Lawyers group calls for review of US bank incorporation process to encourage new entrants Reuters
Author: Niket Nishant
(Reuters) – U.S. authorities must streamline the process for obtaining bank charters, a group of lawyers wrote in a letter to the future leadership of banking agencies, underscoring the industry’s need to adapt in an era dominated by fintech companies.
Current “bureaucratic inefficiencies” have led to an “almost impenetrable barrier to entry” and regulators must encourage the establishment of new banks to increase competition, the group said in a letter to be published on Monday, a copy of which was seen by Reuters.
The letter comes as corporate executives hope for a pro-business regulatory climate under US President Donald Trump, who has promised to cut excessive red tape.
It also highlights the complexity of securing a new bank charter in the US, where the process can drag on for more than a year and requires the involvement of multiple agencies.
Earlier this month, Federal Deposit Insurance Corp. acting chairman Travis Hill said encouraging more firms to seek banking contracts would be a central focus of regulators in the coming months, to ensure a healthy flow of new entrants into the sector.
The FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency are the three main agencies charged with overseeing the banking system.
REALISTIC EXPECTATIONS
Between 2010 and 2023, an average of just five new bank authorization applications were approved per year, compared with 144 per year between 2000 and 2007, the letter said.
While the low interest rate environment — which has squeezed industry profits — was a key factor behind the decline, burdensome regulation and heightened fears of bank failures following the 2008 financial crisis also played a role.
To encourage innovation, regulators must set realistic benchmarks and recognize failure as an inherent risk for new banks, lawyers said.
“Agencies currently expect an application to virtually guarantee success, which is an unreasonably high standard,” they said.
Banking industry players have long criticized authorities for using setbacks, such as the collapse of three lenders in 2023, as an excuse to impose tougher regulations.
Advocates also called on agencies to improve transparency in the application process and commit to a 120-day review period.
