How to Open a Bank

Banking is a difficult industry to join. However, many community-oriented banks are opening across
the country. With careful planning, the task of opening a bank might not be as impossible as you
think.

1. Determine a need. Why are you opening a bank? Are there local community banks in your
area? Any business will only succeed if there is a market. People in the area need the
product you are trying to sell them.
2. Appoint a board of directors. Typically, this is five to thirteen people. The board of
directors oversees the strategic plan of the bank, and makes sure employees at all levels
comply with company policies and federal regulations.[1]

Board members should not be directly involved with the bank, and a few should have
previous banking experience.

Appoint a few members over the regulation level in case someone drops out for any reason.

3. Make sure you have the starting capital. This amount can run anywhere from 12 to 20
million dollars.[2] This money can come from various places. If your board of directors are
community business owners, they might be willing to invest the money. Other sources of
capital include private equity funds, founders groups, a bank holding company, supporting
financial institutions, and special funding available for community banks.[3]

• Starting capital ensures all the banks operations and gives the bank a certain amount of
collateral.
• Capital guidelines are found through the primary regulator, either Federal Reserve, FDIC,
or OCC.[4]

4. Create a business summary plan. A financial projection is required during the charter
application process. This may require a three to five year business plan and projection.

• You need to demonstrate that a new bank would profit. Showing the plans for growth
shows investors what they can expect as a return on their investment (ROI).
• Before you can open a bank, you have to prove you've done research into your competitor's
businesses and that you can either come up with a comparable product or somehow provide
a beneficial service no one else has thought up yet.

5. Hire a legal team. Opening a bank can be a very arduous and confusing process with
many legal regulations that must be followed and applications that must be filed. Hiring
someone familiar with this process can expedite your preparations and help you cover all
your bases.
 6. Establish a risk management infrastructure. This must be done before the bank is
opened. A risk management structure "identifies, measures, monitors, and controls the risks
involved in an institution's various products and lines. These risks include, but are not
limited to, credit, market, liquidity, operational, legal, and reputational risk."[5] Hire the
best people who know how to assess for risk and keep policy and procedures in place that
keep your employees aware of the next scheme, fraud, or bad decision.

7. Hire a public face. A community reinvestment specialist responds when your bank is
called to show how the bank is contributing to the community. They must be
knowledgeable of the rules and regulations in place and be able to respond appropriately
to concerns for the bank. They must also report in their meetings with you the ways in
which the bank would be appropriately steered toward investment efforts.

8. Apply for all charters. These include both federal and state legal charters. The Office of
the Comptroller of the Currency grants federal documents. You can find a list and
instructions on the OCC website. The state can issue the state charter.

• A bank must also be approved for deposit insurance by the Federal Deposit Insurance
Corporation.[6]

Making It Happen

1. Find a place. Now that you have completed all the initial steps and gotten your bank approved,
you need to find a suitable place. It's of vital important for you to familiarize yourself with all
potential customers and competitors around you.
o Find a place with smooth traffic.
o Choose a position with a great deal of markets and residential buildings.
o Seek out a location with other competitive bank as little as possible.

2. Purchase the space. Since you have found an appropriate place, you need a place to
establish your bank. Make sure there is enough room for:
3. At least three personal banker offices
4. A seating area
5. An inside teller area
6. A drive-thru teller
7. A vault. This can be accessible to both the tellers and deposit box customers, or the bank
can house separate vaults. The vault needs to be far into the bank, not near the door.
8. An internal and an external ATM
9. A security guard station

3. Come up with an elevator speech. An elevator speech is a less than 30-seconds pitch that
just rolls off your tongue. When someone asks you what you do, you should be able to
 recite this from memory, with feeling and gusto, and convince them they need this product
too. You are going to have to spread the word about your bank.

4. Establish the appropriate relationships. Work with money transportation specialty

companies, such as armored car services, as well as any governing bodies, such as
regulators.

5. Establish what the bank will offer. Doing an analysis of your community and its
demographics can help you determine what services the bank should offer. If you
are striving for a community bank approach, offer:

• Checking
• Savings
• Mortgage Loans
• Small Business Loans
• Investment and Planning
• CDs and other short/long-term savings methods

If you are striving for a larger industrial bank, to the above options you will add:
Private wealth and investment management
Commercial loans - small (less than $1 Million), mid (between $1 Million and
$5 Million) and large Targets (above $5 Million in revenue)
Commercial DDAs

International Banking

6. Monitor your cash flow. Always have between 10-20% of your overall money held in
reserve, as a protection for the worst events.
7. Invest in your community. Growing the money means spending the money. Your bank customers
depend upon you to know when to apply the money to a construction loan for a new hospital and
when to put the money into a growing investment. Risk is always a factor, but knowing what is an
acceptable risk is part of the game.

8. Establish an online banking option. Many people do their banking online, so an online
banking system is necessary for running a successful bank.

9. Hire excellent employees. For many banks starting out, reputation and word of mouth is
pivotal in their survival. Having competent bankers with strong financial and banking
backgrounds gives the customer’s confidence when placing their money. Placing friendly
tellers with excellent customer service skills leaves a lasting impression on the customers,
making them want to return.