How to Open a Bank in 12 Steps

Compliance needs to be a focal point throughout every stage of establishing your banking business. Before you begin drafting a business plan or registering your business as a legal entity, do some due diligence and assess the areas in which your bank will be subject to regulatory oversight. This will depend on various circumstances, including the type of bank you intend to operate, the bank's location, and the multiple services your bank will offer.

It's worth noting again that, with so many laws and regulations, a shrewd bank operator will have an attorney on their team. With so many rules to juggle, a lawyer can help you zero in on which ones require the most attention. They also have experience and knowledge about the various governing bodies with which you'll be working. Before you start filing for charters (as laid out in Step 7), brush up on the following banking authorities:

• The Consumer Financial Protection Bureau (CFPB): This agency regulates your interaction with consumers. The CFPB watches over all financial services and products provided to customers. The agency's primary goals are to keep customers educated and protected. Customers are entrusting you with their personal checking accounts, so it's best to align your policies with the agency's guidelines.
• The Federal Deposit Insurance Corporation (FDIC): The FDIC is a congressionally created independent agency that exists to instill confidence in the U.S. financial system. The agency supervises financial institutions and offers insurance to customers of member banks. Banks apply for membership to the agency, which can then provide customers with deposit insurance with guarantees up to $250,000.
• The Federal Reserve Board (FRB): The Federal Reserve is the most notable of these regulators because it is the federal government's central bank. The FRB carries out the goals and policies laid out in the Federal Reserve Act, which Congress passed into law "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."
• The Office of the Comptroller of the Currency (OCC): The OCC is an independent bureau of the U.S. Department of Treasury and maintains the safety of national banks and federal savings associations. This agency provides and regulates charters, which are essential documents that register the bank with the government.
• The Securities and Exchange Commission (SEC): The SEC regulates securities markets, essentially meaning that the commission protects investors. In 2000, the SEC merged with the Commodity Futures Trading Commission (CFTC), which regulated commodity futures and options markets.

It's important to practice strict financial discipline throughout this entire process. Soon your new business will be legally ready to begin transactions with other companies. At that point, you will need to practice meticulous record-keeping. Record all money coming in and out of the business so you can track the bank's overall performance and financial health from the very start.

Opening a bank requires a significant amount of two essential commodities: time and money. For this reason, you'll want to take some time and decide if opening a bank is the right move for your life. Are you secure financially? Are you prepared to wait up to eighteen months while your bank goes through its registration process?

These are questions every potential bank owner should consider. Discuss your plan with business partners and family members to make sure everyone is on the same page.

Starting a bank means working in one of the most regulated industries in the country. This isn't generally a process that you can feel your way through, so you'll want to take every precaution available before proceeding. You should also strongly consider talking to an experienced attorney or business advisor with accounting experience before you begin.

One of the most critical steps in starting any business is developing a well-researched game plan. Drafting a great business plan is integral because so many of the actions you perform in later stages will have been decided upon in the plan.

The best business plans start with immense research. If you aren't already an expert in banking, this stage requires you to become one. Immerse yourself in the many facets of banking. You'll want to incorporate the previous research you did on regulations, but now you have other considerations. Pay close attention to entity structure and customer experience. Determine the most efficient, informative means with which to deliver your services.

Once you're comfortable with your research, it's time to start writing. A good business plan will cover every detail, from how finances are secured to which entity the bank will register as. Here are the essential issues to address in your plan:

• How you will be financing the bank's creation and day-to-day affairs
• Whether you plan on leasing or purchasing commercial real estate
• Whether you have other business partners and what their roles are
• Which entity you plan to structure your business as (e.g., LLC, LLP, corporation)
• The demand for a bank under current market conditions in your area
• Your competitors and their share of the market

Research potential competitors in your area. How are they serving the community where you want to open your bank? In what areas are they falling short? Try to find a sweet spot in the market where you're serving customers' base needs while also providing amenities in demand in your area.

Finally, recall that banks are the most regulated industry in the U.S. The government requires a significant amount of information from owners seeking to work in this space. Later, when you register your business with a state (Step 6), you will be required to submit your business plan. For this reason, your plan needs to be as professionally written and detail-heavy as possible.

Thankfully, there are a wide variety of formatting options online that can be used as templates.

Most new business owners will not have a spare $10 to $20 million of capital lying around to open a bank. The question then becomes, how are you going to pay for all of this?

