U.S. regulators face mounting pressure to streamline the process for authorising new banks, as a coalition of legal experts urges reform to foster competition and adapt to the fintech-driven transformation of the financial sector. A letter, to be released Monday and seen by Reuters, highlights how “bureaucratic inefficiencies” have created formidable barriers to entry, hindering the establishment of new banks. The authors, led by Michele Alt of the Klaros Group, argue that encouraging fresh entrants is essential to maintaining economic dynamism and countering the rise of non-bank fintech challengers.
The regulatory environment for bank charters has grown increasingly complex, with the process often taking over a year and involving multiple oversight bodies, including the Federal Deposit Insurance Corporation (FDIC), Federal Reserve, and Office of the Comptroller of the Currency. Traditional banks have ceded market share to fintech firms in recent years, particularly as the COVID-19 pandemic accelerated digital adoption. Recognising the need for reform, FDIC acting chair Travis Hill recently identified boosting bank charter applications as a priority to ensure a robust and competitive banking landscape.
The letter notes a stark decline in the approval of new bank charters, averaging just five per year between 2010 and 2023, compared to 144 annually from 2000 to 2007. While low interest rates and concerns about financial stability have contributed, the group argues that overly stringent regulatory expectations have deterred potential applicants. The lawyers call for a pragmatic approach that accepts the inherent risks of new ventures, urging regulators to abandon the unrealistic expectation of guaranteed success for applicants. They also recommend greater transparency and a commitment to a 120-day review period to provide clarity and efficiency.
The letter comes amidst hopes for a pro-business regulatory shift under President Donald Trump, who has pledged to reduce regulatory hurdles. However, critics argue that increased regulation, spurred by high-profile bank failures in 2023, has further stifled innovation. Streamlining the bank charter process, proponents say, will create fertile ground for new entrants to thrive, enhancing competition and innovation in an evolving financial landscape increasingly shaped by fintech advancements.
