Issues that are related to regulation have kept investors from using their capital to launch new banks over the last half-dozen years.
Since the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was enacted, 1,917 banks have disappeared.
But while 24 percent of banks have gone away since enactment of the law, there have been only six de novo banks that were created.
That is according to testimony Tuesday before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit from the chairman-elect of the American Bankers Association, Kenneth L. Burgess Jr.
According to Burgess, who is also chairman of FirstCapital Bank of Texas, new banks help fill gaps in the provision of banking services, increase competition and strengthen the community banking sector.
But although the Federal Deposit Insurance Corp. last year announced
supervisory changes to help prospective de novos, underlying barriers to entry have kept new charters at bay.
Among the barriers are capital hurdles, unreasonable regulatory expectations on directors and an inflexible regulatory infrastructure. Funding constraints are also holding back growth.
“Investors have options,” Burgess’ prepared testimony said. “If the impediments to starting a new bank are too great, they will invest elsewhere. It’s time to think differently to encourage new banks by requiring less capital, reducing regulatory burden, permitting greater flexibility in business plans and lifting funding restrictions.”
He added that
regulatory challenges banks face every day are the same as those that make starting a new bank next to impossible.
Burgess said a dramatic consolidation in the banking sector has been driven by the same forces
as those holding up new bank charters: “excessive and complex regulations that are not tailored to the risks of specific institutions.”
