Carpenter & Company has advised in the formation and growth of hundreds of new banks across the country. Banks started by Carpenter since 1997 totaled $24.6 billion in assets and earned nearly $200 million in 2017.
Building Strong, Valuable Banks
Why Start a Bank
Starting a bank offers the potential for significant benefits to local communities, investors, and bankers.
Community
Local banks are noted as being more responsive to community needs and providing better service to banking clients. They are the principal lenders to small businesses nationwide.
Investment
New banks can be attractive investments. Upon maturity, they offer the potential for capital appreciation and dividend income to investors.
Opportunity
New banks provide bankers and bank directors personal growth opportunities while giving back to and supporting local communities.
Developing a Plan
The first step in organizing a new bank is to build a strong business and strategic plan. The plan must consider the proposed business of the new bank, its financial and managerial resources and prospects for success, the convenience and needs of the public, and the effect on competition.
A strong business and strategic plan supported by detailed financial projections and appropriate policies and procedures form the basis of successful regulatory applications for a bank charter. It underpins the expressed intentions of the bank in raising organization capital. And it guides the activities of the bank for several years following the opening of the institution.
Encompassing market analysis, business lines enumeration, resource allocations and constraints, and safety and soundness considerations, the plan forms the keystone of the organizing plan.
Building the Team
The strength of the management team and board of directors is perhaps the most important factor in starting a bank and effectively providing for its future success.
To be approved for a new bank charter, the senior management team must be experienced bankers with a history of relevant success in the bank’s proposed strategy.
The board of directors should include individuals with successful careers in a mix of business, banking, and other fields, and have representation in the necessary disciplines for the board to meet its responsibilities.
The role of the board and management as investors is important. Regulators and other investors will look to the investment of the directors and senior officers as an important sign of their commitment to the bank.
Applying for a Bank Charter
Starting a bank involves a long organization process, and permission from several regulatory authorities. Extensive information about the organizers, the business plan, senior management team, finances, capital adequacy, risk management infrastructure, and other relevant factors must be provided to the appropriate authorities.
The proposed bank must first receive approval for a federal or state banking charter. Before granting a charter, the chartering regulator must determine that the applicant bank has a reasonable chance for success and will operate in a safe and sound manner.
Next, the proposed bank must obtain approval for deposit insurance from the Federal Deposit Insurance Corporation. Additional approvals are required from the Federal Reserve if, at formation, a holding company would control the new bank or a state-chartered bank would become a member of the Federal Reserve.
Capital Requirements
Once successful in the regulatory process, new banks must raise their initial capital from investors before they can open.
All insured banks must comply with the capital adequacy guidelines of their primary federal regulator. The guidelines require a bank to demonstrate that it will have enough capital to support its risk profile, operations, and future growth even in the event of unexpected losses.
Newly established banks are generally subject to additional criteria that remain in place until the bank’s operations become well established and profitable. We believe organizers should plan for effective minimum capital of $20 million to $25 million. Successful capital generation in these amounts is generally the result of a well formulated and executed plan for developing local and other investors in the bank.
Get Started
Carpenter’s new bank program, developed over decades in hundreds of successful bank start-ups, provides a complete framework for successful execution: identifying the market need and creating the strategic plan, building the right team, drafting effective regulatory applications, and completing the steps to open the institution.
