Startup banks are close to coming off the endangered species list.
Eight groups have filed applications in recent months with the Federal Deposit Insurance Corp. to open new banks, spurred by an improving economy and an expected deregulatory push by Republicans in Washington. That is the most in a year since regulators clamped down on bank startups following the financial crisis, though it pales in comparison to the hundreds of applications that regulators routinely received annually in the pre crisis period.
There were roughly 5,100 commercial banks by the third quarter of last year, compared with more than 9,700 in early 1996, according to data from the Federal Reserve Bank of St. Louis. Community bankers say the decline in the number of banks has led to fewer lending options for startups and small businesses without going online or to a megabank, holding back job growth.
The industry has historically identified community banks as those with assets of $1 billion or less. Community banks held 43% of small loans to businesses nationwide, according to third-quarter figures from the FDIC, the latest available.
The eight startup bank applicants in 2016 compare with a high of 299 applications in 2005, when the FDIC approved 237 new banks. An FDIC bank application is key because the agency approves the deposit insurance for startup banks. In the fourth quarter of last year, it approved two new banks: Blue Gate Bank in Costa Mesa, Calif. and International Bank of Commerce, which was connected to an existing branch acquisition in Oklahoma City.
Those two approvals were the most since 2008, according to the FDIC. Before 2016, the FDIC approved three applications in a seven-year span.
Source: The Wall Street Journal, February 9, 2017, by Rachel Witkowski.
