On January 27, a group of lawyers urged U.S. authorities to simplify the process for obtaining bank charters in a letter addressed to incoming banking agency leadership. They stressed the necessity for the industry to adapt in a financial landscape influenced by fintech companies.
The lawyers highlighted that current bureaucratic inefficiencies have created an almost insurmountable barrier to entry, advocating for regulators to foster the establishment of new banks to promote competition. Their letter, viewed by Reuters, aimed to be released on Monday.
This call comes amidst expectations from business executives for a more favorable regulatory environment under President Donald Trump's administration, committed to reducing excessive red tape. It sheds light on the challenges of securing a new bank charter in the U.S., a process often protracted over a year involving multiple regulatory bodies.
Acting Chair of the Federal Deposit Insurance Corporation, Travis Hill, recently emphasized the priority of encouraging more entities to seek bank charters to ensure a robust pipeline of new industry participants.
The lawyers underscored that in the period from 2010 to 2023, only an average of five new bank charter applications were greenlit annually, a sharp decline from the 144 yearly approvals between 2000 and 2007. Factors contributing to this decline include the low-interest rate landscape squeezing profits, alongside stringent regulations and lingering apprehension over bank failures post the 2008 financial crisis.
To stimulate innovation, the group urged regulators to establish feasible benchmarks and acknowledge failure as an inherent risk for new banks, critiquing the current expectation that charter applications guarantee success as unreasonably high.
Furthermore, they called for enhanced transparency in the application process and a commitment to a review period of 120 days to empower prospective entrants in the banking sector.