It’s a Wonderful Life is a classic movie that’s a big fan of the world we live in today, and you might dream of owning and operating your own Bailey Building and Loan. Then again, maybe you want to emulate the success of Amadeo Peter Giannini, an Italian fruit vendor who reached out to immigrant families in San Francisco during the early 1900s and convinced them to deposit their savings in his new bank, which eventually became Bank of America. Here you can read How to establish your own bank?

If this is the case, assuming that you have enough money, a good business plan, and are patient enough to make it through the regulatory process, you might be able to open your own bank.

Over the years, many people have done so. As opposed to most industrialized countries in the world, where only a handful of large banks dominate the landscape, the United States has thousands of them, ranging from small-town institutions to enormous multistate behemoths.

According to Edward J. Carpenter, in an email interview, the United States is the only industrialized nation in the world in which a group of citizens can start a bank. It is his endeavor as the chairman and CEO of Carpenter & Company that has assisted clients in starting hundreds of banks and savings & loans across the country since the 1970s. Carpenter & Company is a consulting, private equity, broker-dealer, and registered investment adviser company located in Newport Beach, California. We handle 40 percent of U.S. new bank loan applications.

Carpenter gets a lot of bank-starting requests from groups, but it’s also possible for a wealthy individual to start and own a bank entirely. Several years ago, we conducted a deal in which a person invested $50 million and set up his own bank,” Carpenter recalled. The sole founders of new companies are often civic-minded individuals rather than individuals driven by ego or by a desire to become even richer. It is true that in some instances, they are attempting to take the place of a small local bank that has recently shut down.

Carpenter says that banks are started for a variety of reasons. Entrepreneurs sometimes believe that they can attract customers by launching a bank in a community that has been underserved by existing financial institutions. A common scenario that might happen in such a situation is that a group of Chinese or Latino Americans decides to start a local bank to serve immigrants in their native languages. A founder of another bank may have a specific kind of lending expertise that gives them a competitive advantage in a particular industry. It’s important to note that niche markets can sometimes be pretty arduous – Carpenter cites the example of one bank that debuted specifically to develop loans about special engines that seaports and government agencies use to convert diesel trucks to run on electricity.) Or maybe they have plans to launch mobile banking or some other service that local competitors can’t provide.

Fintech companies, also called financial technology companies, have begun allowing online banks to utilize innovations they have developed, such as software that automates and speeds up the loan application process, in recent years, in addition to brick-and-mortar community banks. Carpenter believes that’s more of a new wave.

Where Should You Begin?

People might be attracted to starting a bank because it sounds easy money. Carpenter reports that in the United States fewer than 20 applications are made each year to start a bank. In the first three quarters of 2019, there were only 10 new federally chartered banks. It takes a lot of work and money to start a bank. In most cases, the process takes 12 months.

The first thing Carpenter looks at when potential bank founders approach him is their business plan. According to him, the bottom line is, “does the business strategy and competition justify it?”. (From the Banking Law Journal, these questions should be able to be answered by prospective bank owners.)

There is a complicated part to starting a new bank if it seems like it has a good chance of success. First, bank founders must assemble a board of directors to oversee operations, and then they must raise capital to fund the bank’s activities. No, we’re not talking about borrowing from your 401(k) – we’re talking about serious cash. We’re probably looking at $10 million at the low end,” Carpenter says. The bank has just raised $130 million to open in New York.”

Regulators now take control

Thereafter, you need to apply to the government regulators who oversee banks. Some bank founders apply to a state agency for a charter, while others turn to the Office of the Comptroller of the Currency for their charter. The Federal Deposit Insurance Commission insures banks once they are chartered, though Carpenter says that’s usually a given. Here is a list of banks that have recently been approved for insurance by the FDIC.


During the process, there is a certain amount of risk, since if regulators approve an application, the bank founders will lose whatever they spent on advisers and other expenses.


As soon as an emerging bank gets past the regulatory process, however, things usually go smoothly. By and large, banks are very safe investments with decent returns, Carpenter says. In the third or fourth year of operation, a new bank typically earns a 10 to 15 percent return on equity invested by the startup group.


While new banks are opening, other banks are closing or being bought up by larger institutions, so the U.S. now has about 5,500 banks, down from 16,500 in 1992. Small banks still have a place in the banking industry, even as online banks and big banks are taking over the industry. Carpenter explains that while the country only has 10 percent of its deposits, it’s still a trillion dollars. Small business loans account for 50 percent of the country’s deposits.

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