You may want to start a bank if you feel that your local market is underserved or dominated by large mega-banks that offer poor customer service. The process is long and complex, but banks can offer consistent, high returns on equity while providing a valuable service for your community.
Obtaining Charter to Start a Bank
You can obtain a federal charter through the Office of the Comptroller of Currency, and a state charter from your state's banking commission, or both. Part of the process of obtaining a federal charter is demonstrating to the Comptroller of Currency that your bank will be viable for the long-term, and operate conservatively, in a manner that highlights a focus on safeguarding customer deposits. The decision as to which charters to obtain will affect your bank's regulatory burden, compliance costs, and range of permissible activities.
Federal Deposit Insurance Corporation
Any bank operating domestically needs to obtain deposit insurance from the Federal Deposit Insurance Corporation. This requires completing the FDIC Application Pursuant to Section 19, which can be downloaded via the FDIC web site. You must also submit a mission statement, a business plan that includes three-year financial projections, and a comprehensive list of the bank's planned policies for bank operations such as extending loans and making investments. The FDIC requires that those looking to start a bank also submit these documents concurrently with the relevant state banking commission. Upon approval, FDIC insurance coverage remains for seven years.
Federal Reserve member banks must hold stock in their district's Federal Reserve bank amounting to 6 percent of the bank's capital. Member banks collect dividends from the stock and can also vote their shares in elections of their district's Federal Reserve Bank directors. Most banks initially raise capital by selling common shares to prominent local members of the community, although you can also sell shares to institutional investors. The amount you raise will be contingent on practical requirements such as brick and mortar costs, but must also be sufficient to meet federal and state capital adequacy guidelines. This ensures that when you start a bank, it will maintain adequate reserves with respect to its leverage and risk-weighted assets.
Board of Directors
You will need to appoint a board of directors. The bank's board of directors will oversee many of the bank's most important functions. The directors will carry out audit and regulatory compliance procedures, monitor capital adequacy, and set loan, investment and deposit policies. The board will also represent the bank in meetings with federal or state regulatory bodies. Each state has its own unique requirements regarding who may serve on a bank's board of directors. These can include provisions demanding that a board member live within a certain number of miles of the bank's headquarters. Federal Reserve Bank members are required to have at least two outside directors with prior banking experience.
- Federal Reserve Bank: How Can I Start a Bank?
- Office of Comptroller of Currency: Why Do De Novo Banks Choose a National Charter?
- De Novo Strategy: How To Start A Bank
- Partnership For Progress: De Novo Bank Application Process
- Federal Deposit Insurance Corporation: De Novo Banks
- Partnership For Progress: Capital Requirements
- Board of Governors of the Federal Reserve System: Application and Supervision Standards for De Novo State Member Banks