New Community Banks Face a $20 Million Starting Line

Before 2008, new banks routinely entered the U.S. banking system by the dozens each year. Since 2010, they have appeared at a rate of fewer than six a year.

From 1995 through 2007, the lowest annual number of new banks was 93, according to Federal Deposit Insurance Corp. data. From 2010 through 2024, only 86 opened in total.

With regulators now reporting renewed interest in de novos, the cost of starting and operating a community bank was a focus Friday (Sept. 18) at a House Financial Services Subcommittee on Financial Institutions field hearing in Richmond, Kentucky. Lawmakers examined the Main Street Capital Access Act, a broader package addressing new bank formation, capital treatment, regulatory thresholds and bank supervision.

The numbers suggest more applicants are testing the market. The Office of the Comptroller of the Currency said in August it had received 40 de novo applications during the previous 18 months, compared with an average of fewer than four charter applications annually from 2011 through 2014. The 40 include national trust banks and aren’t a measure of traditional community bank applications. Comptroller of the Currency Jonathan Gould subsequently said 23 of the 40 involve some form of digital asset activity.

Parsing the Startup Costs

For traditional community banks, Friday’s hearing put much of the attention on the money required before an institution has a functioning loan book.

Kyle Aud, president and CEO of Cornerstone Community Bank in Owensboro, Kentucky, completed the process. Cornerstone opened June 8, becoming Kentucky’s first newly chartered bank since 2009. Organizers were required to raise $20 million in initial capital and ultimately raised approximately $27 million from more than 230 shareholders.

Subcommittee Chairman Andy Barr of Kentucky asked Aud why forming a new community bank has become so difficult.

“We started the process in June of 2025 and opened in June of 2026, and it probably wasn’t until February or March of ’26 that I felt pretty good that we were going to have a bank,” Aud said. “A lot of that had to do with timing and with the capital that we were required to have; everything revolved around the capital.”

Startup expenses were already accumulating. Aud said Cornerstone had hired employees, secured locations, installed a core banking system, established correspondent relationships, and retained outside IT, human resources and compliance expertise before making its first loan.

“Those costs arrived well before the earning assets did,” Aud said in his written testimony.

The size of the capital raise also raises a question about where new community banks can realistically be formed. Cornerstone exceeded its $20 million requirement by about $7 million, with the money distributed among more than 230 shareholders and no individual or group holding more than 5%.

Jason Hawkins, president and CEO of First United Bank and Trust Company in Madisonville, Kentucky, and vice chairman of the Kentucky Bankers Association, compared Cornerstone’s experience with his own institution. First United was established as a de novo in 1996 and had more than $600 million in assets at year-end 2025.

“If we were to try to start First United Bank today, we’re not in as large of a community as Owensboro,” Hawkins told lawmakers. “Madisonville is a much smaller community, and that capital raise of $20 million would be pretty tough.”

Barr questioned Timothy Schenk, president and CEO of the Kentucky Bankers Association, about asset thresholds that determine when banks become subject to additional regulatory requirements.

Schenk said a bank can cross a regulatory threshold because its balance sheet grows even when its underlying business and risk profile have changed little. The Main Street Capital Access Act would require greater consideration of business models and risk profiles and adjust certain thresholds over time.

The discussion came after federal regulators separately lowered the community bank leverage ratio from 9% to 8%, effective July 1. The framework allows qualifying community banks to use a leverage ratio rather than calculate risk-based capital ratios.

Supervision produced another line of questioning. Barr asked Hawkins about provisions intended to establish clearer criteria for CAMELS ratings and create an Office of Independent Exam Review within the Federal Financial Institutions Examination Council for challenges to material supervisory determinations.

Hawkins said banks need “measurable ways to determine how to run our business” and to know the supervisory “goalposts” against which they will be judged. He said First United hasn’t needed to challenge an examination but considers an appeal mechanism important.

Schenk testified that the United States has 4,555 fewer banks than in 2005. Rep. Troy Downing of Montana said the number of state-chartered banks in Montana had fell from 64 in 2008 to 33.

FDIC data provided a broader explanation for the national decline. The agency found that the annual intercompany merger rate has remained relatively stable over the long term, averaging about 2.5% since 1980 and 2.7% since 2018. The more pronounced change has been the collapse in new bank formation.

Borrowers can feel changes in the composition of the banking market as well. Zach Worsham, vice president of Lexington, Kentucky-based affordable housing developer Winterwood Inc., told Downing that large regional banks can have less appetite for Low-Income Housing Tax Credit investments in rural and suburban markets.

“We can’t always find competitive buyers for them until our community banks come to the table,” Worsham said.

Federal regulators have already begun reconsidering the de novo process. FDIC Chairman Travis Hill has said the agency is seeing “growing interest” from prospective applicants and more draft and formal filings while reviewing requirements that may unduly restrict traditional community bank formation. Applicants will still have to satisfy the statutory and regulatory requirements for becoming insured banks, Hill said in a speech earlier this year.

The Main Street Capital Access Act would go further by making a permanent phase-in period for qualifying de novos to meet federal capital requirements, while preserving regulators’ authority to intervene on safety and soundness grounds.

Aud said he supported the phase-in, but his testimony also supplied the argument for retaining a high bar.

“The goal should not be to make starting a bank easy; it should be difficult,” Aud said. “Depositors trust us with their money. Regulators demand capable management, strong governance, sound systems, and meaningful capital.”