In an April 6 speech before the FDIC Community Banking Conference, Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg discussed the FDIC’s interest in promoting the creation of new community banks. His speech was followed today by the FDIC’s posting of additional supplementary questions and answers on new deposit insurance applications.

Noting that the number of new applications for federal deposit insurance had declined “to a trickle in recent years,” Gruenberg said yesterday that the FDIC “welcomes” applications for deposit insurance. He described recent and ongoing FDIC efforts to facilitate the application process for deposit insurance, including

  1.  the publication in the fall of 2014 of Questions and Answers on the application process,
  2.  a fall 2015 FDIC training conference on new deposit insurance applications,
  3.  the designation of subject matter experts in the FDIC regional offices as application points of contact,
  4.  the announcement of a reduction from seven to three years as the period of heightened supervisory monitoring for new banks, and
  5.  the expected publication of a new handbook to guide applicants through the deposit insurance application review process.

The new supplementary guidance published today primarily discusses the content of required business plans, including a listing of recurring weaknesses in the business plans that the FDIC has reviewed in the past, the handling of material changes or deviations in business plans, and a reminder that new deposit insurance applicants should consult the FDIC’s Business Plan Guidelines in the Interagency Charter and Federal Deposit Insurance Application.

Key Takeaways

At one level, Chairman Gruenberg’s remarks are a welcome sign that the FDIC may more actively consider and approve responsible new deposit insurance applications, and the new supplemental guidance does provide helpful information on application business plan issues. That said, the dearth in new deposit insurance approvals in recent years has, to some extent, become a self-fulfilling prophecy in that a perceived FDIC reluctance to approve new deposit insurance applications has helped suppress industry interest in establishing new banks. Chairman Gruenberg is correct, in part, in attributing the decline in deposit insurance applications to post-financial crisis economic conditions. At the same time, experience has shown us that persons wanting to organize a new insured depository institution have been discouraged by the FDIC’s failure to approve more than a small handful of new deposit insurance applications in the past few years (none so far in 2016, two in 2015, none in 2014, three in 2011, and two in 2010, according to the FDIC’s website).

While we state the obvious in saying that the best way for the FDIC to encourage the formation of new banks is to approve more deposit insurance applications, the point here is that it is actions—not words—that will speak the loudest on this subject.