On January 16, U.S. Representative Andy Barr (R-KY) introduced H.R. 478, the “Promoting New Bank Formation Act,” which was referred to the Committee on Financial Services. This bill aims to support the establishment and growth of new financial institutions, particularly in rural areas, by easing regulatory requirements.
Highlights of the bill, include:
- Phase-In of Capital Standards:
- Three-Year Phase-In Period: The bill mandates that federal banking agencies establish a three-year phase-in period for new (de novo) financial institutions to comply with federal capital standards. This period begins on the date the institution becomes an insured depository institution or, for holding companies, when their subsidiary becomes insured.
- Objective: This phased approach aims to provide new banks with the necessary time to build their capital base without the immediate pressure of full compliance, thereby encouraging the formation of new banks.
- Changes to Business Plans:
- Flexibility in Business Plans: During the three-year phase-in period, de novo institutions can request deviations from their approved business plans. The appropriate federal banking agency must review and respond to these requests within 30 days.
- Approval Process: If the agency fails to respond within the 30-day period, the request is automatically approved. If denied, the agency must provide reasons and suggest changes that could lead to approval.
- Relief for Rural Community Banks:
- Community Bank Leverage Ratio: For rural depository institutions, the Community Bank Leverage Ratio (CBLR) is set at 8% during the three-year phase-in period. The agencies are required to phase in this ratio, starting with lower percentages in the first two years.
- Definition: A rural depository institution is defined as one with total consolidated assets of less than $10 billion and located in a rural area as per federal regulations.
- Agricultural Loan Authority for Federal Savings Associations:
- Expanded Lending Authority: The bill would amend the Home Owners’ Loan Act to explicitly allow federal savings associations to make secured or unsecured loans for agricultural purposes. This change aims to support agricultural communities by expanding access to credit.
- Study on De Novo Insured Depository Institutions:
- Study Mandate: The federal banking agencies would be tasked with conducting a study on the low number of de novo insured depository institutions over the past decade. The study will identify the principal causes and suggest ways to promote the formation of new banks in underserved areas.
- Report to Congress: The agencies must report their findings and recommendations to Congress within one year of the bill’s enactment.
