Guide for Groups Interested in Chartering a State Bank in California


This guide should be used together with the California Financial Code and the Department’s Regulations. The application package is distributed to the organizing group or their consultant by the Department’s Licensing Division.

The marketplace is normally the best regulator of economic activity, and the competition therein promotes efficiency and better customer service. Accordingly, the Department approves proposals to establish state banks that have experienced management, a reasonable chance of success, will foster healthy competition, and are expected to be operated in a safe and sound manner. In doing so, the Department does not guarantee that a proposal to establish a state bank is without risk to the organizers.

The Department evaluates a proposed state bank’s organizing group and its Business Plan. The Department’s judgment of one may affect the evaluation of the other. An organizing group and its Business Plan must be stronger in markets where economic conditions are marginal or competition is intense. If higher risk or unusual banking services or corporate arrangements are proposed, the Department may require additional information and may conduct a more intensive review.

Decision Criteria

The commissioner may give or withhold his or her approval of the application in his or her discretion, but he or she shall not approve the application until he or she has ascertained to his or her satisfaction:

  1. That the public convenience and advantage will be promoted by the establishment of the proposed bank or trust company.
  2. That the proposed bank or trust company will have a reasonable promise of successful operation.
  3. That the bank is being formed for no other purpose than the legitimate objects contemplated by this division.
  4. That the proposed capital structure is adequate.
  5. That the proposed officers and directors have sufficient banking or trust experience, ability, and standing to afford reasonable promise of successful operation.
  6. That the name of the proposed bank or trust company does not resemble, so closely as to be likely to cause confusion, the name of any other bank or trust company transacting business in this state or which had previously transacted business in this state.
  7. That the applicant has complied with all of the applicable provisions of this division.

(NOTE: The Federal Deposit Insurance Corporation (FDIC) has an additional factor to consider – Risk to the Insurance Fund).

In reaching its decision, the Department considers:

  1. The character, reputation, and financial standing of the organizers or incorporators and their motives in seeking to organize the proposed bank or trust company.
  2. The need for banking or trust facilities or additional banking or trust facilities, as the case may be, giving particular consideration to the adequacy of existing banking or trust facilities and the need for further banking or trust facilities.
  3. The character, financial responsibility, banking or trust experience, and business qualifications of the proposed officers of the bank or trust company.
  4. The character, financial responsibility, business experience, and standing of the proposed stockholders and directors.
  5. The adequacy of banking facilities to support its operations.
  6. The adequacy of capitalization to support the projected volume and type of business.
  7. The reasonableness to achieve and maintain profitability.
  8. The viability of the Business Plan given the economic condition, growth potential, and competition of the proposed market area.
  9. Whether the bank is free from abusive insider transactions and apparent conflicts of interest.
  10. Other facts and circumstances bearing on the proposed bank or trust company and its relation to the locality as in the opinion of the commissioner may be relevant.



Pre-filing Discussions

As soon as the proposed organizer/directors are prepared to proceed, a representative should contact the Department to schedule a pre-filing meeting. The Department expects all proposed directors of the proposed new state bank and the proposed Chief Executive Officer to attend the pre-filing meeting. If the other proposed executive officers are available, they too should attend the pre-filing meeting. An executive summary of the group’s proposal must be submitted in advance of the meeting.

The pre-filing meeting provides a forum for the organizer/directors and proposed executive officers to meet with the regulators and discuss the group’s new bank proposal. Weaknesses in the group’s new bank proposal, if any, will be brought forward by the regulators so the group can address the issues before submission of the application. Additionally, the Department’s chartering policy and procedures and the requirements for filing a charter application and organizing a state bank may be discussed. A representative from the FDIC and/or the Federal Reserve Bank (FRB) will normally participate in the pre-filing meeting to discuss procedures relative to their involvement in the chartering process.

Pre-filing meetings with the Department are kept confidential. No information regarding the charter proposal, the organizing group, the proposed directors or executive officers is released to the public until after the application is filed with the Department, is determined to be substantially complete, and is officially accepted in writing by the Department. Once the application has been officially accepted by the Department, the Facing Page (Form 10) is available for public inspection. Confidential sections of the application, including biographical and financial information on the organizers, directors, executive officers, and 10% shareholders, the Business Plan, and any other proprietary information (as determined by the Department), will not be available to the public.

