One -size-fits-all regulation does not work for community banks, which is why legislation is needed to better tailor regulation and promote de novo bank formation, Kentucky community bankers told House lawmakers today.
The House Financial Services Subcommittee on Financial Institutions today held a field hearing in Richmond, Kentucky, on the Main Street Capital Access Act (H.R. 6955). Among its provisions, the bill would make permanent a two-year phase-in period for de novo financial institutions to meet federal capital requirements, a 120-day deadline for agencies to make decisions on bank merger and acquisition applications, and a new requirement for agencies to consider an institution’s risk profile and business model when issuing new regulations and supervisory decisions.
The legislation, which is supported by the American Bankers Association, cleared the House with broad bipartisan support in July and is now in the Senate. The subcommittee convened a panel of bankers and housing advocates to discuss the bill.
Launching new banks
Jason Hawkins, president and CEO of First United Bank and Trust Co., pointed to the success of his bank’s launch in 1996 as proof that newly founded financial institutions can thrive in the right regulatory environment.
“If we tried to start First United today as a de novo bank, it would be much more difficult than it was in 1996,” he said. “The regulatory barriers to entry, the capital requirements, and the compliance infrastructure needed just to open the doors would be insurmountable for most entrepreneurial bankers. That’s not just bad for banking — it’s bad for competition, innovation, and communities that desperately need local financial institutions.”
Kyle Aud, president and CEO of Cornerstone Community Bank, said his bank was the first to launch in nearly 30 years in its home community of Owensboro, Kentucky. And while Cornerstone has had success, he warned that such was not the experience for many who wish to open new banks.
“We were required to raise $20 million and, because of extraordinary community support, raised approximately $7 million more,” Aud said. “But our ability to clear the hurdle should not be mistaken for evidence that the hurdle is appropriate for every community. If this were a fair expectation, it wouldn’t have been 17 years since the last de novo opened in Kentucky. It could also potentially suggest only one of the four or five largest communities in our state could find the capital required to accomplish what we’ve accomplished.”
The importance of community banks
Community banks play a vital role in the economic health of the communities they serve, and incentivizing the creation of new banks is critical to promoting a robust, diverse banking industry nationwide, said Timothy Schenk, president and CEO of the Kentucky Bankers Association. However, bank consolidation is a long-term trend, and there are over 4,500 fewer banks in the U.S. now than just 20 years ago.
“At the same time, community banks operate under a regulatory framework that too often fails to account for their size, risk profile, and business model,” Schenk said. “In addition to easing regulatory burdens on community banks, the bill would facilitate the formation of new banks in urban and rural areas. The Main Street Capital Access Act would be an important step toward expanding banking access for both individuals and small- and medium-sized businesses while allowing community banks to focus on serving their customers.”
