De novo applications are on the rise but face many headwinds

In the past 25 years, the number of community banks has decreased by half to right around 4,000 institutions. Part of the reason for the decline is the dramatic fall in the number of new banks starting up, particularly since the financial crash of 2008..“During the period from 2000-2008, there were 1,243 de novo banks; there have only been 95 in the years since then,” according to information from Bauer Financial.Regardless of this trend, a handful of de novo banks spring up annually, and at the moment, the number of applications is on the rise. As the community banking model continues to feel the stress of the contemporary landscape, and many seek efficiency through mergers in order to survive, where and how can a de novo effort succeed or fail?Midweek spoke with Amy Pierce, president, GNA Advisors Consulting Group, and Paul Schaus, CEO and founder of CCG Catalyst Consulting, about the obstacles de novos face in the current environment and why some entrepreneurs still have enough faith in the community banking model to raise the capital required for a startup. What follows is a discussion of what de novos face in 2026 as they attempt to achieve lift off. .What’s the de novo landscape like right now?Paul Schaus: This is an interesting time, especially when you look at the history of de novo bank formations. What we have now is a strong desire for new bank formation, the regulatory signals are more encouraging than they have been in over a decade, yet the actual number of doors opening remains low.In 2025, three de novo banks were approved. One is Erebor Bank, National Association in Columbus, Ohio, a tech and crypto focused de novo.Erebor is notable as the first de novo national bank charter explicitly targeting technology companies, defense industries and virtual currency participants, signaling regulators’ openness to innovative models.And the application pipeline is growing. As of mid-February, there are 33 banks in organization, applications filed or approved but not yet open. Three have received approval and are working toward opening. Twenty-four new applications were filed in 2025, a dramatic acceleration. The bottom line, we are not back before 2008 and probably never will be, but we are at a meaningful inflection point. The appetite is there and the regulatory posture has shifted..Amy Pierce: Ten de novos have been approved in the last 18 months. However, there has been a flurry of new application activity from tech and trust charters in the last few months. The OCC has received 14 applications for limited purpose de novos since the fall of 2025 including Bridge and other crypto-focused applicants including World Liberty Financial. [Both Bridge and World Liberty are founded on stablecoins, which are backed up by U.S. currency. World Liberty was started by President Donald Trump and his family. -editor]What’s really interesting is how loan companies such as Ford, General Motors and PayPal are jumping into applications. All of these are looking to establish banks based in Utah..Are there any specific commercial customers or niches de novos are trying to reach? How much do non-traditional banking companies play into the uptick in de novo applications?AP: There are tremendous advantages for industrial loan companies (ILCs) such as Ford and General Motors to start a bank charter. They will benefit from a lower cost of funds and an ability to expand their services, potentially creating additional revenue.PS: The days of opening a general-purpose community bank and hoping foot traffic builds your bank are over. If the group of founders are arguing about the need for a drive-up window, we have a problem. What I am telling founders is that you need to identify sectors where there is genuine underservice and where your local expertise creates an edge the big banks and fintechs cannot replicate.Health care and medical practices is one of the most compelling sectors right now. A de novo that understands the cash flow dynamics of a multi-physician practice, can underwrite against receivables with real domain knowledge, has an enormous advantage. We are seeing this in markets with strong health care employment growth.The ongoing housing crunch means builder loans, investor mortgages, and commercial development lending continues to present strong demand. De novos that can offer hyper-local risk assessment, understanding specific submarket dynamics that a large bank’s centralized underwriting model misses are well positioned. In one recent client engagement, we saw a community bank focused on this sector reaching $50 million in new deposits within 18 months by aligning products with community-specific needs.The common thread across all of these is specialization.We’ve seen a number of purely “digital” banks pop up. Is it possible right now to spin up a new bank without a physical, walk-in branch?AP: This is possible now more than ever. To be successful, a digital bank needs great tools and most importantly a great customer experience. This means seamless experience from account opening to transactions, bill payments, and automating loan requests. Without a walk-in branch there has to be a well-designed infrastructure and an ability for customers to communicate easily if there is an issue.The United Services Automobile Association set a strong model with great customer service and easy-to-use tools from anywhere in the world. While large tech companies have since advanced the available technology, that progress hasn’t always translated into a better customer experience when issues arise.ILCs have an opportunity here. They