Filing the Application with the Department

After the pre-filing meeting, the group files an application and other supplement information that is detailed in the Department’s Regulations. The group is strongly encouraged to name and include information on all executive officers in the application.

The Department begins to process each application immediately upon receipt. As appropriate, the Department reviews and analyzes the proposal, requests additional information if necessary, completes field investigations, and attempts to resolve any unusual issues.


The Department seeks to make a decision within 90 days after acceptance. However, meeting this timeframe is largely dependent on the quality of the application. Therefore, it is incumbent on the organizers to present a well-researched and thoughtfully prepared application which will help the Department make a timely decision. To the extent that the Department has questions, the Department may request clarifications or additional information through the consultant, attorney, or other key representative for the group. Any requests for additional information could extend the processing period beyond the targeted 90 day time frame. A field investigation is required and conducted jointly with the applicable federal regulator(s).

Applications filed by Existing Holding Companies

For an application filed by an existing bank holding company, the Department will evaluate the financial and managerial resources of the holding company. The Department will review the proposed bank’s Business Plan for consistency and compatibility with the holding company’s record of performance, overall philosophy, and plans (e.g., strategy, capital, management, and profitability).

The Department may deny or conditionally approve a “sponsored” new bank application, if the condition of the parent company and/or any affiliates is subject to supervisory concern. Additionally, even though the holding company serves as a substantial source of strength, the Department may not approve an application in a market in which economic conditions are weak and/or competitive conditions are intense.

Deposit Insurance and Filing with the FDIC

California law requires FDIC insurance for all state bank charters. The Department and the FDIC encourage simultaneous submission of the charter and deposit insurance applications, respectively, to expedite processing. The Department should receive a copy of the application filed with the FDIC and vice versa. The applicant should discuss the deposit insurance application requirements with appropriate FDIC staff.

The Department and the FDIC conduct their investigations jointly to minimize the burden to the applicant and to eliminate duplicative regulatory effort. However, the decision to grant or deny the charter application is an independent decision from the decision to grant or deny deposit insurance; therefore, each regulatory agency must make its decision separately.

Federal Reserve Membership

Banks electing to be a state member bank of the FRB will be required to file a membership application with the FRB. The Department should receive a copy of the application filed with the FRB and vice versa. The membership application for a de novo bank is a standard 30-day procedure. The FRB also requires a de novo bank to obtain preliminary charter approval from the state chartering authority before applying for membership. The procedure is the same for de novo banks with or without a holding company structure.

Publication Requirements and Comments

Notice of the filing of a new bank application is published in the Department’s Monthly Bulletin. A public comment publication is required by the federal regulator.

Any person may file with the Commissioner comments on an application, including comments supporting or opposing the granting of such application. Comments on an application shall be in writing in the form of a letter addressed to the Commissioner. A comment letter shall identify the application to which it relates by the name of the applicant and the subject matter of the application. A comment letter shall be signed by the commentator or by a person authorized to represent the commentator in connection with the application. Additionally, the Commissioner may solicit comments on an application from any person who in his or her opinion might have an interest in, be affected by, or have information regarding, such application.

All comments and any notices of intent to protest with request for a hearing that are filed on a timely basis will be reviewed and considered by the Department. The Commissioner may grant or deny a request for a hearing in connection with a protest of the application. If the Commissioner grants a hearing, the contestants shall bear the cost of the hearing (unless it is requested by the applicant, in which case the applicant will bear the cost). It should be noted that, if a hearing is granted, the application processing period will normally be extended by at least 30 days. Final determination to grant or deny a charter application shall be in the sole discretion of the Commissioner or his or her legally authorized representative, and such action shall be final.

Background Investigations

Extensive background investigations will be undertaken on each director, executive officer, and 10% shareholder. Background checks are intended to provide information on the competence, experience, integrity and financial ability of each person named in the proposed bank’s application. Anyone whose previous banking experience is tied to failed or problem financial institutions will be closely scrutinized to determine his/her ability to carry out applicable duties.

The Department also requires each director, executive officer, and 10% shareholder to submit biographical and financial reports. The Department will determine independently the accuracy and completeness of information submitted for each person and must determine that there is no objection to each individual serving in the proposed capacity.

The Department-required background checks and fingerprinting may be waived for individuals who are currently associated with, or have had a recent past association with an insured institution. An applicant may also request that the Department waive certain financial information on proposed directors or officers who are currently associated with, or have had a recent past association with an insured institution. The Department will consider each request and may require additional information, if needed. The Department also reserves the right to request additional information after granting such a waiver, if necessary.

