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GOP lawmakers criticize FDIC for over-regulating de novo bank process

GOP lawmakers criticized the FDIC's de novo bank applicationprocess at a hearing July 13 and accused the agency of preventing new banks fromforming by over-regulating the process.

"The FDIC doesn't appear to want consumers to have any newbanks," said Rep. Jason Chaffetz, R-Utah, at a House Oversight and GovernmentReform Committee hearing. "The decline in applications for new banks is unsettling."

FDIC Chairman Martin Gruenberg told the committee that agencyis taking steps to make the process easier, including reducing the monitoring period of de novos from seven years to threeyears.

The regulator encourages de novos but a low interest rate environmentappears to be a leading factor in the decline of applicants, Gruenberg said. TheFDIC has seen increased interest in the last few quarters, he added.

"As the economy continues to grow and interest rates rise,we anticipate an interest in new charters will increase," he said.

Matthew Browning, COO at Snap Finance, said while he thoughtGruenberg's statements were genuine, the agency is still in crisis mode. He toldthe committee that he tried to start a bank, Sterne Agee Bank & Trust, but withdrewthe application after 18 months due to increased demands from the FDIC that thebank could not meet. Instead of marking an application as complete, the agency "asksendless open-ended questions and makes vague suggestions on the changes of a perspectivebank's plan," he said.

Simon Johnson, a professor of global economics and managementat the MIT Sloan School of Management, said established banks will have to pay ahigher premium if there are more de novos, as they present more of a risk than establishedbanks. If Congress is concerned about the lack of affordability and banking in lowincome areas, then they should look at big banks and "the unresolved questionsaround too big to fail," he said.