federal Deposit Insurance Corp. released guidance last year on the de novo application process that was seen as perhaps opening the door. At the time, a senior official at the FDIC said the agency was "looking forward to getting more ... applications." Meanwhile, in an interview this past October with the ABA Banking Journal, Comptroller of the Currency Thomas Curry said "more de novo activity would be a signal of strength for the economy and for communities."

But new de novo activity has remained at a trickle. The reason why is simple economics, not regulators being stubborn. Many community banks continue to be strained by an evolving expense structure that is increasingly difficult to support with traditional products, services and delivery channels. Specific cost contributors and their respective degree of impact may still be open for intelligent debate, but the results are clearly visible in the stream of adequately capitalized community banks now being sold or merged. …

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