How can one establish a bank?

How can one establish a bank?

The dream of so many people is to have their own bank. But the wrong thing is having in mind, that as a bank owner, you can do whatever you want. Every bank and financial institutions must comply with the laws of the jurisdiction where they are incorporated as well as international laws for the prevention of money laundering, financing of terrorism or criminal activities, etc. There are several options for obtaining a bank license in several jurisdictions, but before analyzing the existing options, ask yourself the rightful questions:

1. How much does it cost to establish a bank?

2. How can one operate a bank?

3. How do I obtain credibility with a new bank?

4. What are the similar and alternative activities to a bank?

In fact, establishing a bank does not only mean getting a license, but structuring the bank, marketing and attracting customers, creating interbank accounts with correspondence accounts, scheduling or buying a good internet banking, being connected to SWIFT, creating a structure of KYC and AML and a compliance office connected to international databases to be able to monitor to see that customers are not involved in money laundering operations and then it’s necessary to have a verifiable physical presence, with offices, employees, telephones and finally, a good website. Therefore, you will understand that a license is only the initial phase and in order to obtain this license, each jurisdiction applies different standards and requirements.


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How much does it cost to establish a bank?

We will start by saying that with little money, you can’t be able to establish a bank. I would say here that the minimum capital needed to establish a bank must be at least 1 million euros. According to the capital you have, you can opt for a certain type of license or another.

Twenty years ago, I had clients who developed financial activities without any license, for example, established a company in the Dominican Republic (where it’s allowed) and then created accounts in real banks to receive and send funds. For a long time, such a structure is unthinkable. Today, all transactions are monitored and no financial institution wants to deal with those that do not meet all AML and transparency requirements. It’s clear that if a bank, even with offices and licensed, has no credibility with other banks and customers, it’s destined to die/bankrupt even before its start.

In addition to the cost of the license, for a bank to be credible, it must have a certain number of key persons and services that gives it credibility. Let’s analyze what you must have and a minimum cost per year.

A bank must have                                                                           Estimated cost per year

License                                                                                                        60.000 EUR

Public Offices                                                                                               10,000 EUR

Experienced Director (can be retired)                                                        120,000 EUR

Web site, server, Https EV                                                                           24.000 EUR

SWIFT                                                                                                          50.000 EUR

Correspondence accounts (at least 2 per currency)                                    50.000 EUR

Marketing                                                                                                     50.000 EUR

Telephone exchange, with at least 2 employees                                          30.000 EUR

Total Estimated                                                                                         394.000 EUR

So, to operate a bank, even for savings, it takes 400,000 euros a year. The minimum capital to be deposited is 600,000 euros, so we’re at the initial million euros according to my calculations. Having this, with a good knowledge and reputation, one can operate a bank. Obviously, it will be necessary to add services like prepaid cards, Cryptocurrencies, etc. and each program has its initial cost and needs a capital to be allocated for operations.

How can one operate a bank?

To operate a bank, like any other business, you need to know what you are doing, but in the case of a financial activity, experience and skills are very important as losing money is always easier than making money and when it comes to foreign money (others money), responsibility is twofold.

Supposing we have deposited the required capital, obtained the license, opened an office and a website with security https EV (must be EV-extended validation) and perhaps banking domain. We start with friends and acquaintances and the first customers arrives. Now, how can you receive or send money? One or more correspondence accounts will be needed and will be very difficult having them in a good or primary bank because the new bank has no reputation. Therefore, it will be necessary to take one step at a time and start with small banks that accepts the risk. However, these small banks have correspondent accounts in other banks that are often not primary and do not allow you to make bank-to-bank transactions. This means that your client will send money to a bank that will then send it to another bank and this bank will send it to you via a different one that will finally send it to your bank, with astronomical costs.

How do I obtain credibility with a new bank?

Getting credibility with a new financial product is the hardest part: it's all about money and people are afraid to lose it. That’s why owners and managers’ reputation is fundamental. Running a financial business without giving face is suicide. The second important factor is the image to the general public, i.e. the Web site and the offices that receives clients and eventually the branches.

In this article, we mainly take into consideration, the hypothesis for the creation of a private bank and not a bank with counters. First of all, we must clarify that they are two separate and different licenses. That’s why we do not take into consideration the hypothesis of having counters. However, a representative office is necessary. This must be located in a central area, in a prestigious building and must give the customers an image of economic security, thus, luxury, but without bragging. Although the activity is done online, bone virtually and only a small percentage of the customers will visit it, it’s important to give a good image. In the office, you will be visited by your representatives, other banks, credit or debit card providers, compliance and certification services and this is going to be your image to the guild.

