Absence of New Banks Sure to Fortify Calls for Easing Regulation in Next Congress
by Carter Dougherty
It’s a question that vexes regulators, and is bound to become a talking point of financial reformers and lobbyists alike in the next Congress: Why have so few new banks been chartered in the United States in recent years? No one disputes the numbers. In the last 5 years, exactly 10 new banks have weathered the regulatory approval process to be able to open their doors, according to the Federal Deposit Insurance Corporation. By contrast, in the 7 years before the financial crisis, 1200 new banks received their charters. No one disputes, either, that new banks are a good thing. When banks consolidate, as they have in recent years, gaps emerge in the services offered to smaller, mostly local businesses, and new banks have typically popped up to fill them. And, no one disputes the core reason for why investors aren’t hustling to create new banks: They are simply not as profitable as they used to be. Since the 2008 crisis that saw many banks fail, profit margins in lending — the difference between what a bank pays depositors and what it collects from borrowers — has declined up to 25 percent, according to the FDIC. “That is not a get-rich-quick scheme,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics, and a former regulator. “So attracting investors is hard.”