On July 14, 2016, Chairman of the US FDIC Martin J. Gruenberg testified before the Committee on Oversight and Government Reform of the US House of Representatives regarding de novo banks and industrial loan companies. During his testimony, he provided an overview of recent banking industry performance and condition, discussed trends in de novo bank and ILC formation, and steps the FDIC is taking to support the creation of de novo banks. Chairman Gruenberg testified that there have been few de novo banks formed in recent years, noting that since January 2011, the FDIC has received only ten applications for deposit insurance for de novo institutions and no applications for new ILCs. Of these ten applications, three were approved, five were withdrawn and two are still in process. Gruenberg noted that although community bank earnings have recovered in recent years, low interest rates and narrow net interest margins have kept bank profitability ratios (return on assets and return on equity) well below pre-crisis levels, making it relatively unattractive to start new banks. Gruenberg also noted that the FDIC is continuing to monitor developments with respect to the formation of new banking institutions, and recently announced a number of initiatives to support the efforts of viable organizing groups in creating new institutions. For example, the FDIC has begun a “Questions and Answers” series to help applicants better develop their proposals and has presented an overview of the deposit insurance application process to a conference of state bank supervisory agencies. Moreover, on April 6, 2016, the FDIC reduced the period of enhanced supervisory monitoring of newly insured depository institutions from seven years to three years.

Chairman Gruenberg’s testimony is available at: https://www.fdic.gov/news/news/speeches/spjul1316.html