Starting a bank today among so much negative banking news may sound intimidating, but in this chaos there is great opportunity. The Wall Street Journal recently published, “It’s a Great Time to Start a Bank,” observing that many investors are starting banks to capitalize on skepticism around big, established banks. Former Federal Reserve Chairman, Alan Greenspan was quoted as saying he would start a bank himself if he were 50 years younger, saying the return on capital could be impressive.
The Risks of Starting a Bank Today
Starting a new bank today means you will not have existing customers to immediately provide you with capital. It may be hard to get your initial customers as you will not have the credible, established name many big banks have. It is important to understand starting a bank does not mean opening a personal “piggy bank” where your clients’ funds can be yours for any investment. You will need a solid business plan with defined rewards for clients who choose to do business with you. Starting a bank does not promise a quick return.
Reward in Starting a Bank Today
If you are starting a bank today, you will have one important advantage over your established rivals: no crummy loans. A new banking institution offers a clean slate; your clients will not be wondering how your top executives made so much money last year when they lost all of theirs’. Starting a bank with a clean slate gives you the opportunity to institute your business plan from the ground up. If your plan is successful, you can easily have a healthy reserve in your first year. Since the barriers to entry are currently low, as the banking system recovers, you will be poised on even playing ground with a number of former giants.
Process of Starting a Bank in the United States
Starting a bank within the United States typically follows the De Novo Bank Application process. The process in its entirety can cost an average of USD $5 million and take up to 36 months to complete. The De Novo Bank Application process is supervised by the Federal Reserve and consists of a highly public process including answering key questions related to the purpose and services associated with the new charter.
A few important items to consider before applying include:
1) The type of charter desired (Federal or State)
2) Whether the charter will serve independently or if a bank holding company will have ownership.
3) Regulatory fees to charter, operate & maintain the entity.
Alternative Process to Start a Bank
If your business goals can be accomplished through an international structure, you can substantially reduce costs compared to a domestic acquisition. U.S. banks offer owners the opportunity to directly work with and market to United States citizens. While many international banks can accomplish this goal to a degree, they will meet restrictions in some cases. Offshore or international banks provide private services to a number of personal or business contacts and serve as a dedicated bank for your ongoing, private, business concerns.
Consider your options when starting a bank or your business or personal clients. If you are not seeking to take daily retail deposits, you may see greater return on investment through a captive, offshore bank structure.