
Starting your own bank is laborious but profitable (2009) - gscott
https://www.wealthmanagement.com/practice-management/you-can-open-bank
======
smelendez
It feels like there's a growing split between what borrowers and depositors
want from banks.

Conventional wisdom says small businesses benefit from a personal relationship
with local bankers who know market conditions and can sign off on loans and
lines of credit that a national bank might see as too risky or too small to
deal with.

But as a depositor, I don't want a personal relationship with my bank at all.
I want a reliable IT system with low costs and great tech support if something
goes wrong, which is something the scale of a national operation can best
deliver.

~~~
mey
Things I value in a bank as a consumer. Loans that are serviced by a single
entity for the life of the loan. Not ordering transactions in an attempt to
drive the balance below zero in a day. Ease of ATM access. Customer service. I
have all of these at the CU I use.

I don't keep large liquid in my CU, instead that is in higher yeild accounts,
but that was true with Chase or BoA as well.

The reliable IT system has to be there, but you might be horrified about the
beast of systems (human and computer) that make our banks/ach/transactions/etc
function.

I don't worry much about loosing money in the bank due to FDIC/ NCUSIF. I
can't audit their internal process so I instead depend on insurance. It kinda
removes worry about their IT infra from my mind.

If you are above FDIC value, you should be banking with multiple banks and
putting your money to better uses.

~~~
fro0116
I've always wondered what rich people do when their savings/investments vastly
exceed the FDIC/SIPC maximums of 250k per institution, because past a certain
point, splitting among multiple banking institutions becomes logistically
infeasible.

Do they tend to get some kind of private insurance against institutional
failures for their entire balance? Or do they just not worry about it?

~~~
jefftk
FDIC protects cash at (fractional reserve) banks. SIPC protects securities at
(non-fractional reserve) brokerages. A very rich person isn't going to have
enormous quantities in cash; most of it will be invested. But the risk of a
brokerage losing your stock is way lower than a bank losing your cash
deposits, and even that is very low. If they wanted to buy insurance against
it that wouldn't be very expensive.

------
quirkot
The word on the street in the credit union industry is that you need $500
million in assets to be long term viable. It could be lower for a bank, but
you'd need a laser focused niche.

[edit] source: I sit on the board of a credit union. This is a concern driven
by the regulatory burden and cost to maintain a competitive IT infrastructure

~~~
bunderbunder
Has there been any talk of credit unions pooling resources on some of the IT
stuff? Everyone expects a mobile app nowadays, but it doesn't make much
economic sense for every single credit union to build their own.

~~~
quirkot
There is an active market for vendor software, as indicated by the other
replies. The real expense driver isn't necessarily that "you need an app" but
that "you need an app that is either very hardened or safely quarantined from
your core infrastructure". And more generally, yeah the front-end stuff is
kinda crappy, but it's because the back-end has to connect to a bunch of
different systems with weird proprietary protocols and it has to work 100%.
Every. single. penny.

And if you're a $100-$200 million in assets credit union, you may have an IT
team of 2-3 people (that's a swag, but it wouldn't be > 5)

------
jpatokal
You can open a bank, and then this might happen to you:

[https://en.wikipedia.org/wiki/Abacus_Federal_Savings_Bank](https://en.wikipedia.org/wiki/Abacus_Federal_Savings_Bank)

[https://en.wikipedia.org/wiki/Abacus:_Small_Enough_to_Jail](https://en.wikipedia.org/wiki/Abacus:_Small_Enough_to_Jail)
(an excellent documentary)

~~~
fma
That's messed up. Injustice, and maybe racist? So many other Banks down the
street that casued malice...I thought it was bad enough that non of the big
banks got in trouble for ruining the global economy...but to prosecute a small
bank, which has default rate of 1/10th of other banks is infuriating, which
fired the one employee that casued trouble...

Though they were cleared of all charges, I'e the stress caused onto the staff
of 19 people was great.

~~~
gammateam
The only reason they brought the charges on "low hanging fruit" was to be able
to point at why it is basically impossible to prove crimes against an
individual or corporation in nuanced financial matters to a jury.

The point was to show how this is a negligent use of public resources unless
the laws changed, which they won't.

Maybe it backfired because the jury felt it was unfair by that point, the
result is still the same and it solidifies the case law itself raising the bar
for prosecution even higher.

------
nlh
Since this article is 9 years old, I was curious about follow-up. Checked
LinkedIn and looks like this guy is still with the firm he was with in 2009:

[https://www.linkedin.com/in/michael-
wagner-60a65b116/](https://www.linkedin.com/in/michael-wagner-60a65b116/)

So I guess you...can't open a bank?

