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How To Start Your Own Bank

Huffington Post   First Posted: 11/11/2010 2:49 pm Updated: 04/17/2012 11:18 am

Money

Starting a bank sounds like an impossible Gilded Age enterprise; more befitting of a Rockefeller than today's small business owner. But it's not as impossible as one might think -- or as risky.

According to Smart Money.com, "the three-year failure rate for new banks is less than one in 1,000," which, compared with a "60 percent failure rate for new restaurants," is not so horrible. The profits are not too shabby either. The site reports: "6,770 community banks earned $67 billion over the past five years."

In a recent Wall Street Journal interview, even Former Federal Reserve Chairman Alan Greenspan says that he would start a bank -- if he were 50 years younger.

Inspired by the Move Your Money campaign, the Huffington Post is investigating different options to make banking more local and personal. For enterprising individuals, one way to make your banking experience more individual could be to start your own. Here are some tips on how to get started.


Identify a Need

One of the first things any prospective small business owner must assess is the need for his or her business in the community. Being a bank owner is no exception.

When starting Global Trust Bank in Mountain View California, James Wall analyzed his neighborhood to see if it presented a need.

"The community banks in the general geography are all gone," said Wall, president and CEO of Global Trust Bank. Global Trust was situated in Silicon Valley and many of the small banks in the area have recently been bought up by big conglomerates. That left a hole in the banking community which Wall and his partners were only too happy to fill.

Global Trust Bank opened on December 3, 2008.

"The customer has the ability to walk in the door and meet face-to-face with the senior executives and get decisions made on the spot" says Wall. "It's one-stop shopping for very high-quality personal service."


Capital and Regulation

Generally banks need about $12 to 20 million in capital to get started. Many community banks are able to raise that money locally. Mike Schultz, the CEO of Harmony Bank in New Jersey, found that 90% of the capital he raised came from within the community. In Harmony Bank's case, the board of directors was made of up of business leaders from within the community including a 40 year-old law firm, a construction company and an accounting firm.

Once capital is assembled, the process is hardly finished. The application to the regulatory agencies is an arduous process, especially in the aftermath of the financial crisis. Community bank applications have slowed since the recession.

"The regulators have gotten much more strict in their review of applications," says Wall. "It's probably harder today to get a bank approved than it would have been a couple of years ago."

Once the regulatory approval process is over, however, the bank is free to go into business.


Benefits to Community Banking

Richard Whitsell, president & CEO of Fresno First Bank, has started three community banks -- or as they call them in the industry, de novo banks (from the Latin for "new"). Whitsell used to work at Bank of America but, after a long career there, he needed a change.

"[I wanted to] get closer to real banking, and making real decisions and having an impact on the community in which we live," Whitsell reflects.

Currently Whitsell has 22 employees. He sits on the same floor as the bank's transactions and enjoys having a direct impact on the community he resides in.

"We really do create an economic force in the communities that we serve," says Whitsell.

CORRECTION: A previous version of this story traced the etymology for "de novo" to the Italian, but it derives ultimately from Latin.

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