How do you start a bank?

Hey, Matthew:

How do you start a bank? It looks like a nice gig! Banks are well-lit businesses with polite staff and (usually) docile customers. Judging from the nice locations, expensive furniture, and money they have for advertising, banking seems to be reasonably profitable too. But why can't I find anything about how to start a bank? My bookstore, which has many helpful books on starting and running many types of businesses, has no hint on the subject of forming your own financial institution. Do I have to belong to the yacht club, or can I simply mosey on down to some government office with bad parking, fill out an application, get my permit, rent a storefront, and pop up a Mike's Bank sign?

-- Mike in Vista

Theoretically, you can just mosey down, grab an ap, and let 'er rip, Mike. But more realistically, answer this question: $500 is how much I spent on (a) my newest pair of shoes, or (b) my newest car. There's nothing in the law that says you need $500 shoes to start a bank, but it wouldn't hurt if you hung out with that crowd, folks who own their own tuxedos and may not know how much a loaf of bread costs but do know the going rate for a chauffeur. After that, the paperwork isn't so bad.

To obtain a charter for a new bank in California, all you have to do is submit an application package to the Department of Financial Institutions, wait for their okay, then start selling stock. Unfortunately, that application package has to convince the banking commission that (1) you and your fellow board members have the business and banking savvy to make the plan work; (2) California must have your new bank to serve some unmet need in the financial marketplace; and (3) you have the ability to raise anywhere from 5 or 6 to maybe $10 million to capitalize Mike's Bank.

So, were you planning to put your brother-in-law on the board, just as soon as he gets out of prison? Is your major financial experience three summers as a checker at Pic-N-Save? Does your business plan involve competing for customers with Wells Fargo? When you open your wallet, do moths fly out? I don't mean to stifle a man's ambitions. If you look at the law, it's really not so hard to submit an ap, and it only takes three months or so to get a thumbs up. But you'd better have your financial ducks in a row, and they'd better be wealthy and experienced ducks. Especially since it's unusual for any new bank to start showing a profit before the third year in business.