How to Start Your Own Bank

How to start your own bank:
 
http://www.financialsense.com/fsu/editorials/schoon/2007/0514.html
 
http://money.howstuffworks.com/bank5.htm
 
Idea: we get 6 investors with $100,000 each to become the directors.  Their $600,000 is the 10% needed to get started; we raise the other 90% by issuing stock.  That gives us capital of $6 million, enough to charter a bank.  Then we’re allowed to create and lend . . . $200 million!  (See first article above.)  Today you only need 3% reserves if you’re a small bank.  The BIS (Bank for International Settlements) capital requirements are a bit higher — 8% — but even at 8%, our $6 million lets us lend $50 million.  We lend interest-free to various worthy causes that will generate a profit if they don’t have the burden of interest, such as alternative energy projects, low-cost housing, Permaculture farming projects and the like.  Rather than charging interest, we take a modest share of the profits, on the model of Islamic banking or investment banking; but our real purpose is to set up a working model of what community-oriented banking could be.   We use the principles developed over 300 years by the private banking system and turn them to public ends. 

14 Responses

  1. I know some people in my city who want to do this. A dozen or so are meeting next month to discuss it.

  2. That’s great! I’d be interested to hear of developments.

  3. Maybe it could just be slipped into place while Wall Street and Washington with their ruckuses are distracted from noticing.

    The Canadian banksters run a very tight cartel. They love their freedom from fractional reserves. And didn’t worry about ING’s virtual bank. At the Cdn Payments cheque-clearing, they could see their stranglehold wasn’t at risk.

    The more real damage would come from the implementation of a ‘Tobin” tax on both domestic and international large transactions, were the tax money directed to re-regulating the banks.

  4. Thanks Jerry. I’m thinking we could just set it up as a model, to show the government what they could do if they actually exercised their own power to issue credit, instead of insanely borrowing from banks that create credit and indebt the taxpapers for it.

  5. You really should hook up with Catherine Austin-Fitts.

  6. Yes, we’ve talked! Thanks Stefan.

  7. This is a FANTASTIC idea! I really wish I had some cash to spare.

    Are there any serious plans to start a bank?

    I’ve been reading up on Damanhur and their so different society and values. From http://www.damanhur.info/en/html/ArcMagazineDet.asp?IDArt=1411:

    “… Linked to the project of the Credit and as a complement to it, there is DES, a system of social loans which accepts deposits and issues financing both in Euros and in Credits. DES arose from the idea of a finance service to serve the shared wellbeing, to make use of the money to start up development projects with ethical and social aims (organic and GMO-free foods, eco-building, renewable energies, excellence in craftsmanship, art, culture, research…). …”

    I don’t think they can do fractional reserve lending, but it certainly is admirable.

  8. Hi Christine, there is a startup bank of this sort, at http://www.commongoodbank.com. Interesting about Damanhur – thanks! Ellen

  9. Thanks for that link, Ellen. I’m so thrilled to see that they really are planning on opening the first branch next year, just wish it was SOONER.

    The concept of issuing LOCAL currency is so cool, but I didn’t fully appreciate it until I read in your book last night how huge the interest on the government debt is and that the money to pay the interest doesn’t exist.

    I had no idea about the financial systems in the colonies and I just can’t understand WHY the government (taxpayer) pays interest to the BANKS instead of everybody paying interest to the government.

    This is all so BASIC, but nobody talks about it.

    And I just can’t understand why none of the presidential candidates talk about this. I listen to NPR’s Marketwatch reports on everything else and NOBODY talks about this.

    Instead, I just read that they want to give the Federal Reserve MORE power.

    It is so frustrating to get the daily emails from people who are being hounded by collectors and most people are just totally ignorant.

    Well, sorry about my rant, can’t wait to finish reading your book.

  10. Correction: the government doesn’t pay interest to the banks (for the most part) but to the investors who buy bonds. And it does hit the news occasionally that foreign countries buy much of the government debt and if they stopped buying, America would be in trouble.

    At any rate, there’s not need at all for the government to pay interest to anyone. It’s the stupidest thing I’ve ever seen.

  11. I wish the above as simple as it is was the reality. Actually starting a bank is an extremely complex process. For many investment groups, obtaining FDIC insurance for their de novo bank is the most difficult process they have ever been through. The regulators look at three main items – and of course this is simple too:

    1. Management of the bank. The experience of the bank management team and the board of directors has to meet their rigorous standards. It is harder to find people who can pass this hurdle.
    2. Business plan – the business plan has to show that the bank will return a profit with in three years based on sound banking principles. The typical pro forma for a de novo bank can be in excess of 120 pages.
    3. Capital – not often are banks approved with just $6.0 million of capital. The regulators are looking for well capitalized banks that can withstand problems – similar to the credit crisis we are experiencing now. Most often banks are approved with north of $10.0 million in start up capital – that is after all the pre-organization expenses are paid.

    Starting a bank is a great experience – I think more banks should be started every year. I wish any group looking to start a bank the best of success in their endeavor. A de novo bank can really benefit a community.

  12. Thanks for writing. Yes, I had decided it was going to be quite difficult after looking into it. Back to the drawing board!

  13. Cd4313…

    Cd4313…

  14. Isn’t this example a bit simplistic for a number of reason apart from the ones raised above:(please correct me if I have misunderstood anything. This web site is great but this example seems to be out of place)

    Don’t banks recycle money. In other words unless the money comes back via deposits then the above example doesn’t work. So it’s not just as easy as setting up a bank and turning $6 million into $200 million of loans. The money loaned initially must come back as deposits to loan back out. So new depositors have to be convinced to deposit money with a new bank, How would these new depositors be found.

    NB Central banks can do this (create money or credit) but banks can only recycle money. It’s similar but completely different.

    Investors have to be found to buy stock. This could be difficult.

    Also just removing the burden of interest does not guarantee a profit.

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