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HOW TO START A BANK
Starting a bank is like starting most businesses except for the fact that it is generally a lot easier because the regulations established by the State will pretty much stop you from making major errors. If you have a college degree in business, engineering, accounting, business management, math, sales, journalism or any related subject -- you should be able to handle all the problems you will come across. If you are a college dropout like Bill Gates -- you might also be able to handle the challenges.
In general there are no laws that tell you how much money you need to start a bank. There once were laws that said you needed a free standing dedicated building and a substantial vault --but that is no longer required since internet banking has come on the scene You will first have to start a corporation and and get a number of stockholders.
Since I live in California, all the following information is for a California bank. All states probably have similar laws.
Start by going to << http://www.primeronmoney.com/bankinglaws.html >> where you will find or be lead to all of the requirements for opening a bank in California. <<http://www.primeronmoney.com/bankrequirements.html At that link you will find the following. “Laws related to the requirements that must be met prior opening of a bank in California." [All the ellipses ( ... ) eliminate references to opening a trust company -- because you do not want to open a trust company.]
1. It is a rather simple matter to open a bank in California.
2. None of the requirements are the least bit difficult.
3. Note that there is no minimum amount of money needed in the law.
4. You have to show a reasonable promise of a successful operation.
5. You also have to show there is a need for the services you are planning to offer in the neihborhood where you are doing business.
6. See more detailed information at: California Financial Code
<< california bank >>
7. Remember -- the law must be followed -- no regulatory agency can make up rules that contradict the intention of the written law. If you come across an effort of that type, you can probably file a complaint and ask a judge to enforce the law.
“Commissioner” means the Commissioner of Financial Institutions
Sections 361 and 362 below are the two most salient sections of the California Financial Code.
SECTION 361. Upon the filing of an application the commissioner shall make or cause to be made a careful investigation and examination relative to the following:
(a) The character, reputation, and financial standing of the organizers or incorporators and their motives in seeking to organize the proposed bank ... company.
(b) The need for banking ... facilities or additional banking or trust facilities, as the case may be, giving particular consideration to the adequacy of existing banking ...facilities and the need for further banking ... facilities.
(c) The character, financial responsibility, banking ... experience, and business qualifications of the proposed officers of the bank ... .
(d) The character, financial responsibility, business experience, and standing of the proposed stockholders and directors.
(e) Other facts and circumstances bearing on the proposed bank ... company and its relation to the locality as in the opinion of the commissioner may be relevant.
SECTION 362. The commissioner may give or withhold his or her approval of the application in his or her discretion, but he or she shall not approve the application until he or she has ascertained to his or her satisfaction:
(a) That the public convenience and advantage will be promoted by the establishment of the proposed bank ... .
(b) That the proposed bank ... will have a reasonable promise of successful operation.
(c) That the bank is being formed for no other purpose than the legitimate objects contemplated by this division.
(d) That the proposed capital structure is adequate.
(e) That the proposed officers and directors have sufficient banking ... experience, ability, and standing to afford reasonable promise of successful operation.
(f) That the name of the proposed bank ... does not resemble, so closely as to be likely to cause confusion, the name of any other bank ... transacting business in this state or which had previously transacted business in this state.
(g) That the applicant has complied with all of the applicable provisions of this division. “
NOTE: The items below are the only factors to consider with regard to adequate capital. (mrc)
SECTION 660. In determining for purposes of this division whether the shareholders’ equity of a bank or of a proposed bank is adequate, the commissioner shall consider:
(a) The nature and volume of the business of the bank;
(b) The amount, nature, quality, and liquidity of the assets of the bank;
(c) The amount and nature of the liabilities (including, but not limited to, any capital notes or debentures and any contingent liabilities) of the bank;
(d) The amount and nature of the fixed charges of the bank;
(e) The history of, and prospects for, the bank to earn and retain income;
(f) The quality of the operations of the bank;
(g) The quality of the management of the bank;
(h) The nature and quality of the ownership of the bank; and
(i) Such other factors as are in the opinion of the commissioner relevant.
The only thing the least bit difficult is showing that you will have bank directors that have “sufficient banking experience”. That can be finessed by either (a) hiring an experienced bank manager or (b) asking for a limited charter that will restrict your bank to making loans of a specific type -- such as mortgages. In that case, showing that you have (a) extensive knowledge about mortgages loans and contracts and (b) that know how to ascertain whether the loan applicant is a good risk and (c) if the collateral that is being offered is adequate to cover the risk of the loan going bad. You can finesse most of this by having a good banking lawyer on retainer who will advise you as needed.
If you will be doing nothing but making loans -- there is obviously no need for you to be proficient in other areas of banking.
At the previously listed link <<http://www.primeronmoney.com/californiabank.html >> it appears that at sec. 351 you will find you will need to form a corporation and have 35 stockholders. See our comments on this at the link. The wording is a little ambiguous on this point, so you will have to clear this up. But in any event, you will probably want more that 35 stockholders -- so there will be no problem.
Forming a corporation is, of course, very easy -- any business lawyer can handle that -- or you can go to an online firm like << http://www.legalzoom.com >>. who are very reliable and reasonably priced I have used them and can vouch for the excellence of their work. (mrc)
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