Why do De Novo Banks Choose a National Charter?

45 Pages Posted: 2 Dec 2008

See all articles by Gary Whalen

Gary Whalen

Comptroller of the Currency

Date Written: December 2, 2008


Examination of the charter choices made by the 1500 new banks established over the past decade reveals a clear, persistent shift in supervisory preferences away from the national charter. This study represents an attempt to understand the primary reasons for this change in chartering behavior. Bivariate probit and Poisson selection models of de novo bank local market entry are estimated using annual data for a sample of 931 urban banking markets for the years 1998 through 2007.

Briefly, the empirical evidence from the two estimated models suggests that higher supervisory costs may make de novo national bank entry more sensitive to local market competitive conditions than is the case for de novo state banks. Indicators of competition found to be important determinants of de novo national bank entry include state intrastate branching restrictions, market concentration, and de novo branching by out-of-market banking organizations.

There is also some evidence showing that state-specific supervisory advantages influence the likelihood and extent of de novo national bank entry. Greater numbers of mergers and acquisitions of local headquartered national banks have a significant positive effect on de novo national bank entry, possibly because it reflects the availability of senior management familiar with and to national bank supervisors.

Keywords: Dual banking system, charter choice, de novo bank

JEL Classification: G21, G28, L51

Suggested Citation

Whalen, Gary, Why do De Novo Banks Choose a National Charter? (December 2, 2008). Available at SSRN: https://ssrn.com/abstract=1310370 or http://dx.doi.org/10.2139/ssrn.1310370

Gary Whalen (Contact Author)

Comptroller of the Currency ( email )

400 7th St, SW
Washington, DC 20219
United States
202-649-5493 (Phone)

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