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Bank Startup

An opportunity was presented to me to help startup a bank. While startups are notoriously risky, this venture seemed less so because Atlantic Mortgage Services, Inc., a well established mortgage lender founded by my brother is who was attempting to make the transition from a state licenced mortgage lender into a state chartered bank with potential to grow into a federally charted national bank.

Mortgage Lender to State Chartered Bank

A licensed mortgage lender can be seen as a bank that is unable to accept deposits. A mortgage lender also operates under considerably less regulation than does a bank.

Long standing Florida law permits a licensed mortgage brokerage to become a licensed lender after at least one year of operation as a licensed broker and that assets of at least $250 thousand were permanently maintained. A number of other regulations exist governing this but the main one is probably the $250 thousand minimum asset requirement.

In general, a mortgage lender cannot grow to substantial size due to capital. As a mortgage lender lends its own money, it's ability to sell the loan, or raise additional capital is limited whereas a bank can more easily sell off its loans and raise more capital through customer deposits.

For a growth oriented mortgage lender, the next step is often to become a state chartered bank. The benefit of being chartered as a state bank is the ability to raise capital, increased liquidity of loans and significantly less areas of compliance to Federal banking regulations. Annual fees are also considerably less than for federally chartered banks. The drawback to being a state chartered bank is that operating across state lines is more difficult than is the case for federally charted banks.

Typically, when a state chartered bank begins operating in other states, it will also begin to weigh the benefits of restructuring as a federally chartered bank.

Since nothing prevents a state chartered bank from meeting the requirements to become a federally charted bank, the state to federal startup path is commonly taken.

The Florida Office of Financial Regulation

Commonly referred to by it's partial abbreviation OFR, The Florida Office of Financial Regulation, or more specifically, The Florida Office of Financial Regulation's Division of Financial Institutions oversees the regulation of state chartered banking institutions.

Regulations established by the Florida OFR filled multiple banker boxes. Since we ultimately wanted to become federally chartered, or to be purchased by a federally chartered bank, federal regulations also needed to be understood as they applied to our situation. I as operations manager was tasked with reading the many thousands of pages of state and federal regulations in order to be an in-house reference and help guide the conversion process. This was fine with me. I love to read technical material and the opportunity really gave me a glimpse into the sophistication of the banking system.

Unfortunate Timing

Unfortunately, the period selected to startup the bank also happened to be at the top of the Florida real estate market. As prices continued falling, plans to start the bank kept being postponed. The international banking crisis of Autumn 2008 ended all hope of getting the bank off the ground.

The combination of falling values, credit restrictions and changing market conditions in the aftermath of the banking meltdown made all lending operations difficult.

By 2009, all hope of getting the bank off the ground had ended. Never-the-less, the experience was very interesting and broadening both technically and from a business standpoint.

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