In the 1950s, Levittown, Pennsylvania homes were constructed astonishingly fast — some completed within 16 minutes — thanks to assembly-line techniques and standardized designs. This efficiency symbolized a post-war shift toward affordability and rapid suburban growth. By comparison, constructing a home in 2025 typically takes 7 to 14 months. This extended timeline reflects the complexity of modern homebuilding, driven by customization, detailed permitting processes, and the integration of energy-efficient and advanced technologies. While slower, today’s approaches prioritize tailored designs and long-term quality, marking a significant evolution from the rapid, standardized practices of the past. Similarly to how building a home has become increasingly complex and time consuming, starting a new bank has been a long and challenging process in recent years. It can take anywhere from one to two years to win federal approval and then launch. The hurdles are so high — particularly the capital requirements — that 19 pending de novo banks withdrew their FDIC applications from 2022 to 2023.De novo banking could finally get a boost from a bill introduced in January —the Promoting New Bank Formation Act—which aims to stimulate the sluggish pace of new bank formation and encourage the creation of new credit unions. A host of banking organizations and executives have endorsed the idea of more bank formation, including the acting chair of the FDIC, Travis Hill, who said in January that he wanted the FDIC to “encourage more de novo activity.”The Importance of Community BanksThe FDIC has long viewed de novo banks as important for stimulating and sustaining the community banking sector, particularly at a time when consolidation is reducing the number of community banks. The US once had about 15K community banks; there are now about 4K. It also sees new bank formation as a way to fill voids in banking markets and provide services to communities that are overlooked. Community financial institutions are important providers of credit to small businesses, and their declining numbers reduce the options for small businesses.The Highs and Lows of De Novo FormationHundreds of new community banks were chartered in the first decade of this century. Yet, activity ground to a halt with the 2008 credit crisis and subsequent passage of the Dodd-Frank Act in 2010, which created new regulations that made the charter process more difficult. From 2010 to 2023, there were fewer than six new charters granted annually. At the same time, banking consolidation heated up. FDIC data shows that voluntary mergers increased from about 73 annually in 2011 to 162 annually in 2014.The emerging gaps in banking services are most noticeable in rural areas. For instance, in Mississippi, no new banks have formed in more than 15 years. Meanwhile, the state lost about a third of its banks during that time, with the number dropping from 97 to 62.The new banks that did launch have so far been gaining traction. For example, Beach Cities Commercial Bank opened with two branches in Southern California, seeing an opening in an area where there has been extensive consolidation. Zenith Bank & Trust opened in Phoenix in 2023, joining a trio of other new banks that have opened in the area in the recent past. What the Banking Bill Would Do The new bill aims to shore up the ranks of community banks by easing the federal regulatory burden on new formation. Here’s a look at the main points in the bill and how it could encourage new bank formation:
- Capital requirements. The difficulty in raising enough capital to meet requirements has derailed more than a few formation efforts. The banking bill would provide some breathing room. Instead of having to meet capital ratios at launch, the bill would give de novos three years from launch to reach the required amount through a phase-in capital requirement.
- Modified business plans. Startup banks can realize shortcomings in their business plans once they launch. But modifying business plans for a de novo now requires a lengthy and cumbersome approval process. The bill calls for regulators to design a new, more streamlined process.
- Rural charters. In rural communities that face financial challenges, the bill proposes a lowered leverage ratio. Communities would have to be qualified for the reduced rate by regulators. In addition, agricultural loan concentration limits would be eased in certain rural areas.
- Research. Banking agencies would be required to report to Congress on causes for the low number of bank charters over the last decade and suggest ways to promote more.
Although parts of the South and Midwest have the highest percentages of unbanked households in the nation, many areas across the country have banking deserts. To help identify underserved areas, connect with local resources such as community organizations, nonprofits, and government agencies — or use the new FDIC tool that identifies unbanked rates by geography.With the number of community banks declining and new charters remaining scarce, policymakers and industry leaders continue to debate how to address the challenges of de novo formation. The Promoting New Bank Formation Act is one approach that seeks to ease regulatory hurdles. While it remains to be seen how effective these measures will be, one thing is clear: ensuring access to community banking is critical for small businesses, rural economies, and underserved communities.
