De Novo Bank

How to Start a De Novo Bank

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:

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:

  • Mission statement

  • Business plan

  • 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, demonstration, and consultation.


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