What if you wanted to start your own bank? Do you just rent some space, put out a sign and started taking deposits? Not exactly. Let's look at the steps you have to go through in order to start your own bank. The rules and requirements vary from state to state, so in this article we'll use the requirements from the state of Florida.
The organizing groupJust as with any business, you'll first have to make some pre-planning decisions -- like who your partners (called the organizing group) will be. You'll also have to write a business plan. All of these things will be taken into consideration when you apply for a state or federal charter.
State vs. Federal ChartersSome of the benefits of a state-chartered bank include local access to decision-makers and, sometimes, faster responses to questions and concerns. Local decision makers also may be more familiar with the local economies and market conditions. Local regulatory assessment fees are often lower than federal fees, as well. A charter is an agreement that governs the manner in which the bank is regulated and operates. It authorizes the organization of the bank by either the state or federal agency. The agency that charters the bank is primarily responsible for protecting the public from unsafe banking practices. It conducts on-site examinations to make sure the bank's financial condition is good and that the bank is complying with banking laws. State charters and federal charters typically do not differ too much in the way the bank conducts business. They do, however, differ in other areas. For example, in Florida, a state bank is not required to be a member of the Federal Reserve System, while federally chartered banks are. Also, state-chartered banks are regulated by state agencies, while federally chartered banks are regulated by federal agencies.
The organizing group has to identify directors, a chief executive officer (who usually has to have past experience running a bank) and other executives. The integrity, past business histories and credit histories of these people will greatly affect the acceptance or denial of the bank's charter. The important thing is to carefully select these partners and make sure they are team players, have the experience and know-how to help you make the bank work, and can withstand (both professionally and personally) the close scrutiny of the regulatory investigation.
Holding CompanyA bank holding company is a company that has control over a bank. It holds 25 percent of the stock and has the ability to control the election of a majority of the directors of the bank. The Federal Reserve may also determine that a company either directly or indirectly has controlling influence over certain management and policy decisions for the bank. The organizing group has the option of establishing a holding company for the bank when it applies for the charter. The number of directors you must have varies from state to state. In Florida, you must have at least five, and there is no maximum number. These partners have to put up money as an initial offering that shows their level of commitment and helps get the bank going. The required amount in Florida is 25 percent. In other states it may be as low as 10 percent to 15 percent of the total capital needed to start the bank. This group then becomes shareholders in the bank. In most cases, there is a limit of 24.9 percent to how much stock an individual or company may have, unless the company is a holding company.
The bank's market and locationThe location of your bank is also a very important decision. You have to do some market research to determine how well a new bank will do in a particular area, or where the best spot in a large geographic region might be. This information is also required for your application for a charter. You may be competing against others who are also trying to charter a bank in that area! Even though competition is healthy for business and consumers, there is still the need to make sure a stable and safe financial environment is maintained. The economy will also be taken into consideration in locations where there are lots of competing banks.
The specific physical location of your bank is chosen by the organizing group and is just as important as finding the right market. You want the bank's location to be convenient for customers and in a heavily trafficked area. You also need to decide whether to buy or lease a building.
Raising money to start your bankThe capital requirements to start a bank often vary greatly from state to state. In Florida, the suggested capital requirement is $6 million for a bank in a metropolitan area and $4 million for a bank in a rural area. In other states, such as New York, that amount might be $10 million or more for metropolitan areas. Those capital requirements are usually determined by your strategic plan and pro forma financial statements for the market you've selected.
As mentioned above, the organizing group may be responsible for 10 percent to 15 percent of that amount. The remainder is sold to shareholders. Organizing groups may shoot for 400 to 750 or more shareholders in order to raise the money needed to start the bank. Usually, the more shareholders a bank has, the better its chance of succeeding.
The organizing groupJust as with any business, you'll first have to make some pre-planning decisions -- like who your partners (called the organizing group) will be. You'll also have to write a business plan. All of these things will be taken into consideration when you apply for a state or federal charter.
State vs. Federal ChartersSome of the benefits of a state-chartered bank include local access to decision-makers and, sometimes, faster responses to questions and concerns. Local decision makers also may be more familiar with the local economies and market conditions. Local regulatory assessment fees are often lower than federal fees, as well. A charter is an agreement that governs the manner in which the bank is regulated and operates. It authorizes the organization of the bank by either the state or federal agency. The agency that charters the bank is primarily responsible for protecting the public from unsafe banking practices. It conducts on-site examinations to make sure the bank's financial condition is good and that the bank is complying with banking laws. State charters and federal charters typically do not differ too much in the way the bank conducts business. They do, however, differ in other areas. For example, in Florida, a state bank is not required to be a member of the Federal Reserve System, while federally chartered banks are. Also, state-chartered banks are regulated by state agencies, while federally chartered banks are regulated by federal agencies.
The organizing group has to identify directors, a chief executive officer (who usually has to have past experience running a bank) and other executives. The integrity, past business histories and credit histories of these people will greatly affect the acceptance or denial of the bank's charter. The important thing is to carefully select these partners and make sure they are team players, have the experience and know-how to help you make the bank work, and can withstand (both professionally and personally) the close scrutiny of the regulatory investigation.
Holding CompanyA bank holding company is a company that has control over a bank. It holds 25 percent of the stock and has the ability to control the election of a majority of the directors of the bank. The Federal Reserve may also determine that a company either directly or indirectly has controlling influence over certain management and policy decisions for the bank. The organizing group has the option of establishing a holding company for the bank when it applies for the charter. The number of directors you must have varies from state to state. In Florida, you must have at least five, and there is no maximum number. These partners have to put up money as an initial offering that shows their level of commitment and helps get the bank going. The required amount in Florida is 25 percent. In other states it may be as low as 10 percent to 15 percent of the total capital needed to start the bank. This group then becomes shareholders in the bank. In most cases, there is a limit of 24.9 percent to how much stock an individual or company may have, unless the company is a holding company.
The bank's market and locationThe location of your bank is also a very important decision. You have to do some market research to determine how well a new bank will do in a particular area, or where the best spot in a large geographic region might be. This information is also required for your application for a charter. You may be competing against others who are also trying to charter a bank in that area! Even though competition is healthy for business and consumers, there is still the need to make sure a stable and safe financial environment is maintained. The economy will also be taken into consideration in locations where there are lots of competing banks.
The specific physical location of your bank is chosen by the organizing group and is just as important as finding the right market. You want the bank's location to be convenient for customers and in a heavily trafficked area. You also need to decide whether to buy or lease a building.
Raising money to start your bankThe capital requirements to start a bank often vary greatly from state to state. In Florida, the suggested capital requirement is $6 million for a bank in a metropolitan area and $4 million for a bank in a rural area. In other states, such as New York, that amount might be $10 million or more for metropolitan areas. Those capital requirements are usually determined by your strategic plan and pro forma financial statements for the market you've selected.
As mentioned above, the organizing group may be responsible for 10 percent to 15 percent of that amount. The remainder is sold to shareholders. Organizing groups may shoot for 400 to 750 or more shareholders in order to raise the money needed to start the bank. Usually, the more shareholders a bank has, the better its chance of succeeding.
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