Proposed Management/Board

One of the organizing group’s most important decisions is the selection of a chief executive officer. The organizers must thoroughly investigate the background and qualifications of their proposed chief executive officer prior to submitting their application. A qualified chief executive officer is viewed as essential in the overall assessment of the likelihood of a new bank’s success. The proposed chief executive officer’s prior banking experience is especially relevant. The organizing group’s failure to propose a suitable chief executive officer reflects poorly on the group’s judgment and raises doubts about the future success of the proposed bank.

Individuals proposed to be executive officers must have the requisite character, financial responsibility, banking experience, and business qualifications for the position proposed to be considered approvable by the Commissioner. Executive officers must have demonstrated abilities and experience commensurate with the position for which they are proposed. Executive officers must have reputations evidencing honesty and integrity and an employment history demonstrating competent past financial institution experience. Likewise, if the proposed bank’s plan is to offer specialized types of services, its executive officers should have experience relevant to the development and administration of those services (i.e. relevant to the Business Plan). Proposed executive officers should have relevant and satisfactory experience in the position proposed at a satisfactorily rated financial institution. The Department may consider other relevant experience and the overall experience of the management “team” in its decision to approve a proposed executive officer; however, the Department discourages “mentoring”. While not mandatory, executive officers with de novo bank experience adds strength to the application. Decisions about a proposed executive officer are based on a person’s suitability for that position with a specific new bank and are not intended to determine that person’s eligibility for other jobs.

The proposed directors must have reputations evidencing honesty and integrity and similar reputations within the local community where the proposed state financial institution is to be located. Directors shall have employment and business histories demonstrating their responsibility in financial affairs. The fact that a proposed director has been adjudicated bankrupt or has filed for relief under the Federal Bankruptcy Act shall be considered a material factor in the evaluation of his/her responsibility in financial affairs. Preferably, at least two (2) of the proposed directors, who are not also proposed officers, should have had direct experience as an executive officer, regulator, or director of a financial institution within 3 years of the date of the application. If in the opinion of DFI the aggregate level of financial institution experience represented by the proposed board of directors is not substantial, DFI may require the addition of other outside directors to the board who have had previous financial institution experience. At least five (5) directors of a proposed independent bank shall demonstrate strong and well-established residency and/or business ties to the local community for at least the last five years prior to the date of the application, and shall represent diverse occupation and business interests. If in the opinion of DFI the diversity represented by the proposed board of directors is not appropriate, DFI may require the addition of other outside directors to the board.

Generally, the organizing group should seek directors who are knowledgeable about the market and the services to be provided, and who have strong ties in the community. The proposed directors should have diverse experience and backgrounds, and at least a majority of the proposed directors should have banking or business experience. For a period of three years after commencement of business, any new executive officers or new directors of a new state bank must obtain prior DFI approval before assuming office.

Business Plan

The proposed market area to be served must be reasonable in view of the applicant’s Business Plan, the proposed banking facility(s), the proposed management team and other personnel resources, and in view of other relevant geographic or demographic factors.

It is incumbent upon the applicant to fully develop and address the “Convenience and Advantage” section of the application. This is generally accomplished through a Business Plan, which incorporates a feasibility/market study. The feasibility/market study should contain information in support of the economic vitality of the community to be served and its financial services industry, both historical and projected into the future. The Business Plan should outline the applicant’s plan for marketing the proposed new bank’s services and otherwise participating and competing in the delineated market. Together, the Business Plan and feasibility/market study are critical to the Department’s decision to grant the group approval to organize a state bank. Projections and other information submitted must reflect sound banking principles and demonstrate realistic assessments of risk in light of economic and competitive conditions in the market to be served. The Plan should contain sufficient information to demonstrate that the proposed bank has a reasonable likelihood of success. Assumptions and projections should be realistic in view of the economic and demographic information regarding the proposed market area and should also be consistent with all other information presented in the application.

The Business Plan should indicate the organizing group’s knowledge of and plans for serving the proposed bank’s market area. The organizing group must evaluate the banking needs of the community, including its consumer, business, nonprofit, and government sectors. The Business Plan should demonstrate how the proposed bank will respond to those needs consistent with the safe and sound operation of the bank.