Most owners must reach beyond their personal funds to secure their startup money, also referred to as starting capital. Banks can be financed through a variety of capital sources. From investors to private equity firms, or even other banks, the money should come from a trusted source with a significant amount of experience in this field.

You've compiled a detailed business plan and secured the necessary financing to open your bank. The next step involves making your business official by registering it with a state governmental regulatory body (typically a secretary of state). Your business entity type needs to be decided while drafting the business plan, so this step is all about putting your plan into action.

Smaller local banks might choose to form a limited liability company (LLC). Larger entities that foresee growth and expansion should opt for a corporate structure. Both options afford certain limitations on personal risk in the face of the company's debts and obligations. They also provide tax choices that allow taxes to bypass the corporate level and be assessed solely on an owner's personal income tax statement.

This is where it gets more complicated than most other businesses. Whether you choose an LLC or corporation, organizing or incorporating a legal banking entity is no easy task. This process can last up to eighteen months, and regulators and state authorities will require significant information about the following:

• The bank's owner, or owners
• The bank's business plan
• The senior management team (sometimes referred to as a "board of directors")
• The bank's financial health and overall outlook
• The bank's risk management structure in case things don't go as planned.
• Additional relevant factors, depending on state office requirements and your bank's specific services subject to regulation.

Employer Identification Numbers (EINs) are like social security numbers for your business. They are what allow your business to be recognized by the Internal Revenue Service (IRS) to pay taxes. They also let you hire employees and open business bank accounts. These numbers are free to obtain and easy to apply for through the IRS's website.

Charters are documents that register your bank with governmental agencies, allowing your bank to provide certain services. Suppose you want to offer deposit insurance to your customers through the FDIC. This is an excellent trust-building service because it lets customers know that their money is safe. Such a service requires you to apply to that agency for a charter.

Many federal charters and licenses are described in detail on the OCC's website as well. The FDIC and OCC aren't the only necessary sources for charters, however. You will want to check your state's governmental banking authority to determine which state charters or licenses are appropriate for your bank.

Banks required to file for necessary charters but neglect to do so are subject to heavy fines and potential termination of the bank. The U.S. Small Business Administration (SBA) offers a service to help business owners decide which permits they need to apply for.

The best business insurance plans take all aspects of the bank's business into account, including its services, locations, the structures and layouts of buildings, and even the long-term economic outlook of the company.

Insurance isn't just important; it's a necessity. You'll want to contact local insurance providers with significant experience in the financial industry. Additionally, you should consult an attorney regarding any risks your operations might pose to you or your assets.

Another pivotal step in your bank's life will be when you decide on a physical location. While some banks operate solely online, most banks also provide physical brick-and-mortar locations for customers to visit and make transactions. The main decision to make here is whether your bank plans on leasing space, purchasing already existing space, or breaking new ground and building your own space.

No matter which option you choose, under state and federal law your physical location will most likely need a certificate of occupancy. These documents assert that your business is complying with all applicable zoning laws and building codes. Check with your local government authority to determine whether your bank will require one of these documents.

You've spent a lot of time working on the business's backend. But what about the side of your business the customers see? Your brand is one of the most critical aspects of your bank's identity, and it should be protected to the greatest extent the law allows. Here, you will need to register your logo with the U.S. Patent and Trademark Office (USPTO).

First, you'll need to search the USPTO's trademark database to ensure your trademark is not already in use. From there, you can apply for a trademark on the USPTO's website. When approved, you will be able to enforce your rights in that trademark should anyone else improperly use it. Once your trademark is approved, you should also secure the domain name online for your bank's eventual website. Even if you don't plan on having a solid web presence, you'll want to own that domain so no one else can use it.

Ideally, this is the point where the USPTO has approved your trademark application, and you can begin using your brand freely. Like so many other stages, this one is greatly affected by the type of bank you intend to operate. Some questions to consider:

• Does your bank intend to use direct deposits?
• Will your bank issue lines of credit or credit cards to customers?
• Most customers dislike overdraft fees. Will you allow overdraft protection?
• What about specialized accounts that meet the needs of students and young professionals?

This is where you can build a website to establish your online banking presence. This website can then be leveraged with social media to inform customers about your business and drive traffic both physically and online.

This step should not be taken without caution, however. Building a website comes with its own regulations and challenges. You'll want to have certain protections in place when your website launches, such as a privacy agreement, which attorneys usually draft.