

Ask HN: How do you start a bank? - personjerry

Theoretically, if one wanted to, how would one start a bank?<p>Also, are there any conceivable reasons for a startup to be a bank startup?
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evolve2k
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]"

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edoceo
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.

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davismwfl
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.

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brudgers
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.

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luxpir
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?

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personjerry
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.

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osipov
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.

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personjerry
That seems pretty unfeasible for a startup unless it already has significant
traction. So it seems like bank startups are out of the question.

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cweagans
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
Bancorp is who'd OP would partner with. They have a platform built for
integrations.

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BjoernKW
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.

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philippnagel
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.

