H.R. 478, Promoting New Bank Formation Act

H.R. 478 would direct the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency (OCC) to issue rules granting new financial institutions three years to meet existing capital requirements. Under current law, new financial institutions typically have about one year to meet those requirements. The bill also would allow new institutions to request permission to deviate from their approved business plan during that three-year period.

Additionally, H.R. 478 would require the federal banking agencies to report on the reasons for only a small number of new financial institutions being created over the last 10 years and recommend ways to promote the creation of new financial institutions in underserved areas. Finally, the bill would reduce the bank leverage ratio for certain rural community banks and allow federal savings associations to invest in, sell, or otherwise deal in agricultural loans.

The costs of the legislation, detailed in Table 1, fall within budget function 370 (commerce and housing credit).

H.R. 478 would impose additional administrative costs on the FDIC, the Federal Reserve, and the OCC for rulemaking, increased supervision, and reporting on new institutions. The operating costs for the FDIC and the OCC are classified in the federal budget as direct spending. Using information from the affected agencies, CBO estimates that enacting the bill would increase gross direct spending by $34 million over the 2026-2035 period. However, the OCC collects fees from financial institutions to offset their operating costs; those fees are treated as reductions in direct spending. Accounting for those fees, CBO estimates that enacting the bill would increase net direct spending by $17 million over the same period.

Costs incurred by the Federal Reserve reduce remittances to the Treasury, which are recorded in the budget as revenues. CBO estimates that enacting H.R. 478 would decrease revenues by $18 million over the 2026-2035 period.

Changes in costs for the Federal Reserve banks have historically resulted in changes to remittances during the same year. However, since fiscal year 2023, the central bank has recorded a deferred asset to account for accrued net losses from expenses in excess of income. As a result, remittances largely have been suspended. In CBO’s projections, remittances from the Federal Reserve will generally be suspended until 2030, and until they resume, most changes in costs incurred by the system will not be recorded as changes in remittances.[1]

H.R. 478 would extend the period for new financial institutions to meet capital requirements, which could affect systemic risk in the banking system and thus increase or decrease fees paid by those institutions to the federal government. CBO cannot estimate the direction or magnitude of the effect on the federal budget of that change.

If the OCC increases annual fees to offset the costs of implementing provisions of H.R. 478, the bill would increase the costs of an existing private-sector mandate on entities required to pay those fees. CBO estimates that the incremental cost of the mandate would be small and would fall well below the annual threshold established in the Unfunded Mandates Reform Act (UMRA) for private-sector mandates ($206 million in 2025, adjusted annually for inflation).

The bill contains no intergovernmental mandates as defined in UMRA.

The CBO staff contacts for this estimate are Julia Aman (for federal costs), Nate Frentz (for revenues), and Rachel Austin (for mandates). The estimate was reviewed by H. Samuel Papenfuss, Deputy Director of Budget Analysis.