Lawyer Group Urges Overhaul of US Bank Charter Process

A group of lawyers has called for an overhaul of the U.S. bank charter process, arguing that the current system is too complex and time-consuming, creating a "nearly impenetrable barrier to entry" for new banks. In a letter to the incoming leadership of banking agencies, the lawyers emphasized the need for simplification to encourage the formation of new banks and enhance competition in the sector.

The letter, seen by Reuters, highlights the challenges faced by potential applicants in obtaining a bank charter. The process can drag on for more than a year and requires the involvement of multiple agencies, including the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency (OCC). The lawyers argue that this complexity has led to a significant decline in the number of new bank charter applications approved annually, from an average of 144 between 2000 and 2007 to just five between 2010 and 2023.

To address these issues, the lawyers proposed several regulatory changes to simplify the bank charter process:

1. Setting Realistic Benchmarks and Recognizing Failure as an Inherent Risk: The lawyers suggested that regulators should set realistic benchmarks for new bank charter applications and recognize failure as an inherent risk. Currently, regulators expect an application to practically guarantee success, which is an unreasonably high standard. By setting more realistic expectations, regulators would allow for more innovation and experimentation in the banking sector.
2. Improving Transparency in the Application Process: The group called on the agencies to improve transparency in the application process. This would help potential applicants better understand the requirements and expectations, making the process more predictable and manageable.
3. Commitment to a Review Period of 120 Days: The lawyers proposed that regulators should commit to a review period of 120 days for new bank charter applications. This would help streamline the process and reduce the current wait time, which can drag on for more than a year.

These proposed changes would impact the current regulatory framework by making the bank charter process more accessible, transparent, and efficient. This would encourage the formation of new banks, enhancing competition in the sector. However, it is essential to strike a balance between simplifying the process and maintaining the safety and soundness of the banking system.

The FDIC, Federal Reserve, and OCC play a crucial role in facilitating a more efficient bank charter process. They should work together to simplify the application process, improve transparency, and promote innovation in the banking sector. By doing so, these agencies can help foster a more competitive and dynamic banking industry, ultimately benefiting consumers and the broader economy.




In conclusion, the lawyer group's call for an overhaul of the U.S. bank charter process highlights the need for simplification and transparency in the regulatory framework. By addressing these challenges, the FDIC, Federal Reserve, and OCC can help encourage new entrants, fostering increased competition, enhanced financial inclusion, and economic growth in the U.S. banking industry.