In an afternoon hearing on March 21 entitled “Ending the De Novo Drought: Examining the Application Process for De Novo Financial Institutions,” Members of the House Financial Services Financial Institutions and Consumer Credit Subcommittee met to examine the impact that the Dodd-Frank Act has had on the creation of new or “de novo” financial institutions. According to a majority staff memorandum released in advance of the hearing, the number of new, or “de novo,” bank and credit union charters has declined to historic lows since the passage of the Dodd-Frank Act. From 2010 to 2016, there were only five new bank and 16 new credit union charters granted. In comparison, between 2000 and 2008, 1,341 new banks and 75 new credit unions were chartered.
Three of the witnesses – each of whom appeared on behalf of a banking industry group – generally agreed that the Dodd-Frank Act has, to some extent, had a “chilling impact” on the creation of new banks:
- Kenneth L. Burgess, speaking on behalf of the American Bankers Association noted, among other things, that “in the five years since Dodd-Frank was enacted, the pace of lending was half of what it was several years before the financial crisis. Some banks have stopped offering certain products altogether, such as mortgage and other consumer loans.”
- Keith Stone, representing the National Association of Federally-Insured Credit Unions, noted that “[t]he compliance requirements in a post-Dodd-Frank environment have grown to a tipping point where it is nearly impossible for many smaller institutions to survive, much less start from scratch.”
- Patrick J. Kennedy, Jr., appearing on behalf of the Subchapter S Bank Association, noted that “[m]any banks exited the mortgage loan business because of the complexity and uncertainty resulting from Dodd Frank, the CFPB and related rulemaking.”
The fourth witness, Sarah Edelman, offered an alternative explanation for the decline in new bank applications to the FDIC. Ms. Edelman—who is currently the director of housing finance at the Center for American Progress—testified as to her belief that the “decline” in “[t]he number of new bank applications to the FDIC . . . is largely the result of macroeconomic factors, including, historically low interest rates reducing the profitability of new banks, as well as investors being able to purchase failing banks at a discount following the financial crisis.”
In December of last year, the FDIC released a handbook entitled Applying for Deposit Insurance – A Handbook for Organizers of De Novo Institutions, which provides an overview of the business considerations and statutory requirements that de novo organizers face as they work to establish a new depository institution and offers guidance for navigating the phases of establishing an insured institution. Rather than establish new policy or offer guidance, the Handbook instead “seeks to address the informational needs of organizers, as well as feedback from organizers and other interested parties during recent industry outreach events.” Comments were due February 20. Additional resources are available through an FDIC website dedicated to applications for deposit insurance.