WASHINGTON — New banks help build communities and their growth is being stifled by unrealistic capital hurdles, unreasonable funding constraints and excessive regulation, according to testimony from the American Bankers Association before the House Oversight and Reform Committee today.
“New entrants into any industry are a sign of growth and economic opportunity,” said Guy Williams, who testified on behalf of ABA. “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.” Williams is president and CEO of Gulf Coast Bank and Trust in New Orleans.
“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. 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,” said Williams.
Williams welcomed FDIC supervisory changes regarding new bank charters, but noted these don’t address the underlying barriers to entry: unrealistic capital hurdles, unreasonable regulatory expectations on directors, funding constraints, an inflexible regulatory infrastructure, and tax-favored competition from the credit union industry and the government-backed Farm Credit System.
“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,” said Williams.
“The fact remains that only seven de novos have been created in the last five years. More troubling is there are 1,500 fewer community banks today than five years ago – a trend that will continue until regulatory improvements are made that will help banks better support their communities,” he said.
Williams’ noted that his bank started 26 years ago with just $1.5 million of investor capital — $4.4 million in today’s dollars. Today, Gulf Coast Bank and Trust has grown into a $1.45 billion bank that is the largest small business lender in Louisiana and one of the region’s largest mortgage lenders.
“When a bank sets down roots, communities thrive,” said Williams. “We urge Congress to act now and pass legislation to help turn the tide of community bank consolidation, create an economic environment that encourages new bank charters, and protect communities from losing a key partner supporting economic growth.”
For a copy of Williams’ full testimony, please click here.