Technical corrections only. The reported version (v2) presents the bill text in italics and includes updated procedural information, such as additional sponsors and the report number. There are no substantive policy changes between the introduced and reported versions.
Promoting New Bank Formation Act
- Sponsor
- Rep. Barr, Andy [R-KY-6]
- Committees
- Financial Services Committee (primary)
- Last action
- May 6, 2025
Bottom line
The bill seeks to foster the creation and growth of new banks, particularly in rural areas, by providing temporary regulatory relief from capital standards and business plan restrictions.
What it actually does
This bill, the "Promoting New Bank Formation Act," aims to reduce regulatory burdens for new (de novo) financial institutions and rural community banks. It establishes a 3-year phase-in period for new banks to meet federal capital requirements, streamlines the process for new banks to modify their business plans, and lowers the Community Bank Leverage Ratio to 8 percent for new rural community banks during their first three years. Additionally, it expands agricultural loan authority for Federal Savings Associations and mandates a study on the causes of low de novo bank formation.
Proponents argue
Supporters argue that current stringent capital requirements and regulatory hurdles disproportionately burden new banks, making it difficult for them to start and grow, especially in underserved rural areas. They contend that a phase-in period and a lower leverage ratio will encourage new bank formation, increase competition, and improve access to financial services and credit in communities that need them. Streamlining business plan changes will also allow new banks to adapt more quickly to market conditions.
Opponents contend
Critics might argue that easing capital standards, even temporarily, could introduce systemic risk by allowing less capitalized institutions to operate, potentially increasing the likelihood of bank failures. They may contend that robust capital requirements are essential for financial stability and consumer protection, and that new banks should meet the same standards as established institutions from the outset. Concerns could also be raised about potential loopholes or unintended consequences of the expanded agricultural loan authority.
The bill is concise and its core provisions are clearly stated, making it accessible for an informed reader to evaluate within a short timeframe.
Section 2
Phase-In of Capital Standards
This provision requires federal banking agencies to create rules allowing new banks (depository institutions or their holding companies) a 3-year period to gradually meet federal capital requirements. This phase-in begins when the institution becomes an insured depository institution.
Supporters argue
Supporters argue this provision provides crucial breathing room for new banks to establish themselves and grow without being immediately subjected to the full weight of capital regulations designed for mature institutions. This fosters competition and innovation.
Critics contend
Opponents might argue that a 3-year phase-in could expose the financial system to undue risk by allowing undercapitalized banks to operate, potentially leading to instability or requiring taxpayer bailouts if these new institutions fail.
Tradeoffs
Balances the desire to promote new bank formation and competition against the need to maintain financial stability and protect depositors through robust capital requirements.
Section 3
Changes to Business Plans
This section allows new insured depository institutions or their holding companies to request deviations from their approved business plans during their first three years. Federal banking agencies must respond to such requests within 30 days, either approving, conditionally approving, or denying them with reasons and suggestions for approval. If an agency fails to act within 30 days, the request is automatically approved.
Section 4
Rural Community Depository Institution Leverage Ratio
For new rural depository institutions, this provision sets the Community Bank Leverage Ratio (CBLR) at 8 percent for their first three years. It also directs federal banking agencies to issue rules to further phase in this 8 percent ratio, potentially setting lower percentages during the first two years of the 3-year period. A "rural depository institution" is defined as a bank with less than $10 billion in assets located in a rural area (as defined by 12 CFR 1026.35(b)(iv)(A)).
Section 5
Agricultural Loan Authority for Federal Savings Associations
This section amends the Home Owners' Loan Act to explicitly allow Federal Savings Associations to make secured or unsecured loans for agricultural purposes. It also makes a conforming change by striking "agricultural" from a different part of the Act, ensuring consistency.
Section 6
Study on De Novo Insured Depository Institutions
This section mandates that federal banking agencies jointly conduct a study. The study must identify the main reasons for the low number of new insured depository institutions over the past decade and propose ways to encourage more new banks, especially in areas currently underserved by existing institutions. The agencies must submit a report to Congress within one year of the bill's enactment.
Defines "rural area" for the purpose of qualifying for the rural community bank leverage ratio by cross-referencing an existing regulation (12 CFR 1026.35(b)(iv)(A)).
Section 4(c)(2)(B)
Why it matters:This is standard legislative practice to use existing regulatory definitions to ensure consistency with established terms and avoid re-litigating definitions.
Case for: Ensures clarity and consistency with existing regulatory frameworks, leveraging established definitions without creating new, potentially conflicting ones.
Case against: Requires external research for a full understanding of the provision's scope, potentially obscuring the exact geographic areas that qualify for the rural community bank leverage ratio relief.
Estimated impact: Determines the geographic scope of the rural community bank leverage ratio relief, affecting potentially hundreds of new small banks operating in areas meeting the referenced CFR definition.