How to Start a Private Bank

Welcome sign for high-net-worth individuals

Starting a bank is challenging. Starting a private bank is even more of a test of will---and money. After building a knowledge base (regarding the organizing group, directors, charter, location and capital requirements), you'll have to consult with experts in the legal, accounting and financial fields to help you receive a charter to operate.

Instructions

1. Become familiar with all local requirements and necessities for chartering a bank. Regulations and requirements vary from state-to-state so you must be sure to examine the specific process for the state in which you're hoping to receive a charter. Many steps are common to most jurisdictions so a general familiarity can then be followed by a specific examination of local regulations to note any differences. You might also choose to obtain a federal, instead of a state, charter. Requirements and permissions to operate will be similar.

2. Determine who will be members of your organizing group. These will be your original partners for your private bank. This is a critical component of your start up plan as bank regulators will look closely at the organizing group. Pick the "best" people available, not the richest. While "high net worth" people are important to the success of a private bank, the organizing group must be composed of "high net character" individuals first.

3. Write a detailed workable business plan. Unlike many other businesses, which need a good business plan to attract investors and financing, a prospective bank needs a high-level plan to satisfy bank regulators and chartering entities that your financial institution will succeed. Therefore, your operating and financial projections must be reasonable when dissected by other banking industry professionals and regulators.

4. Select the original board of directors, which should be a combination of people with integrity, experience and a willingness to actively help your private bank have a successful start-up. Your chief executive officer (CEO) should be a seasoned professional with banking industry management experience. Your treasurer should have impressive financial and accounting experience, preferably in the banking industry. Since you want to start a private (not a community or commercial) bank, you should recruit remaining directors who, along with business experience and integrity, have both investment experience and a solid "network" of high net worth individuals. Select directors with the understanding that they need to invest typically between 5 and 25 percent of all required capital to get a charter.

5. Establish relationships with investment firms that understand the preferences of high net worth individuals, often defined as those people with a minimum of $250,000 to $500,000 of liquid assets (cash, short term investments and money market funds). If you plan on being a full-service private bank, you'll also want to have additional services such as wealth protection and management and products; those that are attractive to high-net-worth individuals. Have your product/service menu substantially complete before you get your charter and open your doors.

6. Choose a preferred location and raise the necessity capital. These two items are linked because states have different capital requirements and even locations (metropolitan, suburbs, and rural) within the same state may have different money requirements. Be prepared to raise between $4 million and $10 million to meet starting capital requirements. Fortunately, you typically don't need to physically collect all of the required capital in cash while awaiting your charter decision. You can collect irrevocable commitments to invest in return for your promise of stock in the new bank commensurate with your investors/stockholders level of financial contributions.

Tips & Warnings

• Select directors that have the energy and motivation to "market" your private bank. Secure as many stockholders/investors as possible to expand your base of interested parties. Pick a location that is convenient for high-net-worth individuals to visit. Achieve branding success by designing a tasteful decor and image.

• Don't assume success of a new private bank, as high-net-worth individuals already have investment and banking relationships. Don't minimize or skip any pre-planning steps as they are all critical to becoming approved for a bank charter. Don't choose an organizing group or directors because they "agree" with you as diversity of opinion can be very important.

References

• How to Start a Bank

Resources

• Learn More About Private Banking