Starting up and owning a bank??

4 Replies

Just curious as a topic I see some RE guys start up their own banks locally.

I was wondering the benefits to it and expected annual returns or if it is more of a status type thing.

I am talking about being a president of a bank and owning it etc. 

Google: FDIC Sues Bank Directors and then think about starting a bank.

Life is too short to deal with the Feds.

@Joel Owens

I have not owned a bank though I do know people who have looked into getting a banking license (though it was over 5 years ago so my memory might be rusty) we also had a number of regional banks as clients of my firm.

I would say being President of a Bank might be status thing but owning one probably has more to do with te numerous benefits of owning a bank

1) You get access to domestic and international payment networks and the ability to easily move money around, etc.  

2) The biggest benefit is the ability to take in insured deposits and get access to the cheapest capital on the market through interbank capital.

3) If you have multiple businesses it can serve as excellent choke point for your money as that money can loaned out, etc.

4) There is definitely a prestige factor associated with it but you also get access to types of customers you would not otherwise be dealing with because they use you for other things and you know how much they have. 

However downsides are numerous as well

1) Capital requirements are highly stringent putting a bit of a cramp in the cost of capital justification for owning a bank.

2) Getting a banking license is not easy and a costly burdensome process that subjects to you a large amount of scrutiny. 

3) Initial and ongoing costs are huge for complying with regulations. The banking system of today is really not made for tiny bankers which is why they get bought up in large numbers by larger regionals. Banking is about scale. Course that could be another way to profit (build it and sell it) and I have seen that done many times.

Thanks everyone so far. I am always looking at investment comparisons and learning new things so this is more discovery for me at this point and possibly future planning although I already have a deep network of clients and friends into the nine figures of net worth.

I have friends that lost several fortunes while owning a bank. 

A rouge loan or investment officer can destroy a bank in a short period and leave the holding the bag.

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