De novo activity is rising – not surging

I thought I'd talk about de novo activity since I noticed that there are currently four active applications with the Federal Deposit Insurance Corp. for deposit insurance, including one for Zenith Bank & Trust. 

A few months ago, I saw a headline announcing a 'surge' in de novo activity. While there are more applications, approvals and openings compared to years past, I am hesitant to say we're seeing a renaissance of new bank openings. 

Let's look at the data for new bank openings in recent years.

Source: FDIC (*through July 1)

Sure, openings are on pace to exceed last year as organizers look at niches and take advantage of new technology options. A rising rate environment should help recently opened banks with spread income, though they will need to be mindful of credit quality. 

But the numbers pale in comparison with openings prior to the 2008 financial crisis and consolidation is happening at a much-faster rate.

There is at least one compelling reason why it is unlikely the numbers will shoot up much higher than where they currently stand: Capital. 

The FDIC required the eight banks that have opened this year to raise a collective minimum of $180.2 million, or roughly $22.5 million per bank. Given the weak stock market and investor interest tilted largely toward fintech, it will be challenging for a large number of organizing groups to go to the well for initial capital. 

Finally, at least 17 groups that filed with the FDIC for deposit insurance in 2020 and 2021 have so far been unable to get the agency's approval. So the overall success rate still remains relatively low.