De Novo is a Latin word meaning “anew.” So what is a de novo bank? A de novo bank is a newly chartered bank that is not acquired through purchase. It could also mean a newly opened bank branch. A de novo bank could be a commercial bank, state bank, national bank, savings bank or thrift bank and others.
What is a de novo bank for state banks? For state banks, the rule is a de novo bank is a state bank that has been in operation for five years or less. Commercial banks can become a de novo bank if after five years or less of existence they decided to change to state membership. If this happens, the banks need to file de novo bank application and adhere to required supervision standards.
Thrift Banks, Edge Act Companies and Industrial banks converting to state membership would still be considered de novo banks even if they existed for more than 5years already. This is because they need to exhibit first that they have the operating stability of a commercial bank. These organizations who converted their memberships to state memberships are referred to as converted banks.
The supervision policy is required from de novo banks until they reach the fifth year because past experience shows that problems in banks often reveal during their fourth and fifth years of operations.
The problems are brought about by management who lacks the necessary experience, turnover of staffs particularly management and directors, disinterest of the directors and improper lending practices. All these factors could contribute problems to the bank.
How to Start a De Novo Bank
An important factor in answering the question what is de novo bank is to consider how it is started.
1. Creating a de novo bank requires that a “pre-inc” agreement should be prepared and signed by the members. The pre-inc agreement is an agreement that requires all organizers must get involved with the operations of the bank. This is the most basic and most essential requirement if a new bank or a de novo bank should succeed.
2. Charter Selection - The organizers must decide a charter best suited for them. They could choose to make the de novo bank a state bank, or national bank, commercial bank or thrift bank.
The organizers must then file an Interagency Charter and Federal Deposit Insurance Application. All de novo applicant banks must file deposit insurance with FDIC. Individual organizers of the bank are required to submit Interagency Biographical and Financial Report. The applications must be completed and submitted along with all the required documents.
The regulators review all new bank applications and see if they fall under what is a de novo bank. The regulators then make the final decision as to approve or disapprove the applications based on their merit. These are the steps that define what is a de novo bank.