In one more sign of the changing financial times and precarious business environment experienced today in the United States, no new banks were created during all of last year, for the first time since 1984.
A new bank, or a de novo bank, is a newly chartered bank which was not created by the takeover of another banking enterprise. The US Federal Deposit Insurance Corporation reported three new banking charters in 2011, but none of them were de novos. Compare that figure with the three de novos banks reported in 2010.
“These new banks [chartered in 2011] are takeovers of failed banks,” said Richard Bove at Rochdale Securities. “The question is has any one just come and opened up a new bank? The answer is no.”
According to one analyst, “The number of de novos has been trending down for a few years. There’s a pipeline effect – somewhere between one or two years. The lack of de novos now is probably a reflection of public attitudes in 2008.” There is also the problem of the difficult operating environment for all types of financial service organizations which has also affected the number of new banking ventures.
Gerard Cassidy, a banking analyst for RBC Capital Markets says that a combination of new financial regulations and low interest rates are shrinking profit margins at banks.
“Investors who create banks do it primarily to make money and the banking business is not as profitable today as it was,” said Cassidy.
Other analysts say that de novos are rare today because it is so much easier to buy a failed bank than to start a new one up from scratch. In 2011 almost 200 banks were absorbed in mergers, and an additional 92 failed lenders were taken over and given new life. Taken together that adds up to about 300 less banks and savings institutions reporting to the FDIC in 2011, bringing the total number of institutions down to 7,357 reporting to the FDIC last year.
The three new charters which were reported to the FDIC in 2011 (which really just brought to life old, failed banks) was the lowest annual figure since the FDIC began keeping records in 1934.