Top success factor for a novel bank charter application

In my experience, the top success factor for a novel bank charter application is already having a customer deposit business. Why? Because the biggest hurdle most applicants face is convincing the FDIC that their deposit projections are achievable.

That's something to keep in mind now that the window for ILC charters appears to be open again. Even when the "window is open," applications from lending-only companies often don’t make it far enough to be rejected on “policy” grounds. They get bogged down making the case for their business plan -- especially the deposit strategy.

It's a little hard to discern this looking in from the outside, since there have only been two ILCs approved after 2008. But I can also speak based on applications that were not approved, as well as applications that pivoted to other options like acquiring an existing commercial bank. Across the board, having an existing deposit business was the most helpful factor.

This perspective is informed by a lot of time in the trenches. Helping clients with novel new bank applications has been a major part of my practice for the past twenty years. I’ve worked on more than two dozen complex bank charter projects, many of them involving an ILC application at one stage or another.

Assuming my experience holds, I see two major implications:

1️⃣ Given the growth of BaaS in the last few years, there are significantly more potential applicants with deposit businesses in the pool than there were last time the window was open. So, we should see a larger number of successful applications this time around.

2️⃣ Lending-first applicants will be facing a more crowded field as they compete for the limited bandwidth of the licensing staff. And the business case and data supporting their deposit projections will need to be especially robust to meet the higher standards being set by deposit-first applicants.