March 29, 2019

Let’s Make a Bank!: Developments in De Novo Bank, Industrial Loan Company and Fintech Charters

De novo bank and other depository institution formation reached historically low levels in the period following the 2007-09 financial crisis. In 2007, the Federal Deposit Insurance Corporation (“FDIC”) approved 191 applications for deposit insurance. By 2009, that number had fallen to eleven approvals and declined even further in the following years (2010 - ten approvals; 2011 - three approvals; 2012 - zero approvals; 2013 - two approvals; 2014 - zero approvals; 2015 - three approvals; 2016 - two approvals).

However, in recent years, the formation of de novo depository institutions has begun to rebound with eight FDIC approvals of deposit insurance applications in 2017 and 15 such approvals in 2018. In addition to the raw numbers of approvals for deposit insurance, several recent regulatory developments have brightened the outlook for new financial institutions. On January 23, 2018, FDIC Chairperson Jelena McWilliams indicated in her Senate confirmation testimony that she intended to begin processing industrial loan company (“ILC”) applications for deposit insurance in good faith once she was sworn in; on July 31, 2018, the Office of the Comptroller of the Currency (“OCC”) began accepting applications from nondepository financial technology companies for limited purpose national bank charters; and on December 6, 2018, the FDIC published new guidance on organizing de novo institutions and applying for deposit insurance. Each of these developments standing alone would be positive developments for the financial institution startup market, but together they indicate that the regulatory environment is quickly becoming more favorable to financial institution startups.

As noted above, the market for de novo banks and other insured depository institutions collapsed after the 2007-09 financial crisis. In response to the increase in deposit insurance applications in recent years, the FDIC has revised its handbook for de novo organizers as well as its deposit insurance applications manual. While the revisions to both documents do not establish any new policies or guidance, they do provide organizers and the public greater transparency and clarity related to the FDIC’s review and approval of applications for deposit insurance. Additionally, the same day it revised its handbook and manual related to deposit insurance applications, the FDIC also issued a Financial Institutions Letter announcing that it had established a process for organizers to officially request FDIC staff review of a draft deposit insurance application. Taken together, these developments demonstrate the FDIC’s renewed commitment to making deposit insurance applications more accessible and efficient.

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