Burgess: Regulatory Overload Hinders New Bank Startups

Excessive regulation discourages investors from launching de novo banks, thus reducing capacity for economic growth and financial choices for consumers and businesses across the country, American Bankers Association Chairman-Elect Ken Burgess said in congressional testimony today. Burgess — chairman and co-founder of FirstCapital Bank of Texas in Midland — was the only banking industry representative to speak before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit.

While the interest rate environment and post-financial crisis economic conditions have played a partial role in the drought of de novo charters, Burgess laid out evidence that “excessive regulation” is the driving factor. Since the Dodd-Frank Act passed in 2010, only six new banks have been chartered, while nearly 2,000 banks have closed, sold or failed.

When Burgess co-founded FirstCapital Bank in 1998, the new bank raised $6.5 million in capital, a small fraction of amounts raised for the handful of de novos today. Were he to start a bank today with such high levels of capital — as much as $30 million — “I would have to grow the bank so quickly to put the capital to work that it would pose undue risk on our shareholders,” Burgess explained. “Starting a new bank in a small community would be extremely difficult.”

Meanwhile, regulatory requirements have put pressure on earning assets and sources of deposits, as well as on directors, artificially limiting interest in new banks. “It’s time to think differently to encourage new banks –by requiring less capital, reducing regulatory burden, permitting greater flexibility in business plans, and lifting funding restrictions,” Burgess said.