How to Start a New Bank Business

Starting a bank is a long, difficult proces, but the Board of Governors of the Federal Reserve has created Partnership for Progress to assist those seeking to start new banks. The first suggestion is to learn as much as you can about banking and the bank charter application process by contacting your state and federal bank regulators and banking experts. The more prepared and knowledgeable you are, the more likely you will be awarded a bank charter, and the more likely your bank will be successful.

Things You'll Need

• Information on your state and federal banking laws
• Bank consultant
• Background screening service
• $20 million minimum in startup capital

Instructions

Action Steps to Start a New Bank

1. Find a good bank consultant. Pricewaterhouse Coopers and Ernst and Young are two of many sources of bank startup consulting, and unless you have extensive experience starting banks, you should use a good bank consultant. Any mistakes or omissions in your application for charter could cause significant delays, significant expense, or possibly even damage your ability to get approved for a bank charter.

2. Familiarize yourself with all state and federal banking laws that would apply to your project. The U.S. Office of the Comptroller of the Currency handles all applications for national bank charters, but you can choose to open a state chartered bank instead. Different states have different laws, and you may find it more appealing to start your bank in one state over another.

3. Assemble your organizing group from investors who can together supply at least $5 to $10 million in seed capital and who have spotless credit and criminal records. Anyone on your organizing group who has a questionable history could prevent your bank application from being accepted. Those investors may participate as general investors but not in founder or manager positions.

4. Work with your bank consultant to prepare a business plan, bank corporate image and detailed financials. You will need a business plan for marketing your private placement, which is how you will raise the bulk of your startup capital, and you will need a far more detailed plan to present as part of your application for state and federal charter.

5. Prepare a private placement to raise at least $20 million in capital. Again, strict compliance with security laws is vital, so you should only deal with reputable investment bankers and securities attorneys. Your investors should all be carefully vetted as fully accredited investors.

Tips & Warnings

• The best time to start a new bank is during periods of low interest rates so you can attract deposits by paying slightly higher than market rate on your longer- term certificates of deposit, while still keeping your overall cost of funds low. Deep recessions present a particularly good opportunity for new banks because so many established banks tend to go out of business and nervous depositors often seek out smaller community banks where they feel management has a more conservative attitude. Newer banks that have few liabilities from bad loans.

• Your charter application will take at least 180 days to complete if there are no problems, but it is best to plan for the possibility of a two-year time frame till you can open your bank. The more experienced your management, the easier it will be for you to receive approval. It is extremely important to find a well-regarded former senior manager from another bank to run your bank.

References

• How Stuff Works, How Banks Work, How to Start Your Own Bank
• American Bankers Association
• American Partnership for Progress - "Start a Bank"

Resources

• Pricewaterhouse Coopers
• Office of the Comptroller of the Currency
• State Bank Regulatory Agencies