Where the bank is being established as a natural extension of a holding company’s existing market (via conversion of a branch office into a “stand-alone” bank), the “Convenience and Advantage” section of the application may be abbreviated at the applicant’s discretion. However, the applicant must recognize that the Department is still required to arrive at a favorable finding regarding the “Convenience and Advantage” factor.

Field Investigations

The Department conducts a field investigation for all de novo bank applications. The Department tailors the scope of each investigation, during which a state bank examiner may review relevant materials, interview insiders and other identified persons, explore matters related to the proposed bank’s operations, and meet with the organizing group to discuss findings. The findings from that investigation will influence the Department’s overall analysis and review of the application. As referenced in a preceding section of this document, the Department will conduct the field investigation jointly with the applicable federal regulator(s). However, the Department and the federal regulator(s) will reach independent decisions regarding whether to grant or deny the respective applications filed with each agency.

Approval and Post-Approval Activities

Following review of the application and completion of the field investigation, the Department will decide whether to approve or deny the request to charter a new state bank. If the Department grants approval, it will notify the applicant and other interested parties in writing of its decision. The organizing group then may begin to organize the bank according to the plan set forth in the application. The approval letter will detail the conditions upon which the charter is granted.

Standard Requirements and Special Conditions

When the Department grants approval of a charter proposal, it imposes standard requirements on the proposal. Often, the organizing group must meet most (if not all) of the standard requirements before opening. In addition, the Department may impose special conditions tailored to the specific charter proposal.

Pre-denial meeting

At least 30 days before denying an application, the commissioner shall by mail or other method of service give written notice of the intended denial of an application and of the right of the applicant to meet with the commissioner regarding the reasons for such denial. The request for such meeting shall be in writing and delivered to the commissioner within 20 calendar days of the date of giving of the notice of intended denial. If a request is made for such meeting, the application may not be denied until after the meeting.

If the deficiency is irresolvable, the applicant will be afforded the opportunity to withdraw the application and to refile it without prejudice.


Organizing Group’s Role

To successfully establish a new bank, the organizers must make a substantial personal and financial commitment. The organizing group is usually comprised of five or more persons. Normally, many, if not all, of the organizers serve as the bank’s initial board of directors (State law requires that a bank have a minimum of five, but not more than 25 directors).

The organizers are responsible for:

  • Ensuring that the group consists of persons:
  • Having diverse business and financial interests and community involvement,
  • Having a personal history that reflects responsibility, honesty, and integrity, and
  • Exhibiting substantial personal and financial commitment to the proposed bank relative to their collective and individual financial strength.
  • Selecting the CEO and other executive officers, if possible, early in the application process who have the necessary experience to enhance the proposed bank’s likelihood of success.
  • Developing a Business Plan that demonstrates the group’s collective ability to establish and operate a successful bank in view of the economic and competitive conditions of the market to be served.
  • Being familiar with the Business Plan and their role in its successful implementation.

Although personal wealth is not a prerequisite for a state bank director, a director should not depend on bank dividends, fees, or other compensation to satisfy financial obligations. Because directors are often the primary source of additional capital for a bank not affiliated with a bank holding company, an organizer/director having the financial strength to supply additional capital, if needed, adds significant strength to the application.

Identification of CEO

Selection of a qualified CEO is one of the organizing group’s most important decisions affecting the success of the new bank. The organizing group and its CEO must have the experience, competence, willingness, and ability to actively direct the proposed bank’s affairs in a safe, sound, and legal manner. (NOTE: It is expected that a qualified chief credit officer and chief financial officer will be identified.)

The Department considers the hiring of a competent CEO to be essential to a new bank’s success. The proposed CEO should:

  • Be involved actively in developing the proposed bank’s Business Plan. The CEO must implement the proposed plan successfully once the bank opens.
  • Be a well-rounded person with strong leadership skills, who has managed a bank or similar financial institution successfully or has successful experience as an officer in areas relevant to the proposed bank’s marketing strategy and needs. Prior experience as a bank CEO is strongly recommended and typical for most proposed CEOs.
  • Possess skills that complement those of the directors and other proposed members of the executive officer team, including extensive experience in administration.

The proposal of a strong CEO, organizing group, and board of directors enhances the chances of approval. The Department can better evaluate proposed management in its review of the Business Plan, when the names of the proposed executive officers are disclosed in the application. Executive officers named in the application are kept confidential.

