Having money in liquid form is a prerequisite that must be demonstrated when one is licensing a bank. How much will depend on the jurisdiction and the size of the deployment you are planning. Capitalization is the availability of capital in the form of cash to both guarantee the operation of the bank and to have appropriate margins of error when deploying your business plan.

Prospective bankers will often find that their licenses are denied. This will give them trouble during their next evaluations with the same authority. In this regard, anyone that wants to obtain a banking license should clearly understand that they need capital to move forward with any type of application.

We often hear from prospective bankers that have extensive and complex plans to circumvent the capital requirements imposed by the regulators of the central banks. We have seen creative ways to meet the capitalization prerequisite without real liquid capital backing it up. Prospective bankers must understand that to act as a bank, by definition, they need capital in liquid form. There are no real alternatives to being liquid. Without capital, you cannot license the bank. Most importantly, submitting an application without the proper knowledge or without capital will likely result in further restrictions on future applications.

Extensive banking experience or a background in the banking industry is often another prime prerequisite as well as one of the main pillars for both the licensing and operation of the bank.

When presenting an application, this—in combination with the business plan—becomes one of the most important items used to evaluate the viability of the license. The question of who is running or directing a financial business and how they plan to do so is often seen as the key to the success or failure of any new bank. In banking, the role of the individuals within the management structure is much more carefully scrutinized by the regulators, as they presume that having the wrong people on board could create a risk of failure or, worse, fraud.

When licensing a bank, the board or the group that has the obligation of reviewing the application within the regulator will evaluate the underlying experience of everyone involved in that prospective license.

This evaluation will include the history and experiences of previous directive involvement within the banking industry. The board will determine whether you have experienced economic crises or challenges in the past.

The regulator will carefully review the curricular history of applicants. Therefore, in the licensing process, having the right people is a key factor, as the regulator wants you to have the best human resources possible.

The qualifications and experience of the management team and any other key positions should be reviewed and planned carefully. The manner in which the various boards of directors are organized will be also scrutinized. When submitting an application, one of the most important factors is to judiciously consider the interactions between members of the board and the proposed management team.

Individuals applying for a bank license must have the right qualifications to get approved. To avoid pitfalls, during the preparation of your license application and business plan, you should pay special attention to the corporate government. For your bank to be licensed, each member of the senior management team must be prepared to have an interview with the regulator and to show that he/she has extensive experience in banking. The regulator is often more interested in finding out whether the people behind the wheel are qualified in real-life scenarios and not just on paper. All submissions will be verified. Most importantly, regulators will carefully evaluate the individuals involved and their subsequent interaction on the bank’s proposed business plan.