Oversight of the FDIC Application Process

TAKEAWAYS:

• A lack of transparency exists in the Federal Deposit Insurance Corporation’s (FDIC) application process for deposit insurance.

o   This discretionary process is plagued with unwritten rules and sliding standards, making it next to impossible for an application to be approved.
o   The FDIC has only approved three new (de novo) bank applications since 2011.

• As a result, the U.S. has the lowest number of banks since 1934 when federal regulators first began tracking such data.

o   Without an adequate number of banks, competition is lessened and consumers suffer.
o   Rural communities, still struggling to recover from the Great Recession, are hit the hardest by “bank deserts” and inadequate access to capital.

PURPOSE:

• To examine the decline of de novo banks and industrial loan companies (ILCs) in recent years.
• To review the FDIC’s role in issuing new bank charters, and its regulation and supervision of financial institutions.

BACKGROUND:

• In 1933, Congress established the FDIC to insure bank deposits and provide a federal government guarantee of safety for depositors’ money in the event of a bank failure.
• In order to receive FDIC insurance, de novo banks must apply and be approved by the Board of Directors, in addition to meeting statutory requirements.
• In August 2009, the FDIC issued a financial institution letter which changed requirements for de novo banks.

o   Between 2004 and 2008, the FDIC received on average 219 applications per year.
o   Since the policy change, the number of applications has drastically fallen to an average of three applications per year from 2011 – 2015.

• ILCs are specialized, state-chartered, FDIC-insured banking institutions primarily used to offer financial services that directly support products sold by the parent company.

KEY VIDEOS:

Chairman Jason Chaffetz (R-UT): “94 percent of all bank applications since 2009 have not been approved – 94 percent. Do you really believe that all those bank applications don’t meet the needs of the communities?”

Health Care, Benefits, and Administrative Rules Subcommittee Chairman Jim Jordan (R-OH): “[Y]ou’re not approving anybody. We’ve got the interest rate issue as the reason you’re citing. But the fact is you’re not approving anybody and it’s different than it’s historically been.”

Rep. Buddy Carter (R-GA): “Small business is what made America and this is killing us. … We need you to make it easier.”