The FDIC’s recent upward tick in application approvals marks a turning point for new banks

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The Federal Deposit Insurance Corp (FDIC) approved 14 bank applications last year, per American Banker. And so far in 2019, eight banks have opened and seven more have submitted preliminary paperwork to apply. Some of the banks that have opened or plan to open in 2019 include Coastal Community Bank, which plans to open in Florida, and Grasshopper Bank in New York, which opened in late May.

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Here’s what it means: The FDIC’s approvals of bank license applications are at recent high, and that could mark a turning point for prospective applicants in terms of the agency’s receptivity.

Bank approvals took a nosedive in the last 10 years but are slowly starting to rebound.In 2008, the FDIC approved nearly 100 new banks. By 2009, new licenses granted dipped to 31, before bottoming out at 0 in 2012, 2014, and 2016. But the industry might be on the up-and-up, with the FDIC signing off on 10 charters in both 2016 and 2017 before approving 14 last year.

It also recently sought public comment on how to improve the application process. Further, FDIC Chairman Jelena McWilliams recently wrote that she recognizes that "like many competitive industries, a dynamic banking sector needs new startups entering the marketplace." That outlook, coupled with the gradually climbing approval figures, could mean the FDIC is ready to take on a higher volume of new applicants.

The bigger picture: This gradual upward trend in approvals and FDIC receptiveness might indicate open opportunities for digital-first banks or tech companies looking to pursue banking licenses.

More digital-first banks could try and pounce on the apparent opportunity. New digital-first entrants could directly pursue licenses rather than partnering with existing banks, which has been the predominant strategy thus far. That would ultimately invite more competition into the banking space as consumers become more digitally inclined.
Meanwhile, nonbanks and big tech firms might have a better chance on moving into banking, but we think it’s unlikely they’d push hard for traditional banking licenses.Big tech companies including Amazon, Apple, and Google, have been moving further into financial services. But to offer comparable banking offerings, they’ve had to partner with banks as receiving a banking license is rare; nonbanks typically have to apply for an industrial loan charter (ILC), which is the most common type of banking license sought after by nonbanks, but haven’t been granted in over a decade. It’s possible that the FDIC could begin granting ILCs more frequently as well. However, there would also be implications on their entire companies operating under banking regulations, making it likely that partnerships with established financial institutions will continue.

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