How to Start a De Novo Bank
- 1). Designate whether the bank will be a commercial or savings bank. Establish whether the bank will be federally chartered or state chartered. Federally chartered commercial banks are regulated by the Office of the Comptroller of the Currency (OCC), and are members of the Federal Reserve System. As a member of the Federal Reserve System, banks may borrow funds from the Federal Reserve Discount Window. The Discount Window loans funds primarily to help banks manage liquidity, or cash, shortages over a short period of time. Member banks must also subscribe to stocks in their regional Federal Reserve Bank. Savings banks can obtain a Federal charter, but will be regulated by the Office of Thrift Supervision (OTS), and will not be members of the Federal Reserve System.
- 2). Develop a business plan. Assess the needs of a target customer demographic and how the bank will establish itself as a key member of the community it serves. Write the purpose of the bank in serving its target customer. Explain the type of customer service the bank will provide and how managers will oversee the bank and its employees. Set forth a procedure for approving loans and setting up customer accounts.
- 3). Set an appointment with bank regulators either in the OCC or OTS or your state regulators to meet in person or via teleconference. Discuss your plans for establishing a de novo bank. Regulators will point out any weaknesses in the business plan and offer insights on choosing a board of directors. The regulators will also provide guidance on capital offerings and regulatory expectations.
- 4). Hire an experienced banking attorney to provide ongoing regulatory compliance advice and updates. Obtain references for good attorneys from other members of the local banking industry. The attorney will help you complete and file the requisite applications and obtain an approved charter for your bank, membership in the Federal Deposit Insurance Company (FDIC), which insures consumer deposits up to $250,000, and membership in the Federal Reserve System.
- 5). Calculate capital expenditures in establishing the bank, including charter fees, application fees and ongoing supervision fees. Other expenditures will include building, operation and maintenance of facilities, employee wages and benefits and taxes. Estimate the amount of capital required to establish the bank based on these numbers as well as a minimum fund amount to correct errors immediately and make loans to customers. Identify methods of obtaining capital. Plan to offer Common Stock directly to investors to raise necessary capital for establishment and expected growth. Note that shareholders cannot individually own more than 25 percent of the bank as part of the Federal Reserve System.
- 6). Hire a board of directors comprised of five to 13 experienced banking professionals who are involved in the local community. The board of directors will set the strategic direction of the bank. Each member of the board must be able to meet a the Federal Reserve background check if membership in the Federal Reserve System is desired. Look for individuals with a character of integrity in addition to experience.