US Banking structure is perhaps one of the weirdest in the world. It has a multiple regulatory structure at the federal level and state level:
Which agencies you’ll go to depends on whether you plan to operate a national bank or a state bank. The Office of the Comptroller of the Currency oversees and approves national banks, and national banks are always Fed members as well. Each state has its own chartering agency for state banks; in addition, state banks must choose either to become members of the Federal Reserve System (placing them under the Fed’s oversight) or to be nonmembers (placing them under the FDIC’s jurisdiction). Finally, while banks are not required to apply for deposit insurance from the FDIC, the conventional wisdom is that it would be difficult to compete without it.
Not many know of this structure and just blindly say we should have as many banks as US. But the structure of regulation is very different. As states have their own charters, one could just open a local unit bank and remain a small community bank. There is obviously a lot of history behind this kind of multiple regulation structure. US always dissented central control of financial matters and thus states set their own agenda on banking matters. This has allowed many small unit banks to mushroom across the country apart from large banks.
Compare this to India where banking and finance are mainly a responsibility of Central govt.
Though post-2008 things have changed. There is a near drought in opening of new banks in US:
In late 2013, the Bank of Bird-in-Hand opened its doors in Pennsylvania’s Amish country. Even in normal times, a bank featuring a drive-through window built for a horse and buggy would have drawn curious onlookers. But the Bank of Bird-in-Hand made headlines for another reason: It was the first newly chartered bank anywhere in the United States in three years. According to the Federal Deposit Insurance Corporation (FDIC), there have been only seven new bank charters since 2010. By way of comparison, there were 175 new banks (or “de novos,” as they are called in the industry) in 2007 alone. Indeed, from 1997 to 2007, the United States averaged 159 new banks a year.
To be sure, the number of banks has been falling for decades. Before the late 1970s, banks were prohibited from operating branches in most states, which inflated the number of unique banks in the country. States gradually did away with these unit banking laws in the 1970s and 1980s, a process that culminated on a national level with the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. The total number of banks has fallen by about 9,000 since the mid-1980s, as weaker banks merged with stronger ones. (See chart below.) But there was always a steady influx of new banks to replace some of those lost — until now.
t has been many years since anyone even talked to us about starting a new bank,” says Wayne Whitham Jr., a lawyer in the Richmond office of the law firm Williams Mullen who has worked with banks and financial institutions since the early 1980s.
When it comes to de novos, the last seven years stand out in stark contrast to any time before. (See chart below.) What can explain this trend, and what does it mean for the future of banking?
Low interest rates followed by complex regulation has kept people away from opening new banks..
What about future when rates will eventually rise (hope so):
there are signs that banks in general have been moving away from small-business lending. According to a 2013 paper by Ann Wiersch and Scott Shane of the Cleveland Fed, the share of banks’ nonfarm, nonresidential loans worth less than $1 million has fallen steadily from just above 50 percent in 1995 to less than 30 percent in 2012. Some of this decline more recently may be due to increased competition from nonbank online lenders. While their share of consumer lending is still small, it is growing: In 2014, these marketplace lenders equaled under 4 percent of traditional consumer lending, but by 2015 their share had jumped to more than 12 percent.
These many changes highlight the uncertainty of banking’s future. Will new bank entry bounce back as interest rates eventually rise? And if it does, will those new banks look like the community banks of previous generations?
Marshall says blueharbor is sticking with the old model. “We’re just a good old-fashioned, general consumer community bank. If we tried to specialize in any one thing, we wouldn’t be serving our community,” he says. At the same time, he recognizes the environment is changing. His daughter is studying banking and finance in college (he hopes she will be the fourth-generation banker from his family), but he says many of the young bankers he meets or works with have expressed frustrations with current regulatory and economic conditions. “There are a lot of folks who say it’s just not worth it to start a bank today,” he says.
Mahan thinks the future is bright for new banks — if they’re willing to adapt to changing consumer demands. “You’ve got to be focused on technology and deliver products and services with a beautiful user experience,” he says. “Because at the end of the day, who wakes up and thinks about their bank?”