1 00:00:01,920 --> 00:00:07,120 Speaker 1: Welcome to brain Stuff production of iHeart Radio. Hey, brain Stuff, 2 00:00:07,160 --> 00:00:10,440 Speaker 1: Lauren Vogelbaum here. Maybe you're a big fan of the 3 00:00:10,480 --> 00:00:13,680 Speaker 1: classic movie It's a Wonderful Life and dream of operating 4 00:00:13,720 --> 00:00:17,560 Speaker 1: your own version of Bailey Building and Loan. Or maybe 5 00:00:17,560 --> 00:00:20,880 Speaker 1: you want to emulate Amadeo Peter Gannini, the early nine 6 00:00:21,120 --> 00:00:24,920 Speaker 1: hundred fruit vendor who convinced immigrant families in San Francisco 7 00:00:25,160 --> 00:00:28,160 Speaker 1: to deposit their savings in his new bank, which eventually 8 00:00:28,200 --> 00:00:32,519 Speaker 1: became Bank of America. If so, provided that you have 9 00:00:32,680 --> 00:00:35,479 Speaker 1: enough money, a good business plan, and the patients to 10 00:00:35,479 --> 00:00:39,040 Speaker 1: make it through the regulatory process, you could actually start 11 00:00:39,120 --> 00:00:42,960 Speaker 1: your own bank. Plenty of people have over the years. 12 00:00:43,560 --> 00:00:46,800 Speaker 1: Unlike most industrialized countries in the world, which tend to 13 00:00:46,840 --> 00:00:50,000 Speaker 1: have just a handful of big banks, the United States 14 00:00:50,000 --> 00:00:53,760 Speaker 1: has thousands of them, ranging from small town institutions to massive, 15 00:00:53,880 --> 00:00:59,280 Speaker 1: multi state behemoths. We spoke by email with one Edward J. Carpenter. 16 00:00:59,760 --> 00:01:02,960 Speaker 1: He the chairman and chief executive of Carpentering Company, a 17 00:01:03,080 --> 00:01:07,440 Speaker 1: Newport Beach, California consulting, private equity broker, dealer, and registered 18 00:01:07,480 --> 00:01:11,360 Speaker 1: investment advisor firm that has assisted clients in starting hundreds 19 00:01:11,400 --> 00:01:14,200 Speaker 1: of banks and savings and loans across the nation since 20 00:01:14,240 --> 00:01:18,360 Speaker 1: the nineteen seventies. The company handles fort of new bank 21 00:01:18,400 --> 00:01:22,600 Speaker 1: applications in the United States. He explained the US is 22 00:01:22,640 --> 00:01:25,479 Speaker 1: the only industrialized nation in the world where a group 23 00:01:25,520 --> 00:01:29,760 Speaker 1: of citizens can start a bank. Most of the would 24 00:01:29,760 --> 00:01:32,920 Speaker 1: be bank founders who come to Carpenter for guidance are groups, 25 00:01:33,280 --> 00:01:36,000 Speaker 1: but it's possible for a single wealthy person to start 26 00:01:36,040 --> 00:01:39,680 Speaker 1: a bank and own one percent of it. Carpenter recalls 27 00:01:40,000 --> 00:01:42,440 Speaker 1: several years back we did one in which an individual 28 00:01:42,520 --> 00:01:45,280 Speaker 1: put in fifty million dollars and started his own bank. 29 00:01:46,319 --> 00:01:49,640 Speaker 1: He said that solo founders are often civic minded individuals 30 00:01:49,760 --> 00:01:53,080 Speaker 1: rather than someone motivated by the prospect of becoming even richer. 