Press Releases

Today, House Committee on Financial Services Subcommittee on Financial Institutions, led by Chairman Andy Barr (KY-06), held a hearing to examine how regulatory complexity, unclear supervisory standards, and inconsistent approval timelines may be limiting new bank formation and contributing to consolidation in the financial sector.

Watch today’s hearing online HERE. 

On encouraging entrepreneurial bank formation:

• "Our financial system should support entrepreneurial bank formation, diversified business models, and localized financial services as a counterbalance to large-scale concentration in the financial system," said Chairman French Hill (AR-02).

• "The truth is this: a banking system with no new entrants and stifled growth isn’t safe – it’s fragile. The last decade has proven that excessive regulation is choking innovation, driving consolidation, and leaving too many communities without access to basic banking services. We need a course correction," said Subcommittee Chairman Andy Barr.

• "De novo banks play an important role in our financial system. They serve as lifelines for small businesses, provide relationship-based lending to rural areas, and ensure that local economies aren't left behind. Yet without meaningful reforms, we risk losing their community-driven lenders that many of my constituents and, myself included, in Texas, we rely on that," said Rep. Roger Williams (TX-26).

On ways to create more competitive banking:

• "Today, we can build on the Trump Administration's push for better and more competitive banking. It starts by creating hard deadlines and application reviews, the return of expedited approval pathways, clear rules, and incentives from new mutual banks and checking your ideology at the door," said Rep. Dan Meuser (PA-09).

On the harm of discouraging bank formation:

• "As I've said before, I am gravely concerned with the decline of community banks across our country and specifically in California. Over the last few hearings on this topic, we have learned that a reduction in banking services can result in decline in small business lending and increased costs that are forced upon the consumers. Unfortunately, the current banking regulatory climate has disincentivized mergers that would preserve banking services and the formation of new banks," said Rep. Young Kim (CA-40).

• "From what I understand, the current regulatory framework, instead of promoting competition, it actually entrenches incumbency and discourages innovation and natural and organic growth. My understanding is it's now prohibitively difficult for new entrants to navigate the process, to raise sufficient capital, and achieve long-term viability," said Rep. Tim Moore (NC-14).

Witnesses echoed their support for the work of the Committee.

Keith Costello, President and CEO, Locality Bank, stated, “Raising capital is one of the hardest things for new businesses, particularly for those who are doing it for the first time. ...I wholeheartedly support the efforts of this Committee to ease the process for forming de novo banks and ensuring a robust, competitive marketplace for banking services. I know from my work with bankers across the Nation that banking services in rural parts of the country are a true concern. ...The process by the federal banking regulators of reviewing bank mergers and acquisitions is overly time-consuming and applies too much scrutiny to community bank mergers that do not pose any legitimate threat to competition. Merger transactions are frequently delayed by months or even years by regulatory reviews, which has the net effect of discouraging or preventing transactions that may have positive effects for consumers.”

Mary Usategui, President and CEO, BankMiami, added, “Raising capital is challenging for all new businesses. When it comes to raising capital as a de novo bank, there are added pressures. ...The bill (H.R. 478) would allow de novo bank formation in areas that need community banks the most by proposing a capital phase-in period; additionally, the bill would help all de novo banks by providing quicker responses and clearer guidelines for de novo banks requesting deviations from their original business plans. ...I support the efforts of the sponsors and this Committee in passing H.R. 478. The bill would provide more regulatory, capital and lending flexibility to facilitate de novo bank creation, encourage investment in these banks and promote their viability. ...Today, there are 4,487 banks in the United States, nearly 50 percent fewer than the 8,833 banks that operated in 2005. Of the banks active today, only 85 were established after 2010. I am proud to be one of those 85, but there should be more of us.”

Amanda Allexson, Partner, Simpson Thacher & Barlett LLP, added, “As we all know, the number of de novo bank formations has decreased to a trickle since the Great Financial Crisis. There are a number of reasons why we are not seeing healthy de novo formation activity. Based on an underlying assumption that de novo banks present an increased risk of failure, the regulatory expectations for de novos have increased dramatically across the board to the point where applicants must somehow proactively establish that the proposal presents little to no risk. In addition, exceedingly long time periods for receiving regulatory approval turn off potential new entrants or force alternative structures to avoid costly extended review, such as acquiring a small existing bank. ... Maintaining a vibrant banking system that is constantly changing comes with risks and hard choices. Risk is inherent to the business of banking. Although reasonable people may disagree about where to strike the right balance, it is not practical or healthy for Congress or the federal banking agencies to attempt to reduce that risk to zero, either through the supervisory or applications processes. Not all transactions will work out as anticipated and not all banks will be successful. However, there are systems and agencies in place to minimize these risks and step in if they cannot be managed. New entrants and bank combinations bring new energy and capital into the banking system.”

John Berlau, Senior Fellow and Director of Finance Policy, Competitive Enterprise Institute, added, “In every business sector, new entrants are essential to the functioning of a competitive, free-market economy. ...That is why legislative efforts such as Chairman Barr’s Promoting New Bank Formation Act (HR 478), which passed this committee recently with bipartisan support, are so needed. The Chairman’s bill would move federal banking agencies toward a system of phased-in capital that would allow de novo banks to build capital as they gain customers, rather than having to meet a nearly impossible burden for massive amounts of capital upfront. The bill would also give the banking agencies a time limit to approve an application for a new bank or specify where the application falls short and what applicants can do to meet the banking agencies’ standards of approval. ...Of course, in finance, or any business sector, there always will be risks when a new business forms. However, unduly restricting the emergence of de novo banks poses its own risks to both the vitality and the long-term solvency of the financial system. A lack of new entrants in the banking sector increases the chances a large bank failure could severely curtail the supply of credit and availability of financial services.”