~~~
venantius
In fairness to him, the OCC (the national banking regulator in the US) has had
a practical moratorium on new national bank licenses for most of the past 10
years. You can get a new state bank charter, but not a national one. I can't
blame him for not wanting to start a bank in the US lately.

~~~
miketery
Can you expand on why one wouldn't want to start with a state bank?

~~~
cbnotfromthere
The problem is not the start with a state license, but expanding to a federal
license.

------
rc_bhg
I'll join you if anyone is starting a bank.

~~~
venantius
I can't tell if this comment is in jest or not, but we actually are starting a
bank in the UK to be a platform bank for fintechs across Europe and beyond.
Happy to chat.

~~~
dkimerling
He's real

------
noumenon
I think its interesting to see fintechs trying to bypass the traditional
banking model entirely. They are trying to move up the chain with a UX
advantage while larger players are trying to defend themselves. Square and
Venmo both offer debit cards which covers the majority of banking needs for an
average person.

~~~
venantius
We've actually started a new bank explicitly to provide the banking
infrastructure to companies like this that are good at owning the UX
advantage. Our conviction is that in the long term banks will be
disintermediated from most of their customers and there will be a general
unbundling of banking services - you won't get your mortgage / small business
loan / checking account all at the same bank.

~~~
nedwin
Heads up your beta signup form is broken

~~~
venantius
Broken how? I got a bunch of signup pings off this thread - Bug report welcome
founders@griffin.sh

~~~
nedwin
On submission of my email it redirected me to an error page. Can't remember
what it said, only that it was an unstyled html page with one line of error
text. Just tried again and works now.

------
cryoshon
i'd start a bank with the following principles:

0\. don't tell the customers that we can do anything we can't do

1\. cap profits at a low percentage of the capital base to discourage being
irresponsible with customer money; enforce corporate austerity to keep costs
very low

2\. any profits over the cap are returned to customers

that's it, i think. the idea is to have a bank that is rock solid (even when
compared to other banks) and profitable for customers. maybe only offer one
type of account, and have no minimum deposit. no fees, and offer ATM cost
refunds. no personal loans. no credit cards. maybe offer a mortgage package,
but probably not. no branches, obviously. customer service would be top
priority.

the corporate side of the bank would ride on austerity. no advertising beyond
what is necessary to start the bank in motion. no luxuries for the c-suite.
maybe enforce a max disparity in pay between the lowest rung and highest rung
of employees to something outrageously constrained like 10 or 20k. maybe only
have five or six job titles in total, if possible. fill those jobs on a first
(somewhat qualified) come first serve basis and a 20 minute interview.
advertise the jobs only as necessary.

is this idea crazy? maybe in the banking sector it might be, but you can't
trust them. they're drunk on chasing money, and they're reliably unreliable in
the long term-- the article even mentions how many banks have gone under.

but there are a lot of great examples of other kinds of companies (i am
specifically thinking of the food wholesaler called aldi) which make their
money by offering what the customer needs and nothing more. you don't need to
go crazy profiteering to make robust profits...

~~~
Jtsummers
> maybe enforce a max disparity in pay between the lowest rung and highest
> rung of employees to something outrageously constrained like 10 or 20k

A simple multiplier makes more sense. Top position shouldn't be making more
than 10x the bottom position (or something like that). A janitor, for instance
if full-time and more than just sweeping floors, is making $20-40k/year (big
spread, but that's starting at $10/hour and going up to $20/hour which is a
reasonable rate in much of the country for that work). So that means top brass
is making $200k-400k (on a 10x multiplier between top/bottom incomes). If the
big boss wants a pay raise, they have to move at least the bottom of the pay
range up with them. If you add a constraint on the mean/median income, they
have to bring everyone up with them.

~~~
cryoshon
i see where you're coming from.

i think using that framework the ideal constraint would be something like 1.2X
or maybe at the very most 1.5X. this leads to overpaid janitors and underpaid
execs, which is the desired result of the policy. it sucks having to find a
new janitor because things get dirty in the meantime, but there are a billion
execs out there and most of them should be doing very little other than
keeping the ship stable most of the time.

holding people's money safely is not an occupation for people who can afford
to treat money carelessly in their personal lives.

i know that these are "stupid" and petty things, but i think little petty
things like this add up into a corporate culture if you have enough of them.
the corporate culture of this hypothetical bank would do a lot to add to its
branding and also its credibility.

honestly i wouldn't even be proposing extreme measures like these (or
advocating that the execs should be doing very little) if i didn't think it
was necessary for the concept, which i've now put far too much effort into :p

------
tim333
Monzo started the first new bank in the UK for a while. It appeared laborious
and they are losing £30m/year but I think they will be profitable.

