Banker Calls on Congress to Remove Barriers to Bank Startups

With just seven de novo banks started in the past five years — and with 1,500 fewer community banks over that period — the American Bankers Association today urged Congress to address the regulatory impediments to bank startups. Testifying before the House Oversight and Government Reform Committee, Louisiana banker Guy Williams emphasized that new entrants into the banking industry are a sign of growth and economic opportunity.

“New banks stimulate more choices of competitive products and services for businesses and consumers, which translates into greater economic activity and growth in local communities,” said Williams, who is president and CEO of Gulf Coast Bank and Trust in New Orleans. Williams launched his bank as a de novo in 1990.

He rebuffed claims that the de novo drought is due mostly to the persistent low-rate environment. “Sadly, the forces that have acted to stop new charters are the same ones that have led to the dramatic consolidation of our industry — excessive and complex regulations that are not tailored to the risks of specific institutions,” Williams said. “This — not the local economic conditions — is often the tipping point that drives small banks to merge with banks typically many times larger and is a barrier to entry for new banks.”

Noting that supervisory changes touted by Chairman Martin Gruenberg — for example, its recent cutting of the de novo period from seven years to three — will be insufficient to fix the problem, Williams urged Congress to “think differently” by requiring less capital, reducing regulatory burdens, permitting greater flexibility in business plans and lifting funding restrictions.

During the hearing, Ranking Member Elijah Cummings (D-Md.) cited ABA Chief Economist James Chessen’s recent ABA Banking Journal column on de novos in questioning Massachusetts Institute of Technology economist Simon Johnson, who noted that “Mr. Chessen’s article was spot-on.”