The dearth of de novo banks in recent years was blamed, at least in part, for the rise of such developments as “charter-strip” banks, shift to a “shadow banking” system, and “banking as a service,” by a member of the Federal Reserve Board Friday.
Speaking to the Wharton Financial Regulation Conference in Philadelphia, Pa., Fed Board Gov. Michelle W. Bowman said “right-sizing regulatory requirements, improving transparency, and supporting regulatory approaches that support new banks are important tools to promote healthy competition and reduce unintended consequences.”
She said she was not suggesting making bank mergers and acquisitions more restrictive, which she called part of a healthy banking system. Instead, she said the regulatory framework should at least be more accommodative toward the de novo process.
Bowman, who serves as the community bank representative on the Fed Board, said a “viable pipeline for the creation of new banks in the United States” is needed. She asserted that there are “troubling” signs that the country is falling short on creating new banks, as evidenced by a continued decline in the number of banks across the country, continued interest in charter strip applications, and the ongoing shift of traditional bank activities into shadow banks.
“While de novo bank formation may not be a top-of-mind issue for policymakers as we continue to deal with the recent bank failures, it remains an important issue,” she said. “As policymakers consider the regulatory and supervisory framework in the U.S. banking system and consider specific adjustments to address identified shortcomings, we should also take into account the impact of incremental additional regulatory changes not only on de novo bank formation, but also on credit availability, competition, and the financial system.”