Washington Update – New Banks as Bellwethers

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By Naomi Camper, ABA Chief Policy Officer

When I joined ABA as chief policy officer in June, a task force of bankers with experience launching and running new banks were mid-way through their analysis of why “de novo” activity had stalled in recent years.

Their mission—as established by Ken Burgess, ABA’s chair and die-hard de novo advocate—was to identify both challenges and solutions, in hopes of re-starting bank start-ups. As new as I was to ABA, I had no doubt why this was a critically important endeavor.

Just as banks are central to the economic vitality of the communities they serve, new bank charters signify the economic vitality of the both the industry as well as our economy as a whole. New banks signal optimism, opportunity and growth potential.

The opposite—no new entrants—means less competition and fewer choices, which ultimately translates to less economic activity and growth, on which all banks depend for success. It may seem counter-intuitive, but existing banks are actually better off when we see a healthy pipeline of banks in formation—just as homeowners benefit when others are eager to buy into their neighborhood.

I first came to appreciate the importance of a dynamic banking industry—populated with banks old and new, large and small—when I worked for former Sen. Tim Johnson (D-S.D.) as staff director of the Senate Banking Subcommittee on Financial Institutions. The South Dakota bankers who visited the office made sure I knew it, and my later experience working for JPMorgan Chase only confirmed it.

That was in the early 2000s, when more than 100 new banks were chartered every year. Post-crisis, that number plummeted to fewer than two per year—and was yet another indicator that our economy and our industry had not yet fully recovered. The pace has started to pick up recently, along with the economy, but it’s still anemic. And that’s why Burgess convened the ABA De Novo Task Force, a banker-led effort to identify the essentials for de novo success and major impediments to increased de novo activity. Many banks on the task force were started just before the financial crisis. Their resilience and success through the crisis and its aftermath reminds us that new banks can succeed in any environment.

The task force agreed that successful de novo formation starts with selecting an experienced board and bank management team. De novos are poised for success when they combine their experience with a strong business plan and the capital necessary to support that plan. Unfortunately, the current requirements for new bank formation prove to be more complicated.

We recently presented our findings and proposed solutions to the FDIC, and the timing couldn’t be better.
Not only is there new leadership at the agency willing to look into what may be impeding de novo activity, but the economy’s robust growth presents the opportunity to ensure bank entrepreneurs—and the customers and communities they wish to serve—benefit from the rising tide.

If we can help change the course of de novo activity and facilitate new growth in the industry, we’ll be shaping a vibrant future for banking.


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