Handbook for Directors of Financial Institutions
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Handbook for Directors of Financial Institutions

Edited by Benton E. Gup

Offers advice from existing directors, scholars and regulators about what good directors need to know. The Handbook for Directors of Financial Institutions offers the practitioner and the scholar a comprehensive guide to what it takes to survive and thrive as a director of a financial institution. The authors comprise current directors of banks, credit unions, insurance companies and other organizations, bank regulators, lawyers and academics. They provide unique insights and advice about corporate social responsibility, legal risks, starting a new bank, D & O insurance, sub prime lending, Islamic banking, and other timely issues.
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Chapter 3: Starting a New Bank

Laurence Pettit


Laurence Pettit Starting a new community bank can be one of the most interesting and educational endeavors an entrepreneurial group can try. This phase is an adventure, where the outcomes of your efforts are not fully predictable as you might have expected in a regulated industry. The venture, after all, is a small business with most of the risks that come with small firms. The startup group needs to be able to respond quickly to opportunities and problems, make decisions on the move, and most of all have the patience and energy to survive the process. The successful bank start-up leads to the establishment of an economic force in the community. The outcome of that investment in the community bank might be viewed as a long-lived asset with consistent growth opportunities or a strategic investment with a take-out through merger. Once established, the community bank is a highly desirable small business venture. What is different from other small business start-ups is the regulated environment of the banking industry. The banking system in the US is generally characterized as a “dual” system with charters being granted by both national and state authorities. For both historic and practical reasons, the process for chartering a new institution differs in significant ways. The initial capital required for a new bank, the methods by which that capital is raised, and the composition of the board of directors may all differ significantly when comparing state and national charter requirements. The...

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