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Ask HN: How do you start a bank?

17 points by personjerry 11y ago

Theoretically, if one wanted to, how would one start a bank? Also, are there any conceivable reasons for a startup to be a bank startup?

osipov 11y ago
This is called a de novo bank. The trouble is that states issue few to no de novo bank licenses since the 2008 crash. So if you want to do a banking startup expect to pay for an existing banking license or to buy an existing bank.
- personjerry 11y ago
  That seems pretty unfeasible for a startup unless it already has significant traction. So it seems like bank startups are out of the question.
  - cweagans 11y ago
    You could always do what Simple.com did, and partner with an existing bank for just the money storage part. They see their value add as their interface and customer service (both of which they do extremely well). The money storage part is just an implementation detail to them.
    - toomuchtodo 11y ago
      Bancorp is who'd OP would partner with. They have a platform built for integrations.
philippnagel 11y ago
I am currently exploring the same topic - starting a bank in the EU. E-Mail me if you want to chat! My address can be found in my profile.
luxpir 11y ago
First thoughts are offshore microstates, unregulated virtual currency banks, or be extremely well connected to financial and political figures. I'd be drawn towards an autonomous, low cost, high volume virtual operation. A traditional brick and mortar bank would seem an odd thing to start at this point in time, unless your operation could be mostly automated in some way. What are you thinking?
- personjerry 11y ago
  I was thinking banks seem antiquated and cumbersome entities, surely there is a better solution? But now it makes sense given the amount of legal work they must deal with.
brudgers 11y ago
It's hard to see a conventional bank achieving startup like hockey stick growth in any jurisdiction with moderate enforcement of conventional banking regulations. It might make sense for a company focused on serving banking to own a bank or two as a means of testing systems and perhaps marketing its products to new customers based on glowing testimonials from said banks. While such an arrangement of banks as affiliated companies would require substantial upfront capital, it is feasible that such banks could be operated revenue neutral with regard to burn rate for the core startup while providing a somewhat liquid asset should the core startup go bust (which is technobabble for "a bank could be run to break even and sold when the underlying startup folds with the proceeds returned to the investors who funded its creation/purchase"). That said, a lot of high return capital is going into more predatory financial institutions such as payday and title loans because of the higher interest rates and lower regulatory burden and the fact that the rich people banks are designed to serve tend to have many good options while the customers who tend to use payday and title loans have few options and usually none of them are good. Good luck.
edoceo 11y ago
In the USA the first step is to get a large amount of cash. The bank needs money to even start, a lot of money. Then you need lawyers. In addition to general business things you must also file state and federal charters. You will need to then connect to many payment networks and the "fed" for funds settlement. Your Risk Officer will make a policy plan for lending and investing assets. Things get crazy based on the type of banking. Commercial vs Consumer, Construction lending, mortgage, auto, escrow and so forth. So pick a narrow place to start (commercial lending) and expand slowly (think years per product). There are many existing software solutions to manage these accounts, building your own is quite expensive. Your business will be audited by the FDIC every 6mo and you'll need plenty of documentation. Hire a firm like PWC in the off quarters to audit as well. Look around for your smaller local banks, small ones can operate with only 400M in assets and still service home lending and consumer checking, savings and CDs. The growth curve for banks is not like a tech-startup at all. Prepare for a multi-decade process.
- davismwfl 11y ago
  You seem to have knowledge here, I have always had some of these same questions about "new" banks. What is the minimum liquid holdings that is required by the Fed to open a bank, and what is the leverage you can use against those assets (I'd assume it grows with the total liquidity values)? How does it work, is a smaller bank getting loans only from the Fed or from larger banks at "wholesale" rates? How does the Fed evaluate the risk profile of a small bank? Is it based on the leveraged assets or something more? Ironically, I have done work for financial institutions but we worked on front line software and on basic web applications around peoples accounts, never the backend and no one I ran into understood how it really functions behind the scenes. Or maybe they just didn't want to take the time to explain to me.
evolve2k 11y ago
If you were in Australia I'd suggest you look into creating a credit union, or some other mutual/member based banking group. Banks are highly regulated (so they don't fall over). A secondary group of bank-like organizations, eg finance companies/credit unions/mutual funds exist that have a much lower bar to register and if you are lucky one of these lighter structures might be more suitable to your purposes. Credit unions for example (https://en.m.wikipedia.org/wiki/Credit_union https://en.m.wikipedia.org/wiki/Credit_union) "A credit union is a member-owned financial cooperative, democratically controlled by its members, and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members.[1][2][3] Many credit unions also provide services intended to support community development[4] or sustainable international development on a local level.[5]"
BjoernKW 11y ago
The most practically feasible way likely is partnering with an existing bank and using their license. NUMBER26 does this and from what I hear they're quite successful so far.

17 points by personjerry 11y ago

Theoretically, if one wanted to, how would one start a bank? Also, are there any conceivable reasons for a startup to be a bank startup?

osipov 11y ago

This is called a de novo bank. The trouble is that states issue few to no de novo bank licenses since the 2008 crash. So if you want to do a banking startup expect to pay for an existing banking license or to buy an existing bank.

personjerry 11y ago
That seems pretty unfeasible for a startup unless it already has significant traction. So it seems like bank startups are out of the question.
- cweagans 11y ago
  You could always do what Simple.com did, and partner with an existing bank for just the money storage part. They see their value add as their interface and customer service (both of which they do extremely well). The money storage part is just an implementation detail to them.
  - toomuchtodo 11y ago
    Bancorp is who'd OP would partner with. They have a platform built for integrations.

philippnagel 11y ago

I am currently exploring the same topic - starting a bank in the EU. E-Mail me if you want to chat! My address can be found in my profile.

luxpir 11y ago

First thoughts are offshore microstates, unregulated virtual currency banks, or be extremely well connected to financial and political figures. I'd be drawn towards an autonomous, low cost, high volume virtual operation. A traditional brick and mortar bank would seem an odd thing to start at this point in time, unless your operation could be mostly automated in some way. What are you thinking?

personjerry 11y ago
I was thinking banks seem antiquated and cumbersome entities, surely there is a better solution? But now it makes sense given the amount of legal work they must deal with.

brudgers 11y ago

It's hard to see a conventional bank achieving startup like hockey stick growth in any jurisdiction with moderate enforcement of conventional banking regulations. It might make sense for a company focused on serving banking to own a bank or two as a means of testing systems and perhaps marketing its products to new customers based on glowing testimonials from said banks. While such an arrangement of banks as affiliated companies would require substantial upfront capital, it is feasible that such banks could be operated revenue neutral with regard to burn rate for the core startup while providing a somewhat liquid asset should the core startup go bust (which is technobabble for "a bank could be run to break even and sold when the underlying startup folds with the proceeds returned to the investors who funded its creation/purchase"). That said, a lot of high return capital is going into more predatory financial institutions such as payday and title loans because of the higher interest rates and lower regulatory burden and the fact that the rich people banks are designed to serve tend to have many good options while the customers who tend to use payday and title loans have few options and usually none of them are good. Good luck.

edoceo 11y ago

In the USA the first step is to get a large amount of cash. The bank needs money to even start, a lot of money. Then you need lawyers. In addition to general business things you must also file state and federal charters. You will need to then connect to many payment networks and the "fed" for funds settlement. Your Risk Officer will make a policy plan for lending and investing assets. Things get crazy based on the type of banking. Commercial vs Consumer, Construction lending, mortgage, auto, escrow and so forth. So pick a narrow place to start (commercial lending) and expand slowly (think years per product). There are many existing software solutions to manage these accounts, building your own is quite expensive. Your business will be audited by the FDIC every 6mo and you'll need plenty of documentation. Hire a firm like PWC in the off quarters to audit as well. Look around for your smaller local banks, small ones can operate with only 400M in assets and still service home lending and consumer checking, savings and CDs. The growth curve for banks is not like a tech-startup at all. Prepare for a multi-decade process.

davismwfl 11y ago
You seem to have knowledge here, I have always had some of these same questions about "new" banks. What is the minimum liquid holdings that is required by the Fed to open a bank, and what is the leverage you can use against those assets (I'd assume it grows with the total liquidity values)? How does it work, is a smaller bank getting loans only from the Fed or from larger banks at "wholesale" rates? How does the Fed evaluate the risk profile of a small bank? Is it based on the leveraged assets or something more? Ironically, I have done work for financial institutions but we worked on front line software and on basic web applications around peoples accounts, never the backend and no one I ran into understood how it really functions behind the scenes. Or maybe they just didn't want to take the time to explain to me.

evolve2k 11y ago

If you were in Australia I'd suggest you look into creating a credit union, or some other mutual/member based banking group. Banks are highly regulated (so they don't fall over). A secondary group of bank-like organizations, eg finance companies/credit unions/mutual funds exist that have a much lower bar to register and if you are lucky one of these lighter structures might be more suitable to your purposes. Credit unions for example (https://en.m.wikipedia.org/wiki/Credit_union https://en.m.wikipedia.org/wiki/Credit_union) "A credit union is a member-owned financial cooperative, democratically controlled by its members, and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members.[1][2][3] Many credit unions also provide services intended to support community development[4] or sustainable international development on a local level.[5]"

BjoernKW 11y ago

The most practically feasible way likely is partnering with an existing bank and using their license. NUMBER26 does this and from what I hear they're quite successful so far.