Advanced technology in the banking industry has made transactions safer, faster, and more efficient for banking staff as well as customers. Gone are the days of manually processing checks and transactions. Core banking systems empower banks to create streamlined, centralized processes across every branch in their system, improving customer experiences and strengthening internal infrastructure.
It’s been a long road, but regulatory conditions are finally more receptive to bank startups than
at any time since the financial crisis struck a decade ago. Only 11 new bank charters have been
approved since the 2008 financial crisis, but in 2019, confidence in de novo banks is picking up
steam. Experienced banking executives are ready to take advantage of a strong economy —
and those professionals who have been holding off for the right time to start a de novo bank?
Their time is now.
Before the global financial crisis, more than 1,000 de novo banks were formed between 2000 to
2007. In the 10 years prior to 2008, de novo bank charters averaged more than 100 per year.
But then the crisis hit, and applications dried up as de novo banks were subjected to bolstered
regulatory oversight and the resultant higher compliance costs. At the same time, abnormally
low interest rates and tight margins meant reduced profits.
The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency insuring
deposits in U.S. banks and thrifts in the event of bank failures. Its task is to protect public
confidence and encourage stability in the financial system through the promotion of sound
banking practices. So, it is significant that the FDIC is now helping investors in their quest to
form new banks.
The FDIC took the following action in December 2018:
● Issued a request for information seeking comments on how to improve the deposit
insurance application process
● Issued an update to its publication entitled “Applying for Deposit Insurance – A
Handbook for Organizers of De Novo Institutions”
● Issued its “Deposit Insurance Applications Procedures Manual” in final form
● Established a process to allow prospective organizers the option to request FDIC review
of a draft deposit insurance proposal prior to filing an official application
● Republished its timeframe guidelines for processing deposit insurance applications for
de novo banks
The fact that the FDIC took significant action to promote the formation of de novo banks
provides much of the reassurance investors should need. Since 1933, the FDIC has maintained
that de novo banks are important because they preserve the vitality of communities, fill
important gaps in local banking markets, and provide credit services to communities that may
be overlooked by other financial institutions. This philosophy is in keeping with the types of
applications that were submitted in 2018.
The FDIC has been criticized in the past for disillusioning potential investors with its notoriously
difficult deposit investment approval process. Former Acting Comptroller of the Currency Keith
Noreika claimed the FDIC “just let (applications) hang out there forever, so that the organizers
[of proposed new banks] wasted all their money trying to get insurance, and then they gave up.”
But at the time the December announcement about new reforms was made, FDIC Chair Jelena
McWilliams wrote in "American Banker" that a pipeline of new banks was critical to the long-
term health of the industry and communities across the country. She said the application
process should not be overly burdensome or deter prospective banks from applying. “I
recognize that, like many competitive industries, a dynamic banking sector needs new startups
entering the marketplace,” she said. “De novo banks are a key source of new capital, talent,
ideas, and ways to serve customers.”
Applications in 2019 are not approved without meeting strict guidelines and considerations.
Executives planning to form banks will need to outline and prove:
● The soundness of the proposed institution’s business plan
● The qualifications of the proposed board of directors and senior management
● The adequacy of the proposed capital
McWilliams also said the FDIC was seeking public comment on how to improve the de novo
application process. “We will engage in roundtable discussions across the country to seek
feedback,” she said. “We are also improving the pre-filing process to assist applicants prior to a
Creating a de novo bank these days promises to be a more streamlined, inviting process than it
was at the time of the financial crisis. It still involves intensive work and patience — approval
can come up to eight months after filing the application, with a further three months of pre-filing
and preparation — but current conditions for bank startup investment are finally conducive to
Starting a bank often seems like an impossible task. In this day and age, that conception is false. With experience and modern technology, anyone with ambition has the opportunity to open a de novo bank, and succeed while doing so.
Read on to learn more about the current state of banking, how to go about starting a de novo bank, and who to partner with along the way.
Why Start a Bank?
With multibillion-dollar banking companies, the banking industry is an extremely competitive one. It is also highly regulated, especially after the recession and housing bubble pop that rocked the industry a decade ago.