The website should be professional, easy-to-read, user friendly to find products and have high levels of security, including https EV (extended validation) that requires a series of checks before it can be obtained. Better still a banking domain. For the complaint, which is a mandatory protocol to prevent customers from being involved in organized crime, money laundering or terrorism, it’s necessary to rely on World Check type companies and have experienced staff. Nowadays, being involved in scandals for illicit funds is the biggest risk for a bank which can be closed/shut down and liquidated by the authorities.

What are similar or alternative activities to a bank?

If, after analyzing this summary on how to establish a private bank and create accounts, etc., and given the difficulties, you have thrown in the towel (given up), there are still options to establish a financial business.

There are several financial activities with fewer controls, commitments and lower initial cost. These are financial (loans), trusts that administers money from third parties, financial brokers, money transfer agencies and electronic purses or e-wallet.

Electronic purses or e-wallets

The latter are the most similar to a bank-like activity. In addition, the electronic purses offer additional services such as Cryptocurrencies, remittances, debit cards, online sales, receipt and payment of digital services, etc.

An electronic purse is the most economical option to open a financial activity, it permits you to create a customer base that can then be diverted to a bank and gain experience, contacts and create a reputation.

Electronic purses or electronic payment system is a system of remittances and payments similar to PayPal, but have the advantage of accepting other payment systems or "money transfer" such as MoneyGram, Western Union, bank transfers and Credit cards. An electronic purse and payment system generally offer different types of accounts and other types of services: debit cards, bank transfers or money transfer via Western Union or MoneyGram.

The e-Wallet is licensed to receive and make payments online. With this license, you can open several correspondence accounts in many banks. The total estimated investment is approximately 100.000 EUR including the company, creating of bank accounts (at least 4), licensing and website development with all security systems, including the "Internet Banking” systems. The rest of the investment is the initial costs, publicity, etc.... you obviously need a capital of at least 200.000 EUR.

Credit Union and Savings Cooperative

Another interesting option is a credit union. They exist in many countries, including Sweden and the Dominican Republic. They can perform banking operations only between a certain number of associates, they are generally limited to 100 and 1000 associates. The problem with these entities is that it’s possible to lose control over the decision-making of cooperatives, since most jurisdictions force these structures to carry out an annual meeting in which the appointment of Directors is voted. Therefore, it’s necessary to have control of the majority of members who have the right to vote.

Establishing a fiduciary/trustee

Today's fiduciary companies are not very independent as all transactions are subject to the approval of a bank. Obtaining a license for a trust company is fairly easy, but operating isn’t easy. The controls are continuous and the system is very easy to investigate and this can result to issues if you don't follow the rules.

Trustees are para-banking structures. They have a license from the Banking Commission (but not from a bank) and can manage the capital of others. We have analyzed Panama because that’s where you can easily get this license, but there are other jurisdictions that have similar legislation.

Costs:

  • Tax rate of 1000 USD to the administration of the National Bank of Panama
  • 10,000 USD related to 4% for an insurance of 250,000 USD

Monthly costs:

  • 1,000 USD salary of a qualified official with 5 years of banking experience
  • 250 USD Quarterly report made by a qualified accountant.
  • 200 USD Monthly License Rates
  • 500 USD Advertising
  • 500 to 1000 USD to rent an office.

Required Deposits:

  • 100,000 USD Capital paid.
  • Deposit of 25000 USD to be kept at the National Bank of Panama.
  • Attorney's fees: 17500 USD

Even in Belize, it’s possible to obtain fiduciary licenses, the controls are stringent, but it’s necessary to deposit 50000 dollars as collateral.

The advantage of this particular type of activity is that it operates in a fiduciary way on behalf of the clients and therefore, can offer some anonymity. This is undoubtedly an activity that would greatly increase in the years to come because not only do most banks offer anonymity, but they are obliged to provide information about their clients to the tax authorities.

If you wish to establish a bank, an electronic purse, a fiduciary activity or any financial activity, the Caporaso & Partners study/survey can help you to create a new one or find one for sale, which is already operational.


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The views and opinions expressed in the web site are subject to change based on the laws, market and other conditions. The information provided does not constitute legal advice and it should not be relied on as such. All material(s) have been obtained from sources believed to be reliable, but its accuracy at the time you read is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

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