Bank Board Letter — February 2015
Bill Poquette

Does the United States have too many banks? Not enough? It depends on whom you ask, but the conventional wisdom is there won’t be as many in five to 10 years from now. This view is supported by the current rate of attrition, which has seen the number steadily decline from 9,024 as of Sept. 30, 2004, to 6,589 at Sept. 30, 2014. From 2004 through 2008, the nation was losing fewer than 200 banks annually; since then the losses have averaged close to 300 per year.

In “normal” times, this trend would have been offset to some extent by de novo formations. But there has been only one of these consummated since 2010, the Bank of Bird-in-Hand in Pennsylvania, whose market and investors include many Amish. The organizers raised $17 million in start-up capital. The bank opened in December 2013 and now counts assets of $64 million.

Until recently, there effectively has been a moratorium on new charters. The FDIC denies this, but organizers were put off by the agency’s hardened rules to get deposit insurance for a new bank.

At the same time, according to Bob Wray, president/CEO of The Capital Corp. LLC in Overland Park, Kan., with small bank prices relatively low and branching laws being quite liberal, “buying a small bank and branching it is probably the easier path.” His firm is seeing a little more interest in de novo formations, but he describes it as “minimal” still. “I do think there are some interested investors out there,” he says, “but without actual deals it is tough to gauge.”

The Wall Street Journal reported recently on a de novo move in New Hampshire from a group led by Bill Greiner, a real estate investor and restaurant owner in Bedford, who believes his Primary Bank “will fill a void for smaller loans in his region.” The charter application, filed in October, was the first for a new bank in 2014, according to the newspaper.

Ironically, about a month later, the FDIC hinted it might be more amenable to de novo formations. In a Financial Institution Letter dated Nov. 20, the agency announced it was issuing a guidance in the form of questions and answers “to aid applicants in developing proposals for deposit insurance and to provide transparency for the application process.” Topics for the Q&A included pre-filing meetings with regulators; processing timelines; initial capitalization requirements; and initial business plans for the first three years of operation.

Opinions vary about whether more banks are needed. But the benefits of multiple choices are related again and again by community bankers.

The rules and financial requirements are not for the faint of heart, but entry for qualified applicants should be encouraged by the banking industry and its regulators. Consumers and businesses will not be well-served if the financial services industry morphs into ever fewer, ever larger and more impersonal options.