Capital Adequacy

An organizing group must raise a sufficient amount of capital to pay all organization costs, compete effectively in the market area, and support planned operations adequately. The Department may determine that higher or lower amounts of capital from those proposed originally are needed based on local market conditions or the Business Plan presented by the organizing group. As an administrative standard, the Commissioner generally requires that, at the time when a subject institution which is a commercial bank commences business, the shareholders’ equity of such subject institution be not less than 10% of estimated total deposits of the subject institution as of the end of the third year of business.

The Department has no general prohibition against the inclusion of preferred stock in the initial capital structure of a new state bank. However, the Department may determine that the inclusion of a significant amount of preferred stock in a bank’s capital structure could lead to instability in the ownership of the bank or otherwise adversely affect the safety and soundness of the institution.

The organizing group should disclose any options, warrants, and/or other benefits associated with the proposed capital. Such disclosure should be made regardless of whether it is at the bank or holding company level.

The Department generally is opposed to debt-based capitalization of a new bank. If any debt will be issued by the holding company or affiliate to capitalize the bank, the organizing group must demonstrate that debt service requirements can be met without reliance on cash flows of any kind from the new bank.

Organizers Stock Options/ Warrants

The Department and the FDIC allow for organizer warrants/options if they meet the requirements outlined by both regulatory authorities. Generally, a plan to compensate organizers that provides for one option/warrant for each share subscribed is considered to be acceptable to both the Department and the FDIC.

Insider Agreements/Contracts

Any insider contract must be made on non-preferential terms and submitted to the Department and the appropriate federal regulator(s) for review. In addition, the Department requires at least one, and in some cases two, independent appraisal(s) of the insider contract, which includes:

  • Its description (e.g., assets, property, service).
  • Its terms.
  • Evidence showing that the contract is fair, reasonable, and comparable to similar arrangements that could have been made with unrelated parties.

Each insider contract also must be disclosed to proposed or actual shareholders. Copies must be maintained in the bank’s files and made available to shareholders upon request.

An example of such an insider agreement and/or contract includes one that involves the payment or receipt of any money or thing of value as compensation for services rendered or property transferred in organizing the proposed state bank (e.g., purchase or lease of banking premises, furniture, equipment, fixtures, supplies, consultant or legal fees, preparation of registration statement or nonpublic offering, solicitation of stock).

Regardless of insider involvement, every contract, including real estate or employment commitments, should include provisions addressing obligations of and options available to the parties in the event that the Department is delayed in processing the charter application; denies the application; revokes its approval, or objects to an insider serving in any proposed capacity.

Organization Costs/Compensation

In addition to “seed money”, organizers contribute time and expertise to the organization of the bank. Organizers should not bill excessive charges to the bank for professional and consulting services or rely unduly upon those fees as a source of income. Further, organizers should act prudently on all financial and other aspects of the proposal.

Organizers are cautioned to avoid or limit the number of “consultants” or “employees” hired before an application is approved. The Department may disallow pre-opening expenses relative to that employment if the expense incurred is not usual, ordinary, and lawful for the purpose of organizing the proposed bank.

The Department considers compensation excessive when amounts paid are unreasonable or disproportionate to the services performed by any person for a state bank. The Department may request additional information from the organizing group to support the compensation or may require the organizers to change or eliminate the form or amount of compensation before it will authorize the bank to open for business. If excessive compensation is discovered before the bank opens, the Department will disallow payment of that compensation from bank funds and may preclude the bank from opening.

Disallowed pre-opening expenses will not be covered by contributed capital, but will be deducted from the reimbursement to organizers.

After the bank opens, if the Department determines that compensation has become excessive, the board is responsible for taking corrective action and seeking restitution.



California Department of Financial Protection and Innovation
One Sansome Street, Suite 600
San Francisco, CA 94104-4428
Internet site:
Patrick Carroll, Licensing Manager
Phone: (415) 263-8559 Fax: (415) 288-8830

Federal Deposit Insurance Corporation
25 Jessie Street at Ecker Square, Suite 2300
San Francisco, California 94105-2780
Internet site:
Phone: (415) 546-0160

Federal Reserve Bank of San Francisco
101 Market Street
San Francisco, CA 94105
Internet site:
Phone: (415) 974-2000

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Last updated: Aug 17, 2023 @ 10:22 am