FDIC proposes overhaul of branch application rules

The Federal Deposit Insurance Corporation (FDIC) has announced a proposal to streamline its branch application rules, potentially reshaping the regulatory landscape for state-chartered non-member banks and other financial institutions. The changes, which aim to simplify the application process for establishing or relocating branches, reflect the FDIC’s effort to modernize regulations and adapt to evolving banking practices.

Under this proposed rule, the FDIC seeks to revise its requirements outlined in 12 CFR Part 303, Subpart C. Key adjustments include eliminating public notice and comment periods, reducing application content requirements, and shortening processing timelines. Comments on the proposal are due by September 16, 2025.

Modernizing the Application Process

A centerpiece of the FDIC's proposed changes is the removal of public notice and comment requirements for routine branch applications, which have historically been in place despite not being mandated by the Federal Deposit Insurance Act (FDI Act). According to the agency, public comments on branch applications have been minimal - averaging just seven per year - and often unrelated to the applications themselves. This move is intended to accelerate approvals for new domestic branch establishments, intrastate branch relocations, and main office relocations.

Additionally, the FDIC proposes removing hearings tied to these applications, noting that such hearings have been rare and typically add little value to the supervisory process. The agency believes these changes will reduce unnecessary delays and boost efficiency for routine transactions.

Simplified Definitions and Filing Requirements

The proposed rule also introduces updated definitions to better align with modern banking practices, including new clarity on Remote Service Units (RSUs), such as ATMs and interactive teller machines. The FDIC intends to harmonize its definition of RSUs with that of the Office of the Comptroller of the Currency (OCC), stating that these facilities will not be considered "branches" under specific conditions. If adopted, this adjustment could facilitate more innovative solutions for fintech and bank partnerships.

Other changes include simplifying filing procedures. Banks would no longer need to submit information about newspaper publications, insider involvement, or the Community Reinvestment Act (CRA) impact in their branch applications. Instead, a streamlined letter containing basic details, such as the proposed location and customer notification confirmation, will suffice.

For minor relocations, like moving a branch across the street, banks would only need to notify the FDIC and their customers in advance, eliminating the need for formal applications.

Expedited Approvals for Qualifying Banks

The FDIC’s proposal also outlines an expedited approval framework for qualifying institutions. For "eligible depository institutions" - those that are well-capitalized and have strong supervisory ratings - applications could be deemed approved within three business days of receipt, compared to the current 21-day timeline. For de novo interstate branches, approval would occur five days after confirming compliance with host state laws. Intrastate and main office relocations would also benefit from shorter processing times, particularly for institutions with a CAMELS composite rating of 3 or better.

Notably, the FDIC plans to relinquish its discretion to remove filings from expedited processing under this proposal. The agency argues that effective supervision should address any concerns promptly, without unnecessary delays in routine transactions.

Internal Reforms and Foreign Branch Adjustments

In tandem with these regulatory changes, the FDIC intends to streamline its internal processes. This includes delegating more authority to regional offices, consolidating communications with applicants, and refining response protocols to reduce friction in branch applications.

The proposal also includes conforming changes for insured branches of foreign banks under 12 CFR 303.184, aligning their relocation processes with those of domestic banks.

A New Era of Pragmatism?

This proposed overhaul reflects the FDIC’s focus on practical, streamlined regulations that align with technological advancements and customer preferences. By removing unnecessary regulatory hurdles, the agency hopes to create a more agile framework for modern banking operations, while maintaining supervisory effectiveness.

As the deadline for public comments approaches, the banking industry will watch closely to see how these changes could reshape branch application processes and possibly pave the way for further regulatory modernization. The FDIC’s intent is clear: "to remove unnecessary delays and paperwork for transactions it views as low-risk and routine."

Read the source