In this article, we’re going to discuss how to start your own private bank, including why you may and may not want to consider this option.
We’ll also break down the key requirements that you’ll need to meet to even consider starting your own private bank and a few jurisdictions you might want to explore.
This article is part of our free series on banking in the best jurisdictions available, including a detailed step-by-step guide to opening a private bank account for yourself.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- How to Start Your Own Private Bank?
- Benefits of Having a Private Bank License?
- Capital Requirements When Starting a Small Private Bank?
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
How to Start Your Own Private Bank?
To start your own private bank you will need to apply and be approved for a private banking license. That said, banking regulations and banking license requirements vary between jurisdictions, so it’s important to select a jurisdiction that matches your resources and desired banking model.
In general, the minimum requirements to apply for a banking license include a detailed business plan, risk management and compliance plan, corporate governance documents, capital requirements, and an overview of all banking operations.
That said, banking regulators also want a clear picture of the financial services that you plan to offer, your plans for client acquisition, and future capitalization plans.
Of course, depending on what you mean by “private banking” the requirements listed above and the services that you can offer will vary.
In fact, in most jurisdictions private banking licenses are categorized as Class B banking licenses, which typically cater to a closed group of individuals or international clients.
For these reasons, it’s important to note that there is a difference between “private banking” in the traditional sense, which is commonly associated with wealth management and registering a private financial institution in an offshore jurisdiction.
Benefits of Having a Private Bank License?
The perceived benefits of having a private bank license include autonomy, control, and the ability to manage your finances in a way that matches your personal preferences. While this may be true for certain individuals, it isn’t always the case.
In fact, if you’re like most people and decide to register a bank in an offshore jurisdiction where banks struggle to maintain correspondent accounts, you will be worse off than when you started. This is because, after investing time, money, and energy into the process of registering your bank, you won’t be able to use the bank unless you can obtain a correspondent account.
But, correspondent banks are extremely careful with the financial institutions that they onboard as clients. As a result, it can take months or even years to open a correspondent bank account.
In certain cases, and in certain jurisdictions, your bank may never get a correspondent account opened at all. This is the unfortunate reality for many entrepreneurs that decide they want to open a private bank.
Capital Requirements When Starting a Small Private Bank?
The specific requirements to start a private bank will largely depend on the jurisdiction that you choose for registration. On the low end of the spectrum, the capital requirements can range between USD 300,000 to USD 5,000,000. This range reflects the registration of a private bank in a small offshore banking hub. More established banking jurisdictions have considerably higher capital reserve requirements.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into how to start your own private bank. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
Can You Make Your Own Private Bank?
Yes, you can make your own private bank. However, you should consider the pros and cons of doing so before investing time and energy into the process. In most cases, setting up a private bank is complicated, costly, and bureaucratic, and has unforeseen challenges that can make it not worth pursuing.
How Much Does It Cost to Start a Private Bank?
The cost to start a private bank ranges between a few hundred thousand dollars and tens of millions, depending on the jurisdiction you choose to register in and the fees associated with applying. Of course, the costs also need to include the initial capital injection, which will be necessary to meet the regulatory requirements.
Do Private Banks Create Money?
No, private banks do not create money. However, when managed efficiently they can earn revenue and generate profit for its shareholders. Likewise, private banks tend to offer high interest rate products and lucrative investments to their customers.
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