Rising Costs and Regulatory Burdens Spur California’s Banks to Consider Federal Charters
The banking landscape in California is experiencing a potential shift as state-chartered banks grow increasingly frustrated with escalating assessment fees and the prospect of heavier regulatory burdens. Analysts predict that more of these banks may consider switching to federal charters in the coming years. This transition could pose significant challenges for California’s Department of Financial Protection and Innovation (DFPI), as it would need to determine how to continue raising assessments against a dwindling pool of institutions. According to Brean Capital analyst Tim Coffey, “There’s a growing chorus of discontent.”
The Catalysts for Charter Changes
Citizens Business Bank in Southern California, which has been state-chartered for much of its history, made the switch to a federal charter last year. The bank cited a desire to reduce the burden of multiple regulators as its main reason. The hiring of Rohit Chopra, a former director of the Consumer Financial Protection Bureau, to lead a new agency overseeing a mix of California’s consumer and business-facing departments, was, according to Coffey, “the last straw” for some of California’s 90 state-chartered banks.
The increase in assessment fees, which rose following the 2023 failures of two state-chartered banks, Silicon Valley Bank and First Republic, coupled with the arrival of Chopra, are prompting some banks to evaluate the possibility of seeking a federal charter. Coffey states, “No one I know has filed paperwork, but it’s a live issue, and boards are actively looking at it.”
Assessing the State of Affairs
The number of California state-chartered banks has been on the decline due to acquisitions, conversions, and failures. In 2020, there were 108 such banks, but by late 2025, this number had dropped to 90. Three of these banks, including Citizens Business Bank, have converted to national charters since 2019.
In addition, the DFPI’s budget and employee count have surged. Since 2020, the department’s budget has grown by nearly 80%, while the number of employees has risen from about 650 to roughly 878 in 2025. The assessment fees from banks account for a large portion of the department’s budget. To offset the loss of Silicon Valley Bank and First Republic, the DFPI’s rates increased by 18% from the previous year for fiscal year 2024-2025.
Understanding Charter Conversions
Charter conversions are not a simple process, but some banks may find it worthwhile. The CEO of Citizens Business Bank, David Brager, believes there is a possibility of more conversions. He states, “There are [other bankers] reaching out to me, asking ‘How did it go?’ and ‘What was the process?’”.
However, the costs associated with switching to a federal charter may outweigh the benefits for some banks. According to Coffey’s analysis, the fee differences for switching range from a 70% increase for East West Bancorp, one of the largest state-chartered banks in California, to double-digit decreases for several of the smallest banks.
A Call for Reflection
The rising tension between banks and the DFPI is a cause for concern. Kevin Gould, the president and CEO of the California Bankers Association, highlights this contrast between the legislative and regulatory philosophy at the state and federal level. He urges the DFPI to consider its value proposition to its licensees and the potential consequences of further increases in assessments.
Ultimately, the decision to switch charters will depend on a variety of factors, including the bank’s size, regulatory burdens, and financial considerations. But one thing is certain: the landscape of California’s banking industry is undergoing significant change.
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