In this post, I’ll look at the requirements and suggested path to buy a bank in the United States. The purpose of this article is to give you guidance on the process, costs, timeframe, and license types available when looking to purchase a bank in the United States.
Note that most of my articles cover topics around setting up or buying international banks, especially in the US territory of Puerto Rico. Here, I’m using the term “United States” to mean domestic banks in the continental US and not an international bank licensed in a US territory. Specifically, I’m looking at banks licensed by a US state, the OCC, or other license types (see below).
I’m also assuming that the buying group has or will have foreign shareholders. A buying group of all US persons might not require a Bank Holding Company and can buy a US bank as individuals (though, this is probably a bad idea). A group that includes non-US shareholders will require a Bank Holding Company as described below.
An Introduction to US Bank License Types
In the United States, the banking system is unique due to its dual banking model, allowing banks to be chartered either at the state level or the federal level. Here is an overview of the three primary types of banking licenses:
State Banking Licenses:
These are issued by individual states’ regulatory agencies.
Characteristics:
Regulation and Oversight: State-chartered banks are regulated by their state’s banking department. They may also be members (and thus under the oversight) of the Federal Reserve System.
Membership: They have the option but are not required to become members of the Federal Reserve System. Non-member banks are overseen by the FDIC (Federal Deposit Insurance Corporation) for deposit insurance purposes.
Coverage: State banks can only operate within the boundaries of the state where they are chartered unless they have specific agreements or branches in other states. Some larger state banks may operate in multiple states.
Licenses issued by the Office of the Comptroller of the Currency (OCC):
The OCC is responsible for chartering and supervising all national banks.
Characteristics:
Regulation and Oversight: National banks are subject to federal regulations and oversight by the OCC. They are required to become members of the Federal Reserve System and have their deposits insured by the FDIC.
National Scope: Unlike state banks, national banks can operate branches across state lines without the need for separate banking licenses in each state.
Naming Convention: Typically, national banks have the words “national” or “national association” in their names, or the abbreviation “N.A.”
Other License Options:
A comment on the US Federal Reserve: While the Federal Reserve doesn’t directly issue banking licenses in the same way the OCC or states do, it plays a role in the regulation and oversight of bank holding companies and state-chartered banks that choose to be members of the Federal Reserve System.
Characteristics:
Oversight of Bank Holding Companies: Any corporation that controls one or more banks is considered a bank holding company and must register with the Federal Reserve. These entities are then subject to the Federal Reserve’s regulations and oversight.=
State Bank Membership: State-chartered banks that choose to become members of the Federal Reserve System fall under the Federal Reserve’s jurisdiction for certain aspects of regulation and oversight.
Monetary Policy: While not directly related to the issuance of banking licenses, the Federal Reserve plays a pivotal role in the U.S. banking system due to its responsibility for setting monetary policy.
Other License Types:
These are other financial institutions or entities with federal oversight but not directly chartered by the OCC.
Federal Reserve Member Banks: These are banks that have elected to become members of the Federal Reserve System. They include both national banks (which are automatically members and are supervised by the OCC) and state-chartered banks that opt to become members. The latter is supervised at the state level and by the Federal Reserve, not the OCC.
Federal Savings Associations (or Federal Thrifts): Historically, these were supervised by the Office of Thrift Supervision (OTS), but after the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, the oversight responsibilities of the OTS were transferred to the OCC. Therefore, it’s a misnomer now to refer to any federal bank “not licensed by the OCC” since the OCC oversees Federal Savings Associations as well.
Credit Unions: These are member-owned financial cooperatives. Federally chartered credit unions are supervised by the National Credit Union Administration (NCUA), not the OCC.
Edge Act and Agreement Corporations: These entities engage in international banking and finance activities. They are supervised by the Federal Reserve. The Edge Act corporations are federally chartered, while Agreement corporations are state-chartered but operate under an agreement with the Federal Reserve.
The choice between seeking a state or national charter depends on a bank’s business model and strategic goals. A bank aiming to operate regionally might opt for a state charter, while one with national ambitions would likely choose a national charter. Whichever license a bank chooses, it’s imperative for them to adhere to the strict regulations set by the respective oversight bodies to ensure financial stability and protection for their customers.
Non-interest expenses are the costs that a bank incurs in order to operate, such as salaries, rent, and utilities.
Net income is the amount of money that a bank earns after paying its expenses and taxes.
A lower efficiency ratio is typically considered to be better. A bank with an efficiency ratio of 50%, for example, is operating more efficiently than a bank with an efficiency ratio of 75%.
The efficiency ratio can be a useful tool for evaluating a bank for purchase. However, it is important to consider other factors as well, such as the bank’s loan quality, capital ratios, and management team.
Here are some of the factors that can affect a bank’s efficiency ratio:
Size:
Larger banks typically have lower efficiency ratios than smaller banks. This is because larger banks can spread their fixed costs over a larger number of customers.
Location:
Banks located in urban areas typically have higher efficiency ratios than banks located in rural areas. This is because urban banks have higher rent and labor costs.
Business model:
Banks that focus on retail banking typically have higher efficiency ratios than banks that focus on investment banking. This is because retail banks have more predictable income streams.
Management:
Banks with good management teams typically have lower efficiency ratios than banks with poor management teams. This is because good management teams can find ways to reduce costs without sacrificing quality.
Conclusion
With a licensed Bank Holding Company (BHC) under your belt, you’re well-poised to delve into the U.S. banking market. This crucial milestone is just the starting point. From identifying suitable bank candidates to rigorous due diligence, from negotiating purchase terms to navigating the regulatory maze, the acquisition journey is a blend of strategy, scrutiny, and patience. While the path may be laden with complexities, especially in the intricate fabric of U.S. financial regulations, it offers a unique opportunity. With the right guidance, diligence, and foresight, you can successfully acquire and integrate a bank, marking a significant footprint in the American financial domain. As with any substantial venture, the rewards are commensurate with the challenges faced. Armed with a BHC and a robust strategy, you’re on the cusp of carving out a banking niche in the world’s most dynamic financial market.For more information on setting up a Bank Holding Company in the United States, or purchasing an international bank in the US territory of Puerto Rico, please contact me . I’ll be happy to assist you with the business plan, financial model, and all aspects of setting up the BHC, identifying a target bank, and closing the transaction with the seller and regulators.
So, what makes you wait? Contact us for guidance and support at an affordable rate and our team will reach out to you within 24 hours . Imishore Consultants with the help of their dedicated and experienced team can advise you with a variety of choices and customized ideas for your business. There are various services available that can be availed by you which include offshore company incorporation, corporate bank account opening, nominee director and shareholder services, international bank setup, cryptocurrency exchange, offshore financial licenses service and finTech entities . There are various ancillary services that you can avail of for the growth and expansion of your business.
