The FDIC chose an odd way to announce a purported “thaw” in its long-denied freeze on de novo banks: Q&As. Released late last month, the brief document supplements a 1998 FDIC Policy Statement regarding applications for deposit insurance. It was generated by a request by a couple of bank trade organizations for clarification on several points, including pre-filing meetings, application processing time, initial capitalization, and an initial business plans. The trade groups were concerned that the policy of the FDIC announced in 2009 in FIL-50-2009, which, among other things, extended the requirements for higher capital requirements and business plans from three years to seven years, was no longer justified given improved economic conditions and was “choking off” the creation of new financial institutions.
Without explicitly rescinding (or even mentioning) FIL-50-2009, the Q&As provides that the periods for higher capitalization and business plans is now three years. That’s encouraging. The answers concerning pre-filing meetings and usual and customary processing times for applications are not new, but it is always good to have a reaffirmation of what is to be expected by the FDIC so that potential applicants can plan with some certainty.
The fact remains that since the onset of the crisis, only one new insurance application has been approved, and that one was for a bank with a fairly uncommon targeted customer base. If there is, indeed, now a willingness to consider new deposit insurance applications for de novo banks in good faith, there may, actually, be a few more filed.
As some observers in the trade press have mentioned, the increased regulatory burden and the less-than-fully-recovered economy present challenges to any new bank business plan. It’s harder to make money without size, and size takes capital and growth, both of which present challenges, from a business and regulatory perspective. In addition, the de novo capital raising, organization, and regulatory approval process is time-consuming and expensive. If the promises that seem to made in the latest Q&As are not true, then what previous organization groups discovered will also be true in the future: you can burn through a lot of money on consultants and other out-of-pocket expenses and find after twelve-to-eighteen months that you’ve managed to bottle nothing but air.
I don’t expect that the Q&As will lead to a gold rush in de novo bank applications. However, I do expect that a few more venturesome groups that previously wanted to fly the de novo route will at least travel to the airport to see which way the windsock is blowing.