De novo capital requirements are a ‘sin tax’: Petrou
By Lalita Clozel
In the midst of a public feud between federal regulators on the right process for chartering de novo banks, a leading analyst is arguing that they should instead focus on loosening capital standards for newcomers. “As long as there is a ‘sin tax’ on new banks in the form of punitive capital requirements that force realized return well below other comparably prudent investment options, new charters will be few [and] far between,” Karen Shaw Petrou, managing partner of Federal Financial Analytics, said in a paper released Wednesday.  The paper noted that the Federal Deposit Insurance Corp. holds new banks to high capital requirement standards for several years after they first apply, a restriction that could be one of the key reasons investors are reluctant to apply.