Promoting New Bank Formation Act
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Would ease federal banking rules for newly chartered ("de novo") depository institutions by giving them a three-year phase-in period to meet capital requirements, reducing a key debt-ratio standard for new rural community banks, and letting federal savings associations invest in agricultural loans.
The bill targets a decades-long decline in new bank formation, particularly in rural and underserved areas, by lowering the regulatory burden during the critical early years of a bank's life.
What this bill would do
What it would do
The bill would require federal banking agencies to issue rules granting newly chartered (de novo) depository institutions and their holding companies a three-year phase-in period to meet otherwise applicable federal capital requirements. During that window, an institution could request changes to its agency-approved business plan; the agency would have 30 days to approve, conditionally approve, or deny the request, and any failure to act within that window would be deemed an approval. For new rural community depository institutions — those with under $10 billion in assets located in a rural area — the Community Bank Leverage Ratio (a measure of how much equity a bank holds relative to its assets) would start at 8 percent, phased in over the first two years, before rising to the standard 9 percent level after year three. The bill also amends the Home Owners' Loan Act to explicitly permit federal savings associations to make secured or unsecured agricultural loans.
It would additionally direct federal banking agencies to jointly study the reasons for the low rate of new bank formation over the past decade and ways to improve access in underserved areas, with a report to Congress due within one year of enactment.
Key provisions
- 1Would require federal banking agencies to issue rules granting new depository institutions a three-year phase-in period to meet federal capital requirements, starting from the date the institution becomes insured.
- 2Would allow a new insured depository institution to request deviations from its approved business plan; the agency must respond within 30 days or the request is deemed approved.
- 3Would set the Community Bank Leverage Ratio at 8 percent for new rural community depository institutions, phased in over two years, before rising to the standard 9 percent after year three.
- 4Would amend the Home Owners' Loan Act to explicitly authorize federal savings associations to make secured or unsecured agricultural loans.
- 5Would direct federal banking agencies to jointly study causes of low de novo bank formation and ways to promote new banks in underserved areas, with a report to Congress due within one year.
Who would be affected
Newly chartered (de novo) depository institutions and their holding companies seeking to meet federal capital standards; new rural community banks with under $10 billion in assets trying to satisfy leverage-ratio requirements; federal savings associations that want to offer agricultural loans; and communities — particularly rural and underserved ones — that may benefit from increased access to new local banking options.
Why it matters
De novo bank formation has been rare for decades, partly because startup institutions face the same capital and regulatory standards as established banks from day one. If enacted, the three-year phase-in and reduced leverage ratio would lower the early financial burden on new banks, potentially encouraging more charters in rural and underserved markets where access to community banking is limited. The agricultural loan change would expand credit options for farmers through federal savings associations.
What would change
Changes to existing law
Amends Home Owners' Loan Act (12 U.S.C. 1464(c)) (Sec. 5)
Adds agricultural loans as a permissible lending category for federal savings associations and removes a prior exclusion of agricultural lending from certain restrictions.
Amends Economic Growth, Regulatory Relief, and Consumer Protection Act (Community Bank Leverage Ratio provisions, 12 U.S.C. 5371 note) (Sec. 4)
Establishes a lower 8 percent Community Bank Leverage Ratio with a phase-in for qualifying new rural community depository institutions.
Agencies directed to act
Effective dates
- Joint agency report to Congress on de novo bank formation due
- Report to Congress on study findings due
Funding and costs
Congressional Budget Office estimate
CBO estimates that H.R. 478 would increase the federal deficit by $35 million over the 2026–2035 period, driven by higher direct spending and lower revenues.
CBO estimates that enacting the Promoting New Bank Formation Act would increase net direct spending (mandatory outlays) by $17 million over the 2026–2035 period, primarily due to additional administrative costs — for rulemaking, supervision, and reporting — imposed on the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency (OCC). The OCC's practice of collecting fees from financial institutions to offset its costs partially reduces that gross spending figure. The bill would also decrease federal revenues by $18 million over the same period, because costs incurred by the Federal Reserve reduce remittances it pays to the Treasury (which are counted as revenue); these effects are largely delayed until after 2030, when CBO projects those remittances will resume. Combined, the net increase in the deficit is estimated at $35 million over 2026–2035. CBO identified a private-sector mandate — potential increases in OCC fees passed on to regulated institutions — but estimated its cost would fall well below UMRA's annual threshold; no intergovernmental mandates were identified.
How implementation would work
"Federal banking agencies would jointly promulgate rules establishing the three-year capital phase-in and the tiered Community Bank Leverage Ratio for rural de novos. Institutions requesting business-plan deviations would submit written requests to their appropriate agency, which must respond within 30 days or the request is deemed approved. Agencies would also carry out a joint study on de novo bank formation trends and submit findings to Congress within one year of enactment. The agricultural loan authority for federal savings associations would take effect through the statutory amendment itself, requiring no additional rulemaking."
Legislative status & sources
Latest action
Placed on the Union Calendar, Calendar No. 64.
Official CRS summary
Show the CRS summaryHide the CRS summary
This bill eliminates and reduces certain requirements applicable to new depository institutions, certain rural community depository institutions, and federal savings associations.
Federal banking agencies must issue rules allowing a new depository institution or depository institution holding company three years to meet capital requirements. During this period, a depository institution or its depository institution holding company may request to deviate from an approved business plan, and the appropriate agency has 30 days to approve or deny the request.
In addition, the community bank leverage ratio—a way of evaluating debt levels—is reduced for new rural community depository institutions. Specifically, new rural community depository institutions must have a ratio of 8%, with a three-year phase-in of the rate. After this period, the ratio rises to its current level of 9%.
Finally, the bill removes certain restrictions to allow federal savings associations to invest in, sell, or otherwise deal in agricultural loans.
Legislative subjects
Administrative law and regulatory procedures; Agricultural prices, subsidies, credit; Bank accounts, deposits, capital; Banking and financial institutions regulation; Congressional oversight; Credit and credit markets; Finance and Financial Sector; Financial services and investments; Government information and archives; Government studies and investigations; Rural conditions and development
Committee report
H. Rept. 119-90