What Defines a Bank?
A bank is a financial institution licensed to accept deposits from the public and create credit through scriptural money creation. This process is fundamental to our modern fiat currency system, where money isn't backed by physical commodities but by trust in the banking system (learn more about fiat currency here). Banks act as intermediaries in the financial system, taking deposits from those with surplus money and lending to those who need funds, effectively creating new money in the process through fractional reserve banking. They also provide various financial services including:
- Payment services
- Currency exchange
- Investment management
- Safe deposit boxes
- Financial advice
Core Banking Functions
1. Deposit Taking
- Current accounts
- Savings accounts
- Term deposits
- Investment accounts
2. Lending and Money Creation
- Personal loans
- Mortgages
- Business loans
- Credit facilities
- Scriptural money creation through lending
- Credit money management
3. Payment Services
- Money transfers
- Card payments
- Direct debits
- Standing orders
Banking Licenses by Jurisdiction
Suisse
1. Full Banking License (FINMA)
- Issued by: Swiss Financial Market Supervisory Authority (FINMA)
- Requirements: Minimum capital: CHF 10 millionProper business organizationRisk management systemsProfessional management qualificationGood reputation proof
- Minimum capital: CHF 10 million
- Proper business organization
- Risk management systems
- Professional management qualification
- Good reputation proof
- Activities permitted: Full banking servicesSecurities dealingAsset management
- Full banking services
- Securities dealing
- Asset management
2. FinTech License
- Lower capital requirements (CHF 3 million)
- Cannot lend money
- Deposit limit of CHF 100 million
- Focus on innovation and technology
European Union
1. Full Banking License
- Issued by: National Competent Authorities (NCAs)
- Requirements: Minimum capital: €5 millionClear governance structureSound risk managementDetailed business plan
- Minimum capital: €5 million
- Clear governance structure
- Sound risk management
- Detailed business plan
- Validity: Across all EU/EEA countries (passporting)
2. Electronic Money Institution (EMI)
- Lower capital requirements (€350,000)
- Focus on payment services
- Cannot offer credit
- Requires safeguarding of client funds
3. Payment Institution License
- Minimum capital: €20,000 to €125,000
- Limited to payment services
- Cannot take deposits
États-Unis
1. National Bank Charter (OCC)
- Issued by: Office of the Comptroller of the Currency
- Requirements: Minimum capital: $5 million+Detailed business planQualified management teamFDIC insurance required
- Minimum capital: $5 million+
- Detailed business plan
- Qualified management team
- FDIC insurance required
- Activities permitted: Full banking servicesInterstate operations
- Full banking services
- Interstate operations
2. State Bank Charter
- Issued by state banking departments
- Requirements vary by state
- Usually lower capital requirements
- Limited to state operations unless expanded
3. Special Purpose National Bank Charter
- Designed for FinTech companies
- Limited banking activities
- Focus on technology and innovation
Royaume-Uni
1. Full Bank License (PRA)
- Issued by: Prudential Regulation Authority
- Requirements: Minimum capital: £5 millionClear governance structureRisk management frameworkRecovery and resolution plans
- Minimum capital: £5 million
- Clear governance structure
- Risk management framework
- Recovery and resolution plans
- Activities permitted: Full banking servicesInvestment activities
- Full banking services
- Investment activities
2. Restricted Bank License
- Lower initial capital requirements
- Limited deposits (£50,000 per customer)
- Pathway to full license
- Simpler approval process
Capital Requirements
Basel III Framework
Banks must maintain:
- Common Equity Tier 1 (CET1): 4.5%
- Tier 1 Capital Ratio: 6%
- Total Capital Ratio: 8%
- Additional buffers: Capital Conservation Buffer: 2.5%Countercyclical Buffer: 0-2.5%Systemic Risk Buffer (for major banks)
- Capital Conservation Buffer: 2.5%
- Countercyclical Buffer: 0-2.5%
- Systemic Risk Buffer (for major banks)
Modern Banking Trends
Digital Banking
- Lower operational costs
- 24/7 service availability
- Enhanced customer experience
- Data-driven insights
Open Banking
- API-driven services
- Third-party integration
- Enhanced competition
- Innovation in financial services
Sustainable Banking
- ESG considerations
- Green financing
- Sustainable investment products
- Carbon footprint reduction
Regulatory Compliance
Key areas of focus:
- Anti-Money Laundering (AML)
- Know Your Customer (KYC)
- Capital adequacy
- Risk management
- Consumer protection
- Data protection and privacy
Choosing the Right License
Factors to consider:
- Business model and activities
- Target market and geography
- Capital availability
- Operational capabilities
- Regulatory requirements
- Growth plans
Note: Regulatory requirements and capital thresholds are subject to change. Always verify current requirements with relevant authorities.