New Bank Charters May Lead to Confusion

New Bank Charters May Lead to Confusion

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If starting a new bank during a pandemic seems like a daunting task, it's because it is. Just ask the organizers of would-be Coastal Community Bank, N.A. (in organization), Hollywood, FL. The bank was on course to open with an approval for a national charter granted by the Office of the Comptroller of the Currency (OCC) in February that was only conditional on FDIC-Insurance approval. That was also granted ...on March 12th.

Then COVID hit, and that was the end of Coastal Community Bank. It's too bad too. Broward and Palm Beach counties would have benefitted from a new, traditional, community bank.

But surprisingly, this is the exception, not the rule. There are more de novos opening around the country than you might expect in a time like this. In fact, there have been four new applications for deposit insurance so far in the fourth quarter and several others have been approved and/or opened in 2020.

Getting FDIC deposit insurance is a process, and it should be. First, an organization must get preliminary approval from either the OCC or the state, depending on whether it seeks a national or state charter. That approval is generally contingent on FDIC-insurance approval.

FDIC-approval comes with several conditions. Most notable are: the initial paid-in capital that the bank must have prior to opening and the minimum leverage capital ratio (CR) required for the first several years of the bank's life.

The FDIC set new guidelines for "nontraditional" banks earlier this year (JRN 37:10), and we are seeing a steady flow of them. For example, Utah recently approved two industrial loan banks (ILCs):

Nelnet Bank, which opened earlier this month with an initial capital requirement of $100 million and a minimum 12% leverage CR; and

Square Financial Services, Inc. which needs just $56 million in capital and a leverage CR of 20%.

Fintech Varo Bank, N.A. also in Utah, received all of its approvals and is now open for business. Like the ILCs, its requirements for opening were much higher than those of a traditional bank.

Varo Bank needed $104.4 million in initial paid-in capital, provided through a transfer of assets from its parent, Varo Money, Inc. It also must have at least a 10% leverage capital ratio throughout its first three years of operation. These requirements are intended to keep the banks safe so they will never jeopardize the FDIC-insurance fund. Whether that's enough remains to be seen. But our focus is to protect YOU! Please be aware, there are new banks popping up that DO NOT carry FDIC-insurance. Wyoming, in particular, now has a special-purpose charter for companies that offer deposit services based on digital currencies or blockchains. These banks likely will not carry deposit insurance. Keep your deposits protected. If in doubt, check on or

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