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House Financial Services Committee Hears Testimony on De Novo FIs
Wednesday, March 22, 2017 6:35 AM

The U.S. Subcommittee on Financial Institutions and Consumer Credit of the House Financial Services Committee held a hearing on Tuesday to examine the application process for de novo financial institutions.

From 2010 to 2016, there were only five new bank and 16 new credit union charters granted. In comparison, between 2000 and 2008, 1,341 new banks and 75 new credit unions were chartered. The committee heard testimony on trends in de novo entry, current regulatory issues that affect the formation of new banks and credit unions, and the impact on consumers and the economy.

Speaking on behalf of credit unions was Keith Stone of the Finest FCU, chartered in 2015 and serving the law enforcement personnel in New York City. Stone described the 18-month process to get chartered by NCUA as lengthy and confusing. He said the NCUA could help the process by establishing time tables for responses, having an advocate at the agency to work with the organization, greater flexibility to meet requirements, and comprehensive regulatory relief, especially from Dodd-Frank.

Speaking on behalf of the American Bankers Association, FirstCapital Bank of Texas Chairman Ken Burgess told the committee about changes to community banks. His bank, chartered in 1998, needed $6 million to start up, but currently start-up costs are now $20-30 million. Since 2010, community banks continue to lend and strive for profitability despite 25,000 pages of proposed and final rules. Burgess cites start-up costs, unreasonable regulations, inflexible rules for business plans, and funding restrictions as the biggest negative influences on community banks, which are key partners in the economic vitality of their communities.

Patrick Kennedy, an attorney representing community and Subchapter S banks, testified about the increasingly higher demands for charter applications and the added costs that significantly impair existing banks’ ability to provide products and services. Those decisions are being driven by bank regulators rather than consumer demand.

Sarah Edelman, director of the Housing Policy Program at the Center for American Progress, cited microeconomics as the reason for the decline in de novo charters, based on research done by the Federal Reserve. She agreed that the regulatory process affected financial institutions but said low interest rates were the primary cause of the decline in de novo applications.

Texans serving on the subcommittee are Rep. Roger Williams (R-Weatherford) and Rep. Al Green (D-Houston).

For more information, please contact Texas Credit Union Association President Jeff Huffman at 469-385-6488 or jhuffman@txcua.coop.