Starting a New Bank

December 5, 2016

Authored by: Jonathan Hightower

piggybankOn November 29, 2016, the FDIC, as part of its Community Banking Initiative, held an outreach meeting in Atlanta.  While the FDIC has indicated that it will publish a handbook regarding applications for deposit insurance in the coming weeks (which we’ll also summarize), we thought it made sense to provide a few highlights from that meeting:

Mechanics.  The mechanics of the chartering process are the same as before.

Business Plans.  As expected, there will be greater scrutiny on business plans, making sure that banks stick to their business plans post-opening, and (not expressly stated but as translated by me) ensuring that the results of the bank’s business plan do not deviate greatly from the original projections (i.e., providing for limited ability to take advantage of natural growth in the new bank’s markets or lines of business during the first three years of operations if not reflected in projections).  Approvals to deviate from one’s business plan will not be granted under most circumstances.

Capital.  Just in time capital will not be allowed.  Your initial capital levels must support your operations through the first three years, providing for a leverage ratio of at least 8% throughout.

Executive Management Team.  The management review is going to be very strenuous.  Ideally, organizing groups should have a person who has successfully served in each proposed role, preferably within the proposed bank’s market area.  If the candidate has been involved as an executive officer or director in a failed or troubled bank, it’s a problem.  Such a candidate will need to show a lack of personal responsibility, which is hard to do unless he or she only acted as a caretaker, joining the bank near the end only to help with the soft landing.

Representatives of the OCC also attended the meeting, and we expect a number of these same principles will apply to those applying for the new fintech charter.