31 00:01:53,760 --> 00:01:56,000 Speaker 1: In some instances, they're trying to take the place of 32 00:01:56,040 --> 00:02:00,640 Speaker 1: a small local bank that recently closed down. But Carpenter 33 00:02:00,680 --> 00:02:04,360 Speaker 1: says that people start banks for various reasons, and sometimes 34 00:02:04,360 --> 00:02:07,080 Speaker 1: banks start up entrepreneurs think they can find customers in 35 00:02:07,120 --> 00:02:11,760 Speaker 1: a particular community that's underserved by existing financial institutions. In 36 00:02:11,840 --> 00:02:14,960 Speaker 1: one common scenario, a group of immigrants or family members 37 00:02:14,960 --> 00:02:17,440 Speaker 1: of immigrants might decide to start a local bank to 38 00:02:17,520 --> 00:02:22,240 Speaker 1: serve newly American customers in their original language. Other bank 39 00:02:22,280 --> 00:02:26,000 Speaker 1: founders possess a specific sort of lending expertise that gives 40 00:02:26,000 --> 00:02:30,000 Speaker 1: them a competitive advantage in some particular business, and sometimes 41 00:02:30,000 --> 00:02:33,919 Speaker 1: that niche can be pretty arcane. Carpenter cites the example 42 00:02:33,960 --> 00:02:36,840 Speaker 1: of one bank that was founded specifically to make loans 43 00:02:36,919 --> 00:02:40,360 Speaker 1: on special engines that supports and government agencies used to 44 00:02:40,400 --> 00:02:45,680 Speaker 1: retrofit old diesel trucks to run on electricity. Or maybe 45 00:02:45,720 --> 00:02:48,200 Speaker 1: they have a plan to offer mobile banking or some 46 00:02:48,320 --> 00:02:53,240 Speaker 1: other service that local competitors don't have yet. In addition 47 00:02:53,280 --> 00:02:56,440 Speaker 1: to brick and mortar community banks, in recent years, companies 48 00:02:56,480 --> 00:02:59,880 Speaker 1: involved in the financial technology field, also known as fintech, 49 00:03:00,360 --> 00:03:03,560 Speaker 1: have also begun starting online banks to take advantage of 50 00:03:03,600 --> 00:03:07,320 Speaker 1: innovations they've developed, such as software that automates and speeds 51 00:03:07,360 --> 00:03:11,600 Speaker 1: up the loan application process. Starting a bank might sound 52 00:03:11,600 --> 00:03:14,000 Speaker 1: like easy money, and you might expect that a lot 53 00:03:14,000 --> 00:03:17,000 Speaker 1: of people would give it a try. Instead, there are 54 00:03:17,040 --> 00:03:20,120 Speaker 1: only about twenty applications to start banks in the United 55 00:03:20,160 --> 00:03:24,640 Speaker 1: States each year, and just ten new federally charted banks 56 00:03:24,680 --> 00:03:28,200 Speaker 1: opened in the first three quarters of twenty nineteen. That's 57 00:03:28,240 --> 00:03:32,960 Speaker 1: because starting a bank requires a lot of money and work. Typically, 58 00:03:33,000 --> 00:03:36,080 Speaker 1: the process takes about a year and a half at 59 00:03:36,080 --> 00:03:38,440 Speaker 1: the start. When potential bank founders come in to seek 60 00:03:38,440 --> 00:03:40,960 Speaker 1: help from Carpenter, he first wants to look at their 61 00:03:40,960 --> 00:03:44,600 Speaker 1: business plans. He explained. The bottom line when people come 62 00:03:44,640 --> 00:03:47,560 Speaker 1: in is doesn't make sense or not make sense based 63 00:03:47,600 --> 00:03:51,200 Speaker 1: on competition and the business plan. If it looks like 64 00:03:51,240 --> 00:03:53,720 Speaker 1: a new bank has a good chance of success, that's 65 00:03:53,720 --> 00:03:57,400 Speaker 1: when the complicated part begins. Bank founders need to put 66 00:03:57,400 --> 00:04:00,480 Speaker 1: together a board of directors to oversee management, and then 67 00:04:00,480 --> 00:04:02,560 Speaker 1: they have to go out and raise enough capital to 68 00:04:02,720 --> 00:04:06,360 Speaker 1: fund the bank's operations. We're not talking about just taking 69 00:04:06,360 --> 00:04:08,160 Speaker 1: a loan out of your four oh one k either. 