DENOVO period now 7 years, up from 3!

Enhanced Supervisory Procedures for Newly Insured FDIC-Supervised Depository Institutions

FIL-50-2009August 28, 2009

Summary:

The FDIC is advising the banking industry of supervisory changes for state nonmember institutions insured seven years or less (de novo period). Under current policy, newly insured institutions are subject to higher capital requirements and more frequent examination activities during the first three years of operation. Based on supervisory experience, the FDIC will now extend the de novo period from the current three-year period to seven years for examinations, capital, and other requirements. In addition, material changes in business plans for newly insured institutions will require prior FDIC approval during the first seven years of operation.

Highlights:

• 
  Recent experience has demonstrated that newly insured institutions pose an elevated risk to the FDIC Deposit Insurance Fund. Depository institutions insured less than seven years are over represented on the list of institutions that failed during 2008 and 2009, with many of those failures occurring during the fourth through seventh years of operation.
• A number of newly insured institutions have pursued changes in business plans during the first few years of operation that have led to increased risk and financial problems where accompanying controls and risk management practices were inadequate.
  To address the heightened risks presented by newly insured depository institutions, the FDIC is extending the supervisory procedures for the de novo period from three to seven years.
• During the seven-year de novo period, these institutions will remain on a 12-month risk management examination cycle and be subject to enhanced supervision for Compliance examinations and Community Reinvestment Act evaluations.
• Any material change in an institution's business plan during the de novo period also will require prior FDIC approval.
• These procedures apply to existing newly insured institutions.
• De novo institutions that are subsidiaries of existing "eligible" holding companies generally will be excluded from these procedures.

full doc a this link:
Continuation of FIL-50-2009