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Industry Letters

Enhanced Supervisory Procedures for De Novo Banks

October 18, 2010

Enhanced Supervisory Procedures for De Novo Banks

To Newly State Chartered FDIC-Supervised Insured Banking Institutions


In light of the Banking Department’s experience with newly chartered (“De Novo”) state banking institutions, the Department has reviewed its supervisory policy toward De Novo Banks.  In doing so, the Department also has considered the FDIC’s recently adopted Enhanced Supervisory Procedures for Newly Insured FDIC-Supervised Depository Institutions (see FIL-50-2009). 

The Department has decided to revise and enhance its supervisory procedures applicable to De Novo Banks as follows:

  • The De Novo period is extended from the existing three years to seven years, during which time the De Novo Bank must maintain a Tier 1 leverage capital ratio of at least 8%.

  • A De Novo Bank may make no material changes to or deviations from the business plan without the prior written approval of the Superintendent of Banks.

  • Before the end of the third year of operation, a De Novo Bank must submit updated financial statements and business plan for years four through seven.

 De Novo Banks, during the first five years of operation, must:

  • Obtain the Department’s prior review and non-objection from the Superintendent of Banks for any changes in the composition of the board of directors or senior management. 

 De Novo Banks, during the first three years of operation, must:

  • Obtain the Department’s prior review and non-objection from the Superintendent of Banks for proposed shareholders (whether existing or new) of the institution that will own between 5 and 10 percent of the institution’s voting stock.  Such persons (or principals of such entities) will be required to submit fingerprints to the Department.

The Department has decided to eliminate from its existing De Novo Bank requirements the restrictions on loans to one borrower previously imposed during the first three years of an institution’s operating existence, which limited unsecured extensions of credit to single borrowers to 10% of the bank’s capital, surplus and undivided profits (“CUPS”) and to 20% of CUPS if the additional 10% was secured.  Going forward, the lending limits under Banking Law Section 103 will be applicable to De Novo Banks.

Please do not hesitate to contact me at (212) 709-1610 should you have any questions about the Department’s revised policy.

 

Very truly yours,

Martin D. Cofsky
Deputy Superintendent of Banks
Community and Regional Banks Division

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