The Federal Deposit Insurance Corporation (FDIC) yesterday issued a dramatic change in its standards for approval of applications for deposit insurance—marking the first meaningful change in years in the opportunity to obtain regulatory approval to establish de novo institutions.
In August 2009, the FDIC had adopted "enhanced" supervisory procedures for newly created banks, imposing increased scrutiny and approval requirements for the first seven years of operations. Seven years of close scrutiny can prove to be challenging for a small, new bank: rigorous capital requirements, a 12-month exam cycle, submitting updated financial statements and business plans, supervisory permission required for all new products and services or changes in the strategic plan, and repeatedly generating pro forma financial statements.
Thereafter, the FDIC repeatedly insisted that it was willing to consider well-founded applications for new charters, but only six new charters were approved from 2011 to 2015, and several of those appeared to be supervisory cases.
Yesterday, the Chairman of the FDIC announced that it was rescinding that policy and reverting to the historic practice of closely scrutinizing only the first three years of de novo operations. The FDIC also issued new guidance, including clarified expectations for the content and use of business plans that are required in connection with such applications.
We've been in the business of obtaining new depository charters for years, but have seen enormous hurdles in recent years. It is striking that this announcement comes only days after the OCC issued its white paper encouraging innovation, perhaps another sign of the environment returning to regulatory "normal." Whether the change is meaningful will only be shown by events, of course, but the announced change in policy may be a remarkable development.
Links on the FDIC website to the FDIC Chairman's speech, the new FDIC guidance, and the rescinded enhanced procedures are below: