Starting a Bank: Raising Money

Starting a Bank: Raising MoneyThe capital requirements to start a bank often vary greatly from state to state. In Florida, the suggested capital requirement is $6 million for a bank in a metropolitan area and $4 million for a bank in a rural area. In other states, such as New York, that amount might be $10 million or more for metropolitan areas. Those capital requirements are usually determined by your strategic plan and pro forma financial statements for the market you've selected.Photo courtesy -->As mentioned above, the organizing group may be responsible for 10 percent to 15 percent of that amount. The remainder is sold to shareholders. Organizing groups may shoot for 400 to 750 or more shareholders in order to raise the money needed to start the bank. Usually, the more shareholders a bank has, the better its chance of succeeding.

Starting a Bank: Charter Application and Other Details

Starting a Bank: Charter Application and Other DetailsThere are still some details that have to be determined before you can submit your charter application. For instance, what are you going to call your bank? You have to come up a with a name that is different enough from other bank names to avoid confusion. You also need to think about whether you want the word "bank" in the name, and whether you want the geographic region in the name. Regardless of the name you choose, you have to verify that the name is not being used by any other corporations -- which leads us to the fact that you have to become incorporated.Before you actually file your application, it is recommended that you set up a pre-filing meeting with the state's department of finance and banking. This will help make sure that you have all of the information you need to file. Usually, the biggest delays come from incomplete background and/or financial information.Photo courtesy -->Once you have all of the details ironed out, you fill out the charter application and submit it (along with a lot of other information) to the state's board of finance and banking -- or, if you're applying for a federal charter, you'll send it to the Office of the Comptroller of the Currency. Here is the list of items you have to include in Florida

How safe is your money in a bank?

How safe is your money in a bank?The 12 regional Reserve Banks act as the service division of the Federal Reserve -- they carry out the monetary policy set by the Federal Reserve Board and regulate and supervise financial institutions. The agency that charters the bank is also responsible for conducting on-site examinations to make sure the bank is complying with banking laws. In addition to this supervision, your money is also protected by insurance.Photo courtesy -->That "FDIC" logo you see as you walk in the door means that you hold insurance on your deposits. Depositors are typically protected for up to $100,000.Deposit insurance came about because of rumors of banking trouble that lead to panics and everyone running to the bank to withdraw all of their money. It didn't take much to make people uneasy about the security of their money in the bank. If they heard of the slightest hint of trouble, they ran to the bank to withdraw. This lead to the failure of many banks and huge losses of savings for many people. This roller coaster of personal finance lasted for many years and throughout the Great Depression of the 1930s. Finally, in 1934, Congress established the Federal Deposit Insurance Corporation (FDIC), which initially provided deposit insurance coverage of $2,500 per depositor. This greatly improved the security of banks and reduced the number of bank failures by almost 4,000 from 1933 to 1934.Public confidence in the banking system has improved tremendously since the FDIC was established. The trust that depositors need in order to make the system work is maintained, and the economy keeps humming.Banks also carry private banking insurance -- specially designed private coverage to protect deposits in the case of burglaries, robberies, vandalism, etc.

Checking Accounts

Checking AccountsBanks offer lots of financial products for their depositors. The checking account is one of the most common ones. It's convenient because it lets you buy things without having to worry about carrying the cash -- or using a credit card and paying its interest. While most checking accounts do not pay interest, some do -- these are referred to as negotiable order of withdrawal (NOW) accounts. Some say that checks have been around since about 352 B.C. in the Roman Empire. It appears that checks really started becoming popular in Holland in the 1500 to 1600s. Dutch "cashiers" provided an alternative to keeping large amounts of cash at home and agreed to hold depositors' money for safekeeping. For a fee, they would pay the depositors' debts from the account based on a note that the depositor would write -- sounds a lot like a check!Today's banks do the same thing. It became a little more complicated when lots of banks became involved and money needed to be shifted from one bank to the next. To make things easier, banks now have a system of check "clearinghouses." Banks either send checks through the Federal Reserve or use a private clearinghouse to transfer the funds and clear the check. Here is a diagram of how that works.

Loans, Checks and Savings

Loans, Checks and SavingsAside from checking accounts, they offer loans, certificates of deposits and money market accounts, not to mention traditional savings accounts. Some also allow you to set up individual retirement accounts (IRAs) and other retirement or education savings accounts. There are, of course, other types of accounts being offered at banks across the country, but these are the most common ones.Savings accounts - The most common type of account, and probably the first account you ever had, is a savings account. These accounts usually require either a low minimum balance or have no minimum balance requirement, and allow you to keep your money in a safe place while it earns a small amount of interest each month. In standard practice, there are no restrictions on when you can withdraw your money.Money market accounts - A money market account (MMA) is an interest-earning savings account with limited transaction privileges. You are usually limited to six transfers or withdrawals per month, with no more than three transactions as checks written against the account. The interest rate paid on a money market account is usually higher than that of a regular passbook savings rate. Money market accounts also have a minimum balance requirement.Certificates of deposit - These are accounts that allow you to put in a specific amount of money for a specific period of time. In exchange for a higher interest rate, you have to agree not to withdraw the money for the duration of the fixed time period. The interest rate changes based on the length of time you decide to leave the money in the account. You can't write checks on certificates of deposit. This arrangement not only gives the bank money they can use for other purposes, but it also lets them know exactly how long they can use that money.Individual retirement accounts and education savings accounts - These types of accounts require that you keep your money in the bank until you reach a certain age or your child enters college. There can be penalties with these types of accounts, however, if you use the money for something other than education, or if you withdraw the money prior to retirement age.For much more information on banking and related topics, check out the links on the next page.