Organization of a Connecticut Bank
All references on this page are to sections and titles of the Connecticut General Statutes, unless otherwise noted.
Charter Alternatives | Chartering Process
The people of the United States have benefited from a “dual banking” system since the 19th century. Organizers of banking institutions may choose a charter from either a state authority or a federal banking agency. The “duality” of this chartering system has resulted in an innovative and vibrant banking industry that serves the needs of all citizens of Connecticut.
The Department of Banking considers the formation of a bank and the granting of a charter to be very near to the passing of a public trust to the organizers. The process of organizing a bank is rigorous and takes considerable time, energy and money to complete. The various requirements of the chartering process stress both organization and planning on the part of the organizers to ensure that the resulting bank is fundamentally strong during the initial stage of its existence and remains in a safe and sound condition.
This summary provides general information on the chartering process followed by this agency and does not represent a comprehensive summary of the law, or a legal opinion regarding its application. Potential organizers should refer to Section 36a-70 for specific legal requirements.
The Commissioner strongly urges all persons interested in forming a new bank to visit with members of the Department prior to investing significant amounts of time or money. Contact key personnel from the Financial Institutions Division.
Charter Alternatives
The organizers of a Connecticut bank have several charter alternatives to choose from, depending on their particular business strategy and the needs of the market. As a general rule, Connecticut law requires a minimum of $5 million in capital to form a full-service depository institution. A state bank and trust company, also known as a “commercial bank,” normally has a significant portion of its earning assets invested in business and industrial loans.
The northeast United States has a well developed banking system that includes both mutual and capital stock savings banks. The original purpose of these banks, dating back to the early 1800’s in Connecticut, was to promote thrift among wage earners. Savings banks in their present form, however, are a much more diverse and competitive provider of financial services. While savings banks traditionally have earning assets more concentrated in residential and commercial mortgage lending, they have the same investment powers as bank and trust companies.
Connecticut law also allows the formation of a savings and loan association in either mutual or capital stock form. These institutions are also called “thrifts” and traditionally their role has been to promote home ownership through mortgage lending. As with savings banks, however, Connecticut law grants these institutions the same powers as commercial banks.
In recent years, Section 36a-70(r)(2) was enacted to allow the formation of a community bank with $3 million in capital. This type of charter has certain restrictions on investment powers and limits on the amount of individual ownership in comparison to full service institutions. Also, Section 36a-70(q) allows the formation of a bankers' bank that, in general, provides services for other banks (including their directors, officers and employees) having their principal office in Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island or Vermont. A bankers' bank requires $5 million in capital.
A community development bank (Section 36a-70(s)) may be organized to serve the banking needs of a well-defined neighborhood, community or other geographic area. This is primarily done by making commercial loans of $150,000 or less to existing businesses or persons seeking to establish businesses within the well-defined neighborhood, community or geographic area. The minimum equity capital required for the establishment of a community development bank is determined by the Commissioner after considering the proposed activities of the bank.
Non-Depository Charter
Section 36a-70(b) allows the formation of a bank limited to fiduciary services only, also called a limited purpose trust company. This type of institution does not accept deposits, and is not insured by the Federal Deposit Insurance Corporation. These institutions enter into trust arrangements with individuals to manage assets, or manage large pools of funds in pension plans, defined benefit plans or defined contribution plans, such as 401(K) accounts.
Public Act No. 99-158 provided for the organization of an uninsured bank that does not accept retail deposits and for which federal deposit insurance is not required. Organizers may consider an uninsured bank charter to engage in wholesale banking or in merchant banking.
The Commissioner acting alone is the approving authority for uninsured bank charter applications. Uninsured banks need a minimum of $5 million in equity capital to form, unless the commissioner establishes a different capital requirement based upon a bank's proposed activities.
An uninsured bank has all of the powers of and is subject to all of the requirements and limitations applicable to a bank and trust company or savings bank, not inconsistent with the statutes governing uninsured banks, except that an uninsured bank cannot accept retail deposits and does not need to comply with community reinvestment laws. Retail deposits are defined as deposits made by individuals who are not accredited investors under federal securities regulations.