------
godelmachine
There was a prominent builder in India called DS Kulkarni. He just tried doing
that. Collected almost 1250 crore INR from almost 2000 investors as FD’s
promising returns. Then demonization was implemented in late 2016 and all his
investors were duped by him.

Now, both he and his wife is in prison.

------
vpmpaul
You legally need something like $10 Million in reserve capital to start a
bank. Pretty much any business is profitable if you can afford to start with
10 million in savings plus have enough money to run the business.

~~~
tasuki
> Pretty much any business is profitable if you can afford to start with 10
> million in savings plus have enough money to run the business.

This is non-obvious to me. Care to elaborate?

~~~
vinceguidry
I think the idea is that there aren't any problems in business that cash in
the bank can't solve. It's just a question of whether you have enough money to
throw at the problem to make it go away. $10 million is enough to make any
problem go away. Basically you just hire a consultant and they get it done.

Finance is high wizardry, treating literally every single problem you have in
dollar terms, but it built the modern world. Us software developers exist in
what's basically the frontier of business. $10 million is just getting started
for a software company. But it's enough to push through to profitability in
every single other sector.

~~~
__blockcipher__
Bullshit. Hire a bunch of consultants without any ability to judge which are
worth the ticket, and you’ll spend a measly $10 mil in no time.

~~~
vinceguidry
Knowing which consultants to hire and when is presumably the domain of the
finance guys. You can buy competence, it's just expensive. $10 million is
enough to hire a full turnaround team.

The key is you have to have it as cash in the bank. You can't finance a
turnaround, the better move at that point from a financial perspective is to
just fold up the business, but if you have it, you can use it as collateral
for a more aggressive expansion.

That way if you run into enough problems, the money guys can 'foreclose' and
use the reserve capital to enact a turnaround plan, and eventually earn their
money back. It's an extra form of security.

~~~
__blockcipher__
lol, how do you hire the right finance guys? You didn’t address the central
paradox.

~~~
vinceguidry
The finance guys are running the company at that point, so presumably they
already have that knowledge. And most companies do retain a finance guy in a
senior management role as the CFO. So their perspective gets heard and in some
cases actually listened to. It's just that running a company purely with
safety in mind generates far less profits than aggressive investment in a
business model.

If a finance company is running a business, it's because the industry people
that started the company managed to run it into the ground, finance people
never seek to start businesses in any other space than the finance space. It's
just not interesting to them. When they wind up running companies, they mostly
just delegate all the decisions to the consultants they have a working
relationship with.

It's simple, you go to a lender who demands you keep $10MM in the bank as a
contingency fund. You run the company into the ground, and the lender has to
foreclose on the loan, taking control of the business. They then use the $10MM
to turn the company around, eventually recouping their investment over the
long run.

You're bringing the $10MM in collateral, not the bank, so the bank doesn't
have to use their own money for the turnaround. It's a hedge against risk, not
some kind of magic bullet like you seem to think. No paradox needs be invoked,
the finance company simply runs the company differently than you would, from a
purely financial perspective.

------
frankcort
Maybe Stripe will surprise us with a product that makes this easy to do.

~~~
venantius
Certainly possible now that the OCC has opened the door to a "fintech banking
charter". In the past I'd have said this was impossible as Stripe has little
interest in finding itself regulated as a bank or in becoming a bank holding
company.

~~~
dkimerling
The lack of the ability to take deposits kills the FinTech Charter DOA

~~~
venantius
Ah I hadn’t heard that. If that’s the case then I agree 100%

------
rdtsc
When most people were busy with startups in the early 2000's I knew a group of
people who started a bank. Boring as it gets, lots of red tape, but once it
got going it was profitable.

~~~
venantius
Fundamentally, banks are scale businesses (much like most technology
companies). Expensive to start, but once you've got the product / regulatory
infrastructure in place your marginal revenue is really low-cost.

------
moorhosj
It seems there is a huge opportunity for someone to “disrupt” our banking
system beyond saving fractional dollars and cheap trading. A simple, online
only (or mostly, like Schwab) credit union could find a big audience.

