Business Overview

Banks take in deposits from depositors and then lend that money out to other people and businesses. Banks provide a vital function in the economy. Namely, liquidity. They allow individuals and businesses to pay for goods and services, investments, and assets that they otherwise would not be able to afford.

Who is this business right for?

Owning a bank is a demanding endeavor. It requires intimate knowledge of the banking industry and regulatory structure of the financial services industry. A banker needs to be good under stress, love working with numbers, and also working odd hours. While employees clock out at the end of the day, a bank owner may need to take his or her work home with them.

What happens during a typical day at a bank?

Day to day activities of a banker include making loans, taking in deposits, and servicing bank customers. As an owner, you are also responsible for making sure the bank complies with all regulatory requirements. Banks are under immense pressure to turn a profit, so this means spending a lot of time underwriting good credit risks and figuring out where to put the bank's money so it will make a stable and reliable return.

What is the target market?

Preferred customers are both individuals and businesses.

How does a bank make money?

Banks make money by taking in deposits and lending them out to other people or businesses. A bank's primary cost is the infrastructure they build, including buildings and labor costs. However, the basic function of a bank is simple. The bank must invest its money in such a way that they earn more than what it costs them to keep money on deposit.

For example, a bank may accept deposits from the general public and pay them 0.05% on savings accounts. They can then lend this money out to others at market rates. The difference between the 0.05% and the market rate is the interest "spread." This is the bank's profit.

Banks also make money by charging fees and offering other banking services, like business checking accounts, bank certificates of deposit, and money market accounts. Some banks also sell insurance.

What is the growth potential for a bank?

Growth potential for a bank is huge. Banks can stay small or can operate as large commercial and investment banks. Some banks, like RBC Royal Bank and Steams Bank, offer franchise opportunities. But, you don't have to buy into a franchise to grow into a large national or international bank.