The deposit base in the FSM banking system ($477.2 million as of December 31, 2023) has grown significantly reflecting a sound financial system. However, lending performance to the commercial private sector remains stagnant and represents only 11.31 percent of the deposit base.

The resulting surplus liquidity, now over $374.5 million, is invested offshore in low-yielding assets.

The low rate of domestic lending reflects the perceived high risk of lending in the FSM and "lack of bankable projects". Overall, the inability of businesses to prepare credible business plans and financial statements, lack of collateral, the limited ability to use the land as security, and inadequate provisions to secure transaction have inhibited development of the financial sector. With limited opportunities, commercial banks have preferred to invest their assets offshore in less risky and more secure markets.

In addition to safety, soundness, health, among others, the fitness and propriety of applicant, persons associated with applicant, regulated bank, and person who occupies a position of influence is important and a prerequisite. Influence person include, for example, shareholders who exercise a certain level of voting power, chief executives, managing directors, directors, managers, among others.

The FSM Banking Board has to be satisfied that the applicant is fit and proper before the applicant is allowed to carry on banking business in the FSM. Particularly for banking business, the fit and proper, sound, safe and stability standards are a high one for protecting public interest. Therefore, if the FSM Banking Board or Commission is left with a substantial doubt as to the fitness and propriety, soundness, safety, healthy and stability, the correct course would be for the applicant not to be approved.