It could be marketed as low fee, community-centered banking. Offer no ATM fees
and low mortgage rates without the typical profit motive.

~~~
jkaplowitz
There already are such. One example is Alliant Credit Union, which is where my
main US account lives.

~~~
moorhosj
Wow, this is right in my town and I had no idea! Kind of re-enforces my point
as I am their prime market and not familiar with them at all. On second
glance, it looks like I don't qualify, which is probably a barrier for larger
market share.

~~~
jkaplowitz
Anyone can join them - like many credit unions these days, they've hacked the
statutory rules restricting credit union membership, and one of the ways to
join them is to allow them to pay $5 to a charity once on your behalf:

[https://www.alliantcreditunion.org/help/who-is-eligible-
to-j...](https://www.alliantcreditunion.org/help/who-is-eligible-to-join-
alliant)

I'm not sure about who their primary market is now, though - they grew out of
United Airlines as their primary employer group, and now have many others (I
joined through Google). I think they're among the largest credit unions in the
US.

Regardless of the primary market question, they meet the needs you outlined.

------
ikeboy
I got interested in this after reading about Andrew Beal. He opened one with
around $10 million decades ago and now has a net worth over 10 billion. It’s a
super cheap source of funding if you have a good use for funding.

------
thinkingkong
Seeing as this comes up every so often, what in your opinion are the elements
missing in todays current banking system - either as a consumer or a developer
- that you would like to see?

~~~
rgersten
I'll bite :)

* Quick and customizable bill pay for onetime or recurring payments * Integration with peer-to-peer transfer systems (Zelle, Venmo, Paypal, etc.) * Simple budgeting tools and analytics. Doesn't have to be mint, just have something. * No ATM fees * Easy and fast transfers to other banking institutions * API to allow for devs and other apps to integrate basic functions * Good customer service - let me talk to a real person * All the functionality available from an app. Don't make me log into a desktop browser to access certain features. * Clear descriptions of different types of accounts * Credit reporting

That's all I can think of right now but there are probably a ton of other
issues we hit daily that could be solved. Though I have no idea of the
regulatory hurdles of implementing these and other solutions.

~~~
Jtsummers
Regarding APIs: Let us use access keys that limit what the API can see/do. I
don't like that Mint can do almost anything to my account by virtue of having
a password. I just want to be able to reliably collect transaction and/or
balance information, nothing more (which is already a lot, but I manually or
semi-automatically collect this at the moment rather than using an API).

Let the user generate an API key that is (somehow) transmitted to the
application with limited access. Then the user, at the bank's site, can revoke
these authentications at any time. Stopped using YNAB? Revoke its key. Stopped
using Mint? Revoke its key. Started using gnucash? Add a key.

~~~
y-c-o-m-b
I was just thinking this exact thing. It's reckless to provide a third party
your direct banking credentials. I feel unsafe entering those credentials into
my browser as it is - but to share it with a third party product gives me the
creeps. It's so stupidly easy to generate an access token that can be shared
with third parties and restrict access to read-only. Why they didn't think of
that is beyond me; the tech has been available for a very long time.

~~~
Jtsummers
Want to know something really annoying? I bank with multiple banks. One
institution uses access tokens. I can link them to my primary bank (the
primary has a better "whole picture" view). But does my primary bank offer
access tokens of their own? No. _They understand the concept, but don 't use
it themselves._

Of course, I know why. Different teams. There's no cohesive vision to their IT
work, same as every other enterprise out there.

EDIT: Cleaned up language. Removed some info I didn't really want here but
really botched the posted version when I did.

------
modells
IIRC, a guy at a hackerspace bought a charter from a failing/ed local bank to
complete some transaction that would otherwise been impossible/ridiculously
expensive.

------
eb0la
Some companies (not just car financing) did this i. The past as a cost savings
feature.

Think big retail stores or insurance companies with high cash flow coming
every month through the bank.

------
shashanoid
Bobby Axelrod paid wags pretty well.

------
SippinLean
>The events that literally shook the foundations of the financial system

Was there an earthquake at the NYSE?

~~~
dullgiulio
It seems that the word literally is literally never used in its literal sense.

~~~
aaomidi
Literally has never really been used in the actual definition. Writers have
used to it show how important and foundational some event was. Or just to
create some excitement in the readers.

------
scrumption
Just imagine if that labor went to something that created wealth instead of
leeched it.

------
resumeparser
Yes, it is quite hard but may make lots of bucks with the proper plan.

