• Return of the De Novo Bank Charter
  • June 8, 2018 | Author: Robert L. Carothers
  • Law Firm: Jones Walker LLP - Mobile Office
  • For several years after the financial crisis, there was essentially no de novo bank charter activity in the U.S. Based on data from the Federal Deposit Insurance Corporation (FDIC) website, over the five-year period from 2011 through 2015, a total of only three de novo banks opened their doors. This lack of activity was due to a combination of low interest on the part of investors in starting a new bank (primarily due to economic uncertainty and increasing compliance costs and burden) and essentially a moratorium on the part of bank regulators with respect to approving new charters. The exception to this moratorium was the approval of “shelf charters” to allow investor groups to acquire troubled banks from the FDIC.
    Recently it seems that the tide has begun to turn and investor interest has picked up, and the FDIC and chartering agencies have warmed up to the idea of approving de novo charter applications.Within the past year, the FDIC has hosted a number of informational meetings in various regions of the country explaining the deposit insurance applications process. In April 2016, the FDIC issued Supplemental Guidance on Deposit Insurance Applications, and in May 2017, the FDIC issued a Handbook for Organizers of De Novo Banks. These informational meetings and policy issuances were viewed as the FDIC inviting the submission of well-supported de novo applications.
    Since January 1, 2017, a total of seven de novo banks have opened their doors and a number of new applications have been approved or are pending. For example, the FDIC and the Alabama State Banking Department have approved a de novo bank that will be located in Birmingham. A recent American Banker article stated that investor groups have filed de novo applications in 14 states and the District of Columbia since 2016.
    The increase in activity can be attributed to several factors, including an improved economy, new tax legislation, a more friendly regulatory environment, and industry consolidation over the past several years. Industry consolidation has resulted in many areas no longer having a local bank and has also resulted in displaced management teams that want to get back into senior leadership positions. One noticeable difference from pre-crisis applications is the increased level of capital needed to charter a new bank. A cursory review of several regulatory approvals and the opening balance sheet of several recently opened banks indicates that the typical opening capital level is approximately $25 to $30 million. The level of capital needed for any specific application will be dependent on the bank’s market, business plan, and financial projections.

    While there’s no expectation that de novo applications will return to pre-crisis levels, it is expected that more applications will be filed and approved