70 00:04:08,440 --> 00:04:12,800 Speaker 1: This requires serious money, Carpenter said. Most likely at the 71 00:04:12,840 --> 00:04:15,760 Speaker 1: low end, we're talking about ten million dollars. We just 72 00:04:15,880 --> 00:04:17,800 Speaker 1: opened a bank in New York for which they raised 73 00:04:17,839 --> 00:04:21,240 Speaker 1: a hundred and thirty million. After that, it's time to 74 00:04:21,320 --> 00:04:25,320 Speaker 1: apply to the government regulators who oversee banks. In some cases, 75 00:04:25,400 --> 00:04:28,120 Speaker 1: bank founders may opt out to apply to a state 76 00:04:28,160 --> 00:04:30,560 Speaker 1: agency for a charter, or they may go to the 77 00:04:30,600 --> 00:04:34,080 Speaker 1: federal Office of the Controller of the Currency. Once a 78 00:04:34,120 --> 00:04:36,560 Speaker 1: bank is chartered, it has to obtain insurance from the 79 00:04:36,600 --> 00:04:41,080 Speaker 1: Federal Deposit Insurance Commission there's a certain amount of risk 80 00:04:41,120 --> 00:04:44,719 Speaker 1: in the process because if regulators nix an application, the 81 00:04:44,720 --> 00:04:47,640 Speaker 1: bank founders are out whatever they spent on advisors and 82 00:04:47,760 --> 00:04:52,880 Speaker 1: other expenses. Once a startup bank gets through the regulatory process, though, 83 00:04:53,279 --> 00:04:56,320 Speaker 1: things usually work out pretty well. In its third or 84 00:04:56,360 --> 00:04:59,279 Speaker 1: fourth year of operation, a new bank typically is earning 85 00:04:59,320 --> 00:05:01,760 Speaker 1: a ten to five teen percent annual return on the 86 00:05:01,800 --> 00:05:05,599 Speaker 1: equity that the startup group has invested in it. But 87 00:05:05,839 --> 00:05:08,200 Speaker 1: for all the new banks that are opening, others are 88 00:05:08,279 --> 00:05:11,560 Speaker 1: closing or being bought up by bigger institutions. So the 89 00:05:11,640 --> 00:05:14,000 Speaker 1: number of banks in the United States has gone from 90 00:05:14,040 --> 00:05:18,560 Speaker 1: sixteen thousand, five hundred to around just five thousand, five 91 00:05:18,640 --> 00:05:23,080 Speaker 1: hundred today, according to Carpenter. But although big banks and 92 00:05:23,200 --> 00:05:27,599 Speaker 1: online banks powered by fintech increasingly are dominating the banking industry, 93 00:05:27,880 --> 00:05:31,360 Speaker 1: there's still a place for small banks. Carpenter said they 94 00:05:31,400 --> 00:05:34,200 Speaker 1: have just ten percent of the nation's deposits, but that's 95 00:05:34,200 --> 00:05:37,240 Speaker 1: still a trillion dollars, and they make fifty of the 96 00:05:37,240 --> 00:05:45,200 Speaker 1: small business loans. Today's episode was written by Patrick Jake 97 00:05:45,240 --> 00:05:47,719 Speaker 1: Haiger and produced by Tyler Clang. For more on this 98 00:05:47,800 --> 00:05:49,760 Speaker 1: and lots of other topics you can bank on, visit 99 00:05:49,800 --> 00:05:52,520 Speaker 1: how Stuff works dot com. Brain Stuff is production of 100 00:05:52,520 --> 00:05:55,320 Speaker 1: iHeart Radio. For more podcasts for my heart Radio, visit 101 00:05:55,320 --> 00:05:58,039 Speaker 1: the iHeart Radio app, Apple Podcasts, or wherever you listen 102 00:05:58,120 --> 00:06:08,040 Speaker 1: to your favorite shows.