Can You Start Your Own Bank?

became Bank of America. If so, provided that you have enough money, a good business plan, and the patients to make it through the regulatory process, you could actually start your own bank. Plenty of people have over the years. Unlike most industrialized countries in the world, which tend to have just a handful of big banks, the United States has thousands of them, ranging from small town institutions to massive, multi state behemoths. We spoke by email with one Edward J. Carpenter.

He the chairman and chief executive of Carpentering Company, a Newport Beach, California consulting, private equity broker, dealer, and registered investment advisor firm that has assisted clients in starting hundreds of banks and savings and loans across the nation since the nineteen seventies. The company handles fort of new bank applications in the United States. He explained the US is the only industrialized nation in the world where a group

of citizens can start a bank. Most of the would be bank founders who come to Carpenter for guidance are groups, but it's possible for a single wealthy person to start a bank and own one percent of it. Carpenter recalls several years back we did one in which an individual put in fifty million dollars and started his own bank. He said that solo founders are often civic minded individuals rather than someone motivated by the prospect of becoming even richer.

In some instances, they're trying to take the place of a small local bank that recently closed down. But Carpenter says that people start banks for various reasons, and sometimes banks start up entrepreneurs think they can find customers in a particular community that's underserved by existing financial institutions. In one common scenario, a group of immigrants or family members of immigrants might decide to start a local bank to

serve newly American customers in their original language. Other bank founders possess a specific sort of lending expertise that gives them a competitive advantage in some particular business, and sometimes that niche can be pretty arcane. Carpenter cites the example of one bank that was founded specifically to make loans on special engines that supports and government agencies used to retrofit old diesel trucks to run on electricity. Or maybe they have a plan to offer mobile banking or some

other service that local competitors don't have yet. In addition to brick and mortar community banks, in recent years, companies involved in the financial technology field, also known as fintech, have also begun starting online banks to take advantage of innovations they've developed, such as software that automates and speeds up the loan application process. Starting a bank might sound like easy money, and you might expect that a lot

of people would give it a try. Instead, there are only about twenty applications to start banks in the United States each year, and just ten new federally charted banks opened in the first three quarters of twenty nineteen. That's because starting a bank requires a lot of money and work. Typically, the process takes about a year and a half at the start. When potential bank founders come in to seek help from Carpenter, he first wants to look at their

business plans. He explained. The bottom line when people come in is doesn't make sense or not make sense based on competition and the business plan. If it looks like a new bank has a good chance of success, that's when the complicated part begins. Bank founders need to put together a board of directors to oversee management, and then they have to go out and raise enough capital to fund the bank's operations. We're not talking about just taking a loan out of your four oh one k either.

This requires serious money, Carpenter said. Most likely at the low end, we're talking about ten million dollars. We just opened a bank in New York for which they raised a hundred and thirty million. After that, it's time to apply to the government regulators who oversee banks. In some cases, bank founders may opt out to apply to a state agency for a charter, or they may go to the

federal Office of the Controller of the Currency. Once a bank is chartered, it has to obtain insurance from the Federal Deposit Insurance Commission there's a certain amount of risk in the process because if regulators nix an application, the bank founders are out whatever they spent on advisors and other expenses. Once a startup bank gets through the regulatory process, though,

things usually work out pretty well. In its third or fourth year of operation, a new bank typically is earning a ten to five teen percent annual return on the equity that the startup group has invested in it. But for all the new banks that are opening, others are closing or being bought up by bigger institutions. So the number of banks in the United States has gone from sixteen thousand, five hundred to around just five thousand, five

hundred today, according to Carpenter. But although big banks and online banks powered by fintech increasingly are dominating the banking industry, there's still a place for small banks. Carpenter said they have just ten percent of the nation's deposits, but that's still a trillion dollars, and they make fifty of the small business loans. Today's episode was written by Patrick Jake Haiger and produced by Tyler Clang. For more on this and lots of other topics you can bank on, visit

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