But it’s important to know that the banking industry looks very different than it did ten years ago. Companies like Chime, Aspiration, and Empower are taking over the online banking world, diverting billions of dollars from banks. The popularity of these institutions points not to the failure of traditional banking—but to the value of alternative de novo banks created by groups who wanted to start something new.
The United States government has also done its part to make de novo banking more appealing. In December 2018, the Federal Deposit Insurance Corporation (FDIC) announced new initiatives to streamline the deposit insurance application process. With more transparent processes, the FDIC expects it to be easier for new banks to open across the country. And that’s good news for anyone reading this article.
How Much Does It Cost to Start a Bank?
Ideally, your bank will be a trusted financial institution. In order for your de novo bank plans to be approved, you need to be able to prove that you and your business partners are experienced in banking and handling other people’s finances.
Obtaining the proper amount of capital is particularly crucial to the approval process of your FDIC applications. It is often the most important—and most complicated—aspect of starting a de novo bank. Attaining capital is extremely regulated, and it can be a good idea for groups starting de novo banks to raise capital well in advance of the application process.
If you are starting a bank in the U.S., you and everyone involved with your business will need to pass an FBI background check. You will also need to prove that you have $10–$30 million in capital behind your bank.
Costs of starting a bank can vary depending on the specifics of your company, but generally total between $500,000 and $1 million. Those planning on starting de novo banks usually collect these moneys associated with startup costs through investment capital. If you are independently wealthy, you could (with approval) provide all of this money yourself. More commonly, you also have the option of publicly seeking investors for your bank.
How Long Does It Take to Start a Bank?
When you’re looking into starting a bank, you need to plan on spending quite a bit of time preparing and filing documents. The amount of time it actually takes from ideation to opening your doors for the first time will take between six months to a year. But this amount of time greatly depends on how much capital you have raised, your management team, and how many people you have on your team to assist with de novo banking applications.
Meeting FDIC Requirements
In the United States, all new commercial banks must obtain FDIC membership and meet all FDIC requirements. When starting a de novo bank, all groups involved must do the following to apply for FDIC deposit insurance:
Fill out an Interagency Charter and Federal Deposit Insurance Application, which the FDIC will share with all relevant organizations.
Groups involved with de novo banks must also complete and file an Interagency Biographical and Financial Report, which will include the following information about your bank:
Projected financial statements
Policy descriptions for loans, investments, and other banking operations
The documentation you must submit is extremely detailed. Typical banking applications often involve thousands of pages, hundreds of pounds of paper, and can take hundreds of hours to complete. It is often recommended to engage with qualified consultants to ensure all application information is complete and correct.
Obtaining Bank Charter
All de novo banks must apply for bank charter with the appropriate overseeing organization. When filling out your bank charter application, you must indicate which one of the following best describes your de novo bank:
Commercial bank with national charter: The Office of the Comptroller of the Currency (OCC) is an independent bureau within the U.S. Department of the Treasury, which charters, regulates, and supervises nationally chartered banks, as well as federally licensed branches and agencies of foreign banks.
Bank with state charters: Overseen by the banking commissions in their corresponding states.
Savings bank: Regulated by the Office of Thrift Supervisions.
Make the Right Partnerships
Starting a new bank is not an easy task. If you’re new to the industry—or simply want to greatly reduce the time you spend on filling out applications and creating capital campaigns—it’s important to partner with the right people. At BMA Core Technology, our team has over 30 years of experience working with de novo banks. We can work with your group to ensure you have a solid foundation on which to build your bank.
At BMA, we work hand in hand with both existing and prospective banks to bring them on the forefront of cutting-edge technology. With BMA’s core technology platform, we have the capabilities and industry know-how to offer de novo banks innovative and reliable core processing technology. With multiple third-party integrations for debit, loan, and deposit documents as well as ebanking technology, we have the experience to keep your bank successful.
When you partner with BMA, you’ll gain an industry partner that is invested in your de novo bank’s sustained growth. Contact BMA Core Technology today to schedule a free introductory call, discovery meeting, and consultation.