already have customer service pathways (phone, chat, email) for resolutions. Ensuring their tech stack provides a frictionless customer experience could allow them to grow market share.PS: This is one question I get a lot and the answer is somewhat gray. The short answer is yes, it is possible and the regulatory appetite for it is growing, but in practice, the fully branchless de novo community bank remains rare and carries real challenges.Varo Bank is the most notable success story. It became the first consumer fintech to receive a full national bank charter from the OCC in 2020, and it operates without traditional branches. But Varo had massive venture backing and took years to get through the chartering process.However, for a traditional community bank de novo, there are practical constraints. CRA compliance is a key one. Regulators want to see that you are serving the needs of your community, and that’s historically been demonstrated through physical presence. What I advise founders is a hybrid approach. You don’t need the mahogany-laden branches of the 1990s. A lean physical footprint paired with a digital-first operating model is the sweet spot.What are you seeing in terms of how much startup capital is needed to get a de novo off the ground?PS: Capital is the single biggest gate, and it’s not getting cheaper. For a traditional community bank de novo, you’re looking at $20 to $30 million in initial capital, and depending on the complexity of your business plan, it could be significantly more. The FDIC expects de novo institutions to maintain a Tier 1 capital-to-assets leverage ratio of not less than 8 percent throughout the first three years of operation, and the business plan cannot assume additional capital raises during that initial period.The most expensive line items are technology infrastructure and talent. Finding bankers who have the experience of starting a successful bank commands a premium in compensation. At a minimum you will need a strong CEO, CFO, chief credit officer, chief risk officer, and compliance team before you open the doors. That is before you made a single loan.The application process itself is a cost center that catches many organizers off guard. Legal fees, consulting, regulatory filing costs, background checks on all directors and senior officers, and the time investment of pre-filing meetings and application revisions can easily run in excess of $1 million and take 12 to 18 months.The biggest roadblocks beyond capital? First, the time-to-revenue gap. You will be burning capital for months before deposits and loans generate meaningful income. Historical FDIC data puts average time to profitability at around two years. Digital adopters are shortening that to a little less than 24 months, but you need to plan for the longer scenario. Second, assembling the right board. The FDIC expects a minimum of five directors with diverse business backgrounds, banking experience, and community involvement in your target market. Third, the competitive landscape. Many markets have 15 to 20 competitors, so your business plan must demonstrate genuine differentiation.Regulation—what’s new in the regulatory scene when it comes to a de novo?AP: Regulatory compliance is often seen as a pendulum. Many bankers feel that it swung toward over-regulation for the last decade. In the last few months, we’ve seen the pendulum swing to the opposite end of the spectrum with approval speeds moving from over a year to less than 120 days.Seasoned bankers balance those pendulum swings with well-thought-out risk management. They evaluate risk, look proactively for fraud and actively try to provide the best oversight to manage capital requirements, credit quality and efficiency.While de novos are often led by these experienced bankers some of the new applicants are not as well versed in regulatory management. They will need team members well versed in regulatory management to be successful.PS: With the start of the Trump administration, we have seen a reset for banking regulation, and the implications for de novos is significant. The change in administration brought new leadership at the regulatory agencies and the policy direction shifted decisively toward supporting innovation, digital assets, and new bank formation.First, the FDIC rescinded its prior notification requirement for crypto and blockchain activities. Under the previous regime, this requirement effectively prohibited many banks from engaging in digital asset activities. Now, permissible crypto-related activities are treated like other permissible banking activities as long as you manage the risks, engage with supervisors, and proceed. For de novo organizers exploring fintech-adjacent or digital-asset business models, this is a material change.Now, the hurdles bankers might not be aware of: the seven-year enhanced supervisory period is still in effect. The FDIC orders for deposit insurance remain in place for seven years, not three, meaning your bank faces heightened scrutiny for the better part of a decade. The FDIC also updated its Handbook for Organizers in October 2025, clarifying expectations around business plan deviations: During your first three years, any major deviation or material change from the submitted plan requires written notice and non-objection from your primary regulator. That is a leash many organizers underestimate.The net message is this: The door is more open than it has been since before the financial crisis, but the standards haven’t dropped. Regulators are welcoming more applicants and more diverse models, but they expect rock-solid governance, risk management, and compliance from day one.