Panel urges regulators to revive 'de novo' community bank charters
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Summary
Speakers at the Federal Reserve Board panel urged regulators to lower capital and compliance barriers for newly chartered community banks, propose tailored regulation, and hold coordinated outreach to encourage formation of new community banks.
David Schroeder, speaking for the Community Bankers Association of Illinois, focused on the obstacles to forming new (de novo) community banks and urged regulators to take steps to make chartering viable again.
Schroeder said the post–financial crisis environment "choked off" new charters in part because obtaining deposit insurance became difficult and recommended three changes: revisit capital requirements to allow a reasonable minimum with a ramp-up period; reduce the up-front cost of specialized talent and compliance by tailoring requirements to size and complexity; and foster a positive, collaborative regulatory attitude toward organizers of new banks including coordinated outreach sessions with state regulators.
"In the regulators' initial meetings with the organizers, measurable results should be dozens of newly chartered community banks being formed each year," Schroeder said, characterizing that goal as reasonable and necessary to support community banks and their customers.
Other panelists agreed that lowering the practical cost of technology and enabling consortia or resource-sharing among community banks would reduce the capital "burn rate" for startups, making de novo formation more feasible. The panel did not record any formal commitment from agencies but closed with an offer from industry participants to work with regulators on outreach and practical pilots to test the ideas.
