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FDIC signals it is 'open for business' with revamped de novo process

The Federal Deposit Insurance Corp. recently said it will review applications from would-be bank founders prior to submission, in a bid to encourage new bank formation after a long period of postcrisis drought. Industry observers say the move formalizes a policy already in place for de novo applicants.

On Dec. 6, the FDIC announced it would give de novo banks the option of requesting feedback from the agency before submitting an application. This will allow the agency and the applicant to work out any issues ahead of time, potentially saving time and difficulty with the application process. In a statement about the decision, FDIC Chair Jelena McWilliams called new banks "critical to the long-term health of the industry and communities across the country."

"The application process should not be overly burdensome and should not deter prospective banks from applying. The FDIC wants to see more de novo banks, and we are hard at work to make this a reality,” McWilliams said.

The FDIC was already open to providing early feedback to applicants in some instances.

In the past, banks were expected to submit near-complete applications, but the FDIC has "usually been very receptive to pre-filing meetings," said Todd Eveson, an attorney at Wyrick Robbins with a focus on banking law.

William Greiner knows firsthand how helpful it can be to get pre-application feedback from the FDIC. Greiner is chairman of Bedford, N.H.-based Primary Bank, one of only two banks that filed a de novo application in 2014. He said the bank met with the FDIC about a year and a half prior to submitting its application.

"[We] just had a general discussion with the FDIC," he said. "They were very encouraging."

Primary worked with a consulting firm that also spoke with the FDIC. "I don't think they actually shared our application with the FDIC before we submitted it, but there was some back-channel discussion," Greiner said.

Greiner said the FDIC turned around Primary's application faster than expected because they were one of the first banks to apply for FDIC insurance postcrisis.

"The regulators absolutely wanted to see de novo activity. I believe that to be the case today," Greiner said. The FDIC wants to show that it is "open for business" and that the application process is "not going to be convoluted and arduous," he added.

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De novo applications have been slowly picking back up after a sharp decline in the years following the financial crisis. From 2009 through 2012, no one filed an application. But there have been 21 applications filed so far in 2018 — more than the past five years combined.

Eveson said previewing de novo applications may speed up the process, but he doubts it will materially change the number of applications submitted. "I think it's very unlikely we ever see the volume of de novo applications that there were in 2004, 2005, 2006," he said.

After such a long period of de novo drought, those considering forming a community bank may not know what to expect with the application process.

"It's definitely another signal that the FDIC is receptive to these sorts of applications, and is interested in being collaborative and available to help people, [to] prepare them," Eveson said.