Can You Really Start Your Own Bank?

Maybe you’re a big fan of the classic movie It’s a Wonderful Life and dream of operating your own version of Bailey Building and Loan. Perhaps you want to emulate Amadeo Peter Giannini, the early 1900s fruit vendor who convinced immigrant families in San Francisco to deposit their savings in his new bank, which eventually became Bank of America. If so, provided you have enough money, a good business plan, and the patience to make it through the regulatory process, you could actually start your own bank — plenty of people have over the years. In fact, the U.S. has thousands of them, ranging from small-town institutions to massive multi-state behemoths. So, where do you start? Starting a bank might sound like easy money, but there are only about 20 applications to start banks in the U.S. each year. That’s because starting a bank takes a lot of work and money, with the process typically taking about 1½ years. First, you have to have a business plan; then you have to put together a board of directors to oversee management, and finally go out and raise enough capital to fund the bank’s operation. Most likely, at the low end, you’re talking about $10 million. After that, it’s time to apply to government regulators who oversee banks. Once a bank is chartered, it has to obtain insurance from the FDIC. There’s quite a bit of risk involved in the process, because if regulators nix your application, you’re out whatever you spent on advisors and other expenses. If you make it through the regulatory process, things normally work out pretty well. A new bank typically earns 10%-15% annual return on the equity the startup group invested. Small banks account for just 10% of the nation’s deposits, but that’s still $1 trillion.