On May 1, 2017, the FDIC released an update to its guidance on the de novo banking – “Applying for Deposit Insurance – A Handbook for Organizers of De Novo Institutions.” The updated guidance purports to provide organizers with a “clear and transparent explanation of the path to obtaining deposit insurance.” This may be the FDIC’s response to the 2014 joint letter of the American Association of Bank Directors (AABD) and the Independent Community Bankers of America (ICBA) in which the AABD and the ICBA recommended that the FDIC issue a new Financial Institution Letter (FIL) to “to help dispel misconceptions and reaffirm the FDIC’s support for the formation of de novo banks.” These misconceptions relate to the uncertainty in the application process, the second-guessing of business plans for a de novo bank, capital requirements, examination schedules and the degree of regulatory oversight during the first seven years. The FDIC appears to be on a “get-out-the-message” campaign that de novo banking is back and the FDIC is poised to provide guidance on the process.
The banking group at Duane Morris has been involved in de-novo banking for over 40 years. We’ve advised on the de novo process and assisted in the formation of many banks throughout the Western United States and have represented these same banks throughout their life cycle. The recent recession which was sparked by excessive risk-taking by some financial institutions led to a shift in the FDIC’s regulatory philosophy towards more oversight and a period of consolidation. It appears that we are coming out of this period with a possible shift in the regulatory philosophy at the FDIC on de novo banking. To make this point, the FDIC has held industry outreach meetings in San Francisco, New York, Atlanta, and Dallas to inform industry participants about the FDIC’s application process and has planned additional outreach events on May 12, 2017, in Kansas City, Missouri, and May 31, 2017, in Chicago, Illinois.
It appears that we may be entering (finally) the cycle of de novo banks which would add to the health of the community banking industry. Small businesses may finally rejoice in the return of specialized relationship banking.
The FIL/Guidance can be found here: https://www.fdic.gov/news/news/financial/2017/fil17017.pdf