A de novo bank is defined as a state member bank that has been in operation for five years or less. Commercial banks that have been in existence for five years or less and convert to Fed membership are also subject to the de novo bank application and supervision standards.

With the number of de novo banks chartered nationwide increasing over the past decade, coupled with the recent slowdown in economic activity, the risks posed by de novo banking have become a growing concern among supervisory agencies. Many of these new institutions have not operated during a period of economic slowdown, which could make them financially fragile and prone to failure in today's environment.