36 JANUARY / FEBRUARY 2019 DIRECTORS / SENIOR MANAGEMENT Charter a New Bank Now is the time Greyson E. Tuck Attorney and Consultant Gerrish Smith Tuck PC gtuck@gerrish.com The banking industry is in need of new community banks. Since the beginning of 2010, the number of banking charters has been reduced by nearly 2,500 through acquisition, failure or charter consolidation within a common parent organization. Historically, periods of consolidation have been followed by periods of de novo applications and resulting de novo banks. Unfortunately, this has not been the case post-recession. Since the beginning of 2010, there have been only 11 new banks opened, which is approximately onetenth of the average number of new banks formed per year in the five years leading up to the recession. The industry needs new community banks, and now is the time. Recent Activity and FDIC Efforts Although there has been a severe lack of de novo banks of late, this number is expected to increase. There were approximately 20 applications for new banks filed in 2018, nine of which have been approved but not yet opened. This is more applications than the previous seven years’ applications combined. Our firm believes this activity will continue in the coming years – largely because of the vacuum that has been created by industry consolidation, but also spurred along by recent efforts of the Federal Deposit Insurance Corp., most notably the Handbook for Organizers of De Novo Institutions. With this document, the FDIC made clear what the process is for organization. That process is more detailed and cumbersome than it was 10 years ago, but at least now everyone knows the rules of the game, and what is required in order to charter a new organization. How to Capitalize on the Times In our firm’s opinion, the current environment is the perfect time to form a new bank. First, FDIC staff has had some time to familiarize itself with the process and guidance. Second, capital has become much more available for bank startups than was the case eight years ago. Third, the industry as a whole is healthier than it was. Finally, the general industry expectation is that smaller community banks will continue to benefit from regulatory relief in the form of new legislation and revised regulations. How, then, should individuals and groups interested in forming a new bank proceed? For starters, the FDIC’s Handbook for Organizers of De Novo Institutions and staff guidance are required reading. Beyond that, there are a few key issues to keep in mind regarding the de novo process. Have the right people involved. The FDIC Handbook focuses a significant amount on assembling the right leadership team for the new bank and indicates that the FDIC will consider the background and experience of the team members. One of the soft-spoken issues in this regard is that if your team has an individual who was previously part of a failed bank or had some serious financial issues (such as bankruptcy), you could have problems from the start. The regulators are hesitant to let such individuals become affiliated with a new bank – or any bank, for that matter. We have seen many transactions hit a wall because such an individual was involved in a regulatory application, not just a new bank formation. Considering the large number of individuals who experienced financial troubles as a result of the recession, you need to be aware of
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