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At an appearance in Concord in mid-April, former Florida governor Jeb Bush talked banking -- and the legislation meant to reform it.
"On my last trip to New Hampshire I think I met the guy who founded the first and only bank since Dodd-Frank passed, since the financial crisis," Bush said at his speech at Saint Anselm College’s Politics and Eggs event April 17. "One bank in the country."
The banking reform legislation known as Dodd-Frank became law on July 21, 2010, nearly five years ago. We decided to look into Bush’s statement that only one bank had been founded since that time.
We checked with Bush’s camp and according to spokesman Matt Gorman, Bush met with businessman Bill Grenier when he was in the state March 14. Greiner, of Bedford, filed last year with the Federal Deposit Insurance Corporation to charter an entirely new bank named Primary Bank.
"We’re going against the grain, and we’re okay with that because we see a need," he told the Wall Street Journal in December.
So would Primary Bank be the nation’s "first and only" since Dodd-Frank? Not exactly. Depending on the data set you choose, it’s either the second, fourth, ninth or 20th.
The Journal and other media sources have said the first bank founded after the law’s passage is in fact the Bank of Bird-in-Hand, Pa. It mainly serves the area’s Amish community. And yes, it includes a drive-through window for horse-and-buggy.
This was included in the information forwarded to us by Bush’s spokesman.
But we decided to ask the FDIC itself. Greg Hernandez, an agency spokesman, offered further details. First, off, when Bush and others talk about new banks, they’re referring to de novo banks, or banks issued a new charter by the agency.
Not counting Grenier’s startup, the FDIC actually lists three banks issued charters since 2010. The oldest, Lakeside Bank of Lake Charles, La., had its charter approved in October 2009, before Dodd-Frank’s passage. But the charter wasn’t consummated until late July 2010, after the bill was signed into law.
The next bank on the FDIC’s list is Start Community Bank of New Haven, Conn. While its charter was approved in December 2010, the bank itself says its origins date to 2004, with the founding of its parent company.
The Bird-in-Hand bank’s charter was both approved and consummated in November 2013.
It seems fair to call Primary Bank the second of all-new bank approved by the FDIC since Dodd Frank’s passage. But if you include the two others that the agency itself lists, Primary Bank would come in fourth.
The FDIC lists five other banks as having been established since mid-2010, including one in Kansas City, Mo.; Brockton, Mass,; and Easley, S.C., according to Hernandez. These banks, however, didn’t apply for new charters.
"Other banks can be established through a shelf charter from the Office of the Comptroller of the Currency," Hernandez wrote in an e-mail. "That would be when a private equity group purchases a failed bank. Also, (newly) established banks can be the result of a merger or acquisition."
If you use that criteria, and include the five other banks mentioned, Primary Bank would be the ninth bank started after Dodd-Frank.
And finally, while they’re not called banks and are regulated by a different agency, consumers generally see credit unions as the equivalent of banks (and credit unions are affected by the law, too). According to John Fairbanks of the National Credit Union Administration, there have been at least 11 credit union charters approved since the start of 2011. That would make Primary Bank at least the 14th and at most the 20th such institution started since Dodd Frank overhauled the banking industry.
None of these different contexts would make Grenier’s bank the first one established since the passage of Dodd-Frank.
And there’s the implication that new banks aren’t being created because of Dodd-Frank, which raises the question:
What does the law actually do, and why is it important?
The full name of the law is the Dodd-Frank Wall Street Reform and Consumer Protection Act, and it passed on July 15, 2010. President Obama signed it into law on July 21. While the financial crisis mentioned by Bush predated the law by a couple of years, Dodd-Frank itself has been fiercely criticized by Republicans, who say it stifles growth in the financial sector.
The law itself was meant to prevent another financial meltdown like that of 2008-9. According to an overview from CNBC, the law was meant to avoid banks becoming "too big to fail," regulate risky trading and created new oversight bodies such as the Consumer Financial Protection Bureau.
The banking industry blames the law, in part, for the lack of new banks.
Frank Keating, president and CEO of the American Bankers Association, criticized government regulations on the financial sector in a recent column for The Hill. After mentioning the New Hampshire bank, he gets down to business.
"Investors are reluctant to shoulder the cumulative regulatory burdens -- both from new laws and from a more stringent approach by regulators themselves -- and the rising legal risks associated with running a bank these days."
Keating doesn’t mention Dodd-Frank by name, but the implication is clear. He also highlights the dropoff of bank creation post-2010, pointing out that "the average from 2002 to 2008 was closer to 100" per year. According to a Motley Fool explainer piece, "between 1990 and 2006, the FDIC approved an average of 152 bank and thrift charters a year."
That being said, there isn’t universal agreement that regulation is behind the drop in new bank creation.
Keating acknowledges that in his column, noting toward the end that "the low interest rate environment is challenging for bank startups. And the number of banks has been steadily falling for decades due to a wave of mergers and acquisitions."
According to a report from the Richmond Federal Reserve bank, there could be several factors at work. One is the Federal Reserve’s policy of keeping interest rates low. That lowers interest rates overall, making it harder for banks to earn money. (The Motley Fool suggests that’s the main reason for the drop.) The research raises the possibility that the cost of complying with regulations has gone up, but says "it is unclear" whether that is driving down the creation of new banks.
Finally, though, it mentions that the FDIC itself has changed its policies for new banks, in a move that predates the passage of Dodd-Frank.
"In 2009 the Federal Deposit Insurance Corporation increased the length of time -- from three to seven years -- during which newly insured depository institutions are subject to higher capital requirements and more frequent examinations," the paper’s authors write.
Former Florida governor Jeb Bush said "I met the guy who founded the first and only bank since Dodd-Frank passed, since the financial crisis. One bank in the country."
He’s certainly got a point that there has been a sharp dropoff of newly chartered banks since Dodd-Frank became law in the summer of 2010, but it’s incorrect to say Primary Bank would be the first in the country. There is at least one other in the nation, and possibly several more. It is certainly the first bank chartered in New Hampshire during that time.
The suggestion that Dodd-Frank has caused the drop-off in new bank formation is also debatable. While regulation has perhaps played a role, FDIC policies set before the law’s passage may have had a more direct effect. And the overall economic picture, with incredibly low interest rates, has simply made it difficult for banks to make money.
We rate Bush’s statement Mostly False.
Former Florida Gov. Jeb Bush, Politics and Eggs speech, April 17, 2015
Correspondence with Matt Gorman, Right to Rise PAC spokesman, April 17, 2015
Bill Summary & Status, 111th Congress (2009 - 2010), H.R.4173, The Library of Congress
New Hampshire Businessman Files to Set Up Rare New Bank, Wall Street Journal, Dec. 15, 2014
New Players Widen the Granite State Banking Field, NH Business Review, Jan. 22, 2015
A Local Bank in Amish Country Flourishes Amid Dearth of Small Lenders, Wall Street Journal, March 29, 2015.
E-mail correspondence with Greg Hernandez, FDIC Office of Communications, April 28-29, 2015
Start Community Bank, History
E-mail correspondence with John Fairbanks, National Credit Union Administration, April 28-29, 2015
U.S. House approves bill scaling back Wall Street reform law, Reuters, Jan. 14, 2015
Dodd-Frank Act: CNBC Explains, CNBC, May 11, 2012
Explaining the Decline in the Number of Banks Since the Great Recession, Federal Reserve Bank of Richmond, March 2015
Why Are There So Few New Banks? The Motley Fool, Jan. 5, 2015
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