RICHMOND, Ky. — The high cost of starting and operating a community bank took center stage last week at a congressional field hearing as lawmakers considered legislation intended to encourage new bank formation and revise federal capital and supervisory requirements.
Many of the issues shared during the hearing will sound familiar to those who have gone through or are going through the de novo credit union process.
The House Financial Services Subcommittee on Financial Institutions examined the Main Street Capital Access Act, a package addressing de novo banks, regulatory thresholds, capital treatment and examination standards.
The hearing came as federal regulators reported increased interest in forming banks. The Office of the Comptroller of the Currency said in August that 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 total includes national trust banks and therefore does not represent only traditional community bank applications. Comptroller of the Currency Jonathan Gould later said 23 of the 40 applications involved some form of digital-asset activity.
Capital Requirements in Focus
Kyle Aud, president and CEO of Cornerstone Community Bank in Owensboro, Kentucky, described the financial and operational challenges involved in opening a traditional community bank.
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 secured about $27 million from more than 230 shareholders. No individual or group held more than 5%.
Subcommittee Chairman Andy Barr, R-Ky., asked Aud why creating a 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.”
Costs Arrive First
Aud said Cornerstone had to hire employees, secure locations, install a core banking system, establish correspondent relationships and retain outside information technology, human resources and compliance specialists before it could begin making loans.
“Those costs arrived well before the earning assets did,” Aud said in written testimony.
Jason Hawkins, president and CEO of First United Bank and Trust Co. in Madisonville, Kentucky, said the capital requirement could prevent new banks from opening in smaller communities. First United was established as a de novo in 1996 and reported more than $600 million in assets at the end of 2025.
“If we were to try to start First United Bank today, we’re not in as large of a community as Owensboro,” Hawkins said. “Madisonville is a much smaller community, and that capital raise of $20 million would be pretty tough.”
Regulatory Thresholds Questioned
Lawmakers also examined asset thresholds that trigger additional regulatory requirements.
Timothy Schenk, president and CEO of the Kentucky Bankers Association, said a bank can cross a threshold as its balance sheet grows even when its business model and underlying risk have changed little.
The Main Street Capital Access Act would require regulators to give greater consideration to an institution’s business model and risk profile and adjust certain regulatory thresholds over time.
The discussion followed a decision by federal banking regulators to reduce the community bank leverage ratio from 9% to 8%, effective July 1. The framework permits qualifying community banks to use a simplified leverage ratio instead of calculating risk-based capital ratios.
Bank Exams Get Focus
Bank examinations were another focus of the hearing. Barr asked Hawkins about provisions that would establish clearer standards for CAMELS ratings and create an Office of Independent Exam Review within the Federal Financial Institutions Examination Council. The office would hear challenges to certain supervisory determinations.
Hawkins said banks need measurable standards for operating their businesses and clearer supervisory “goalposts.” Although First United has not needed to challenge an examination finding, Hawkins said an independent appeals process remains important.
Number of Banks Declines
Schenk testified that the United States had 4,555 fewer banks than in 2005, a trend line similar to that in credit unions. Rep. Troy Downing, R-Mont., said the number of state-chartered banks in Montana had fallen from 64 in 2008 to 33.
Federal Deposit Insurance Corp. research indicates the long-term decline stems less from bank mergers than from a sharp reduction in new bank formation. The agency found that the annual intercompany merger rate has remained relatively stable, averaging about 2.5% since 1980 and 2.7% since 2018.
Witnesses said the decline can affect borrowers in rural and smaller markets.
Zach Worsham, vice president of Lexington-based affordable-housing developer Winterwood Inc., said large regional banks sometimes have less interest in purchasing Low-Income Housing Tax Credits tied to rural and suburban projects.
“We can’t always find competitive buyers for them until our community banks come to the table,” Worsham said.
Where FDIC is Seeing Interest
FDIC Chairman Travis Hill has said the agency is seeing growing interest from prospective organizers, including increases in draft and formal applications. The agency is reviewing requirements that may unnecessarily impede the creation of traditional community banks, although applicants will continue to be required to meet federal standards for capital, management and safety and soundness.
The Main Street Capital Access Act would establish a permanent phase-in period for qualifying de novo banks to meet federal capital requirements. Regulators would retain authority to intervene when safety-and-soundness concerns arise.
Aud supported the phase-in proposal but cautioned against lowering standards too far.
“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.”
