Starting a bank seems like a rather distant and unattainable goal, but in fact, that goal is not that different from starting any other legal entity. Certainly, with the involvement of other savers and potentially critical effects on a country's economy as a whole, it is important that banks are subject to stricter regulations and frequent audits.
The European Commission and the European Central Bank are working together to strengthen the Economic and Monetary Union. One of the tools developed to accomplish the above task is a single supervisory mechanism that gives the ECB the power to carry out prudential reviews and inspections, ensure compliance with EU rules, set higher capital requirements, and issue or license banking licenses to withdraw. However, each EU Member State may have slightly different procedures and requirements for setting up banks.
General procedure for starting a bank
As with any other type of business, the first thing to consider is the real needs and potential market for the bank. In addition, you must prove the necessity and viability of the bank as part of the charter application process by submitting a business plan. A business plan typically shows a financial forecast for the next three to five years and the opportunity to generate profits for the bank's investors.
An important detail when starting a bank is to find a strong team as a board of directors. Typically there could be five to thirteen people overseeing the entire bank's strategic plan and ensuring that employees comply with federal regulations as well as the bank's policies. The board of directors of the bank could also be the ones to invest their money as you will need a sufficient amount of seed funding to ensure all banking operations and to comply with regulators regarding the amount of collateral. Other sources of start-up capital can be a bank holding company, founding group, private equity fund or other supporting financial institution.
In addition to the board members, you need to find a trusted team of professionals to ensure that all parts of the bank are functioning properly. For example, running a bank can be a rather confusing process with numerous regulations to follow. Hence, it is important to hire a legal team with preferential banking experience. Another extremely important team for a bank is risk management. The risk management infrastructure should be established prior to opening a bank so that various risks such as liquidity, market, credit, legal, reputational and operational risks are monitored and controlled, and policies and procedures are maintained from the start of the establishment of the bank Bank.
Establishment of a bank in Latvia
As a member state of the EU, Latvia is also part of the single supervisory mechanism, which gives the ECB powers for various supervisory measures, including the granting and revocation of banking licenses. In order for a bank in Latvia to obtain an operating license, it must provide a number of documents and other information in accordance with the Law on Credit Institutions and the Regulations on Issuing Operating Licenses for Credit Institutions and Credit Unions. The documents must be submitted to the Finance and Capital Market Commission. Once all the documents have been submitted, the Commission will examine the application for a banking license and, within three months, propose a draft decision to the ECB on the basis of which the ECB will grant or refuse a banking license. The minimum starting capital for a bank in Latvia should be 5 million euros.