Legislation introduced by Sen. Cindy Hyde-Smith (R-Miss.) and Rep. Andy Barr (R-Ky.) is intended to renew efforts to encourage the creation of banks serving rural and other underserved communities by easing federal regulatory restrictions for newly established institutions in these areas.
The “Promoting New Bank Formation Act” is designed to encourage the formation of “de novo” banks by providing a three-year phase-in period during which newly-chartered banks would be subject to less stringent capital requirements as they adapt to a business model that aligns with the needs and circumstances of the communities they serve.
“The availability of local capital and basic banking services is necessary to sustain and grow economic vitality, more so in rural communities,” Hyde-Smith said in a statement. “This legislation creates a pathway to chartering new banks for rural areas that continue to lose community banking options. I believe it is necessary because regulations intended to police big banking institutions are killing small-town banking, which makes it harder to live and thrive in rural America.”
The establishment of new, or de novo, banks has plummeted since the passage of the Dodd-Frank Act in 2010, according to a bill summary. In 2007, 181 new bank charters were issued. However, between 2010 and 2023, the U.S. averaged fewer than six new charters annually. At the same time, bank mergers and acquisitions have reduced the number of community banks significantly, particularly in rural areas.
The bill’s supporters contend that this decline has left many areas without sufficient access to financial services, including in Hyde-Smith’s home state of Mississippi where the formation of new banking institutions over the last 15 years has declined by 36 percent.
“A strong and diverse banking system is essential for a healthy economy,” Barr said. “This legislation focuses on reducing barriers for new banks to form, preserving the community banking system, and ensuring that consolidation doesn’t limit access to financial services in underserved areas. By encouraging the creation of new institutions, we can strengthen competition, expand opportunities, and protect the financial system’s backbone — our community banks.”
The Independent Community Bankers Association (ICBA), the American Bankers Association (ABA), and the Mississippi Bankers Association (MBA) are among the bill’s supporters.
“The nation’s community banks strongly support this important legislation from Representative Andy Barr and Senator Cindy Hyde-Smith to promote the creation of new community banks, especially in America’s rural areas,” ICBA President and CEO Rebeca Romero Rainey said in a statement. “Eliminating obstacles to de novo bank formation to fuel access to banking services in local communities is a critical piece of ICBA’s ‘Repair, Reform, and Thrive’ plan for the new 119th Congress and incoming Trump administration.”
ABA President and CEO Rob Nichols also expressed strong support for the measure, asserting that “our economy benefits by having more banks competing for Americans business.”
“This bill will unlock economic opportunity, growth, and investment in communities most in need, while also promoting a vibrant and highly competitive financial services marketplace,” he added. “We urge the Senate to advance this important piece of legislation.”