Chartering Process
Following a meeting to discuss the proposed bank, organizers will be given an application to complete and file with the Department of Banking. Except in the case of a community development bank organized by or in participation with the state, the filing fee of $15,000 is payable by check to “Treasurer, State of Connecticut”, and must accompany the application. Within twenty (20) days of the filing, the Commissioner will order, at the expense of the organizers, an independent feasibility study and an independent three-year financial forecast, prepared by a certified public accounting firm or other professional firm designated by the Commissioner. Upon receipt of the feasibility study and financial forecast, a public hearing on the application will be ordered by the Commissioner to be held not more than thirty days from receipt of the feasibility study and financial forecast.
Required Supporting Documents to be Part of the Application
Proposed Business Plan:
The proposed business plan, which is included in the application, should detail the basic strategies and objectives of the proposed institution. Within the proposed business plan, organizers are required to discuss their reasons for forming the institution as well as how the public interest (convenience and need) will be served by its organization. In addition, the plan should also include specific details concerning the following:
- the proposed mission of the institution including goals and objectives to be met during the first three years of operations;
- information concerning proposed management;
- a description of the market to be served (competition, demographics);
- potential for deposit and loan growth;
- products and services to be offered;
- the level of capital considered adequate in view of growth expectations and lending and investment policies;
- the method of raising capital including specific sources;
- the proposed location of the main office; and
- a discussion of earnings performance through the first three years of operations.
This list is not all inclusive and organizers should address each aspect of the proposed institution considered necessary to fully consider the strategies, goals and objectives of the group organizing the institution.
It is anticipated that organizers will have met with members of the Department prior to filing to discuss the application and proposed business plan. The proposed business plan submitted with the application is the starting point for the preparer of the feasibility study. As the feasibility study is conducted, organizers may choose to refine their business plan and submit a revised version as part of their application.
Other documents required to be submitted include:
- Notice of Residence of Organizers and proposed Directors
- Financial and Biographical Information on organizers (considered to be non-public information by the Department of Banking)
- Opinion of Counsel that the bank is in compliance with all laws and regulations (required for banks limited to fiduciary services only)
- Evidence of community support (required for a community bank and a community development bank).
Once submitted and complete, the application will be available for public inspection at the Department of Banking. Within 30 days of receipt of the feasibility study and financial forecast, a public hearing will be held before a panel consisting of the Banking Commissioner, Treasurer and Comptroller to consider the application. In the case of a bankers' bank, a community bank, a community development bank, a mutual savings bank and a mutual or capital stock savings and loan association, the commissioner can act alone.
Statutory considerations for the panel are:
- the population of the area to be served by the proposed bank,
- adequacy of existing banking facilities in the area to be served,
- convenience and necessity to the public of the proposed facilities, and
- the character and experience of the proposed directors and officers.
The application will be approved if the panel members determine:
- that the interest of the public will be served to advantage by the establishment of the proposed bank,
- that conditions in the locality in which the proposed bank will transact business afford reasonable promise of successful operation, and
- that the proposed directors possess capacity and fitness for the duties and responsibilities with which they will be charged.
(Standards for bankers' banks differ and community banks and community development banks have additional standards).
If the panel votes to approve, or the Commissioner approves, the application (as per the type of institution - see above), a temporary certificate of authority will be issued that is valid for up to eighteen months. The temporary certificate allows the organizers to complete the organization of the bank. The Commissioner may extend the effective period of the temporary certificate; however, significant progress toward the organization of the institution must be shown.
Organizers face a formidable challenge in organizing a bank. Upon the issuance of the temporary certificate of authority by this Department, organizers need to file an application for deposit insurance with the Federal Deposit Insurance Corporation (FDIC). From that point forward, both the state and FDIC application processes will progress on separate but parallel tracks. In order to give both agencies a timeframe to work within, the organizers will need to specify a target opening date for the bank. During the organization process it may be necessary to meet often to discuss various issues. Potential organizers should keep the Department informed of all issues and should request advice or guidance as appropriate.
When the required level of capital is achieved and all other provisions of law have been met, organizers should notify the Commissioner that a pre-opening examination is needed. These examinations typically last between one to two days. If the pre-opening examination confirms the readiness of the bank to open for business, a final certificate of authority will be issued.
Its hoped that this general outline of the process for organizing a new bank will be helpful to those considering this activity. Once again, it is important that potential organizers meet with Department officials, prior to investing significant amounts of money, to discuss the application process. Our commitment is to be as helpful and accommodating as the law allows.