By Andreas Westgaard, Michele Alt, and Gabriel Yeung
At Klaros, we’re in the bank design business. Our partners and staff work with a range of different organizations seeking to become or obtain banks. We work closely with bank organizers to develop a licensing strategy based on their business objectives and then help them execute on that strategy by supporting them at every step in the bank charter application process.
Having worked on a significant number of bank charter applications since our founding, we were interested in better understanding new (“de novo”) bank trends over time. Much to our dismay, we found that the data in the public domain on charter applications was typically fragmented, difficult to access, and incomplete. To try and remedy this, we decided to build an extensive database of bank charter applications. Over the coming year, we plan to publish a series of “Klaros Insights” blog posts to shine a spotlight on key findings or trends from our licensing database for those that are interested in this space.
We kick off our first blog post by providing a snapshot summary of the 156 de novo bank applications over the past five years broken out by charter type. The data reflect the dual banking system that exists in the United States where banks can be chartered at the federal or state level. The chart below shows national banks and national trust banks at the federal-level and state banks, state trust banks, and industrial loan companies (“ILCs” or “industrial banks”) at the state-level.
Here are five key takeaways from the data we compiled:
In aggregate, the number of de novo bank charter applications has been fairly consistent over the past four years. Since 2018, the number of new bank applications has mostly held steady, with an average of around 36 applications per year from 2018 to 2021. To put these numbers in historical context, the average number of applications over the past five years is higher than the decade following the 2007-2008 financial crisis, but still below application levels pre-financial crisis.
The number of new applications by charter type have also been fairly consistent over the past four years. With a few notable exceptions, the number of applications by charter type has remained fairly constant year-over-year, with state bank charters, which include community banks, typically making up the plurality of new bank applications relative to other charter application types at the federal and state levels.
The “Brooks Effect” helps explain why 2020 was a particular outlier in terms of the significant increase in the number of national bank and national trust bank applications. During his tenure as Acting Comptroller of the Office of the Comptroller of the Currency from May 2020 to January 2021, Brian Brooks signaled an openness to processing applications for charters from fintech companies. The industry responded in kind with half of the new national bank charter applications in 2020 coming from fintechs.
There was continued interest from fintech companies in pursuing bank charters in 2021. While fintech interest in national bank charters dropped off from its 2020 peak, in part due to regulatory headwinds at the federal level, many applicants looked for alternative paths to approval either at the state level or through acquisition strategies.
At the state level, the three states with the highest number of de novo bank applications over the past five years were Utah, Florida, and Texas. Most of Utah’s state-level de novo applications were for ILCs, Florida’s were exclusively for state banks, and most of Texas’s de novo applications were for state trust banks.
It’s hard to predict with any great certainty what 2022 will look like in terms of the number of de novo bank charter applications, but we do have thoughts about the strategies that prospective bank organizers can pursue to position themselves for success in the current regulatory environment.
If you’re interested in learning more, we’d be happy to talk with you. Drop us a line at hello@klaros.com.
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