Where do so many fall short in attaining regulatory approval?

For organizations seeking to establish a regulated bank in the US, securing regulatory approval is quite often the goal, but in reality, the bigger opportunity is to use the approval process as a catalyst to build a digital, customer-first bank capable of competing and scaling from day one.

Too often, organizations optimize for approval. Governance structures, risk frameworks, technology, and processes are designed to demonstrate regulatory readiness, but not necessarily to deliver the customer experience, economics, or agility that underpin the original business case.

This creates a costly gap between being ready for approval and ready to compete.

The risk is particularly acute given the broader industry context. Since 2020, the number of US banks has declined by 13%, while average assets per institution have grown by 33%, reflecting an increasingly consolidated and competitive market where scale, efficiency, and customer experience matter more than ever. Organizations entering the market cannot afford to launch with operating models designed only to satisfy regulators. They need models designed to compete.^[1]

Common warning signs include manual processes, interim governance, and an over-reliance on parent or legacy capabilities. These arrangements can be valuable in supporting authorization and launch, but as the bank scales, the focus should shift towards finding the right balance between leveraging existing capabilities and building standalone processes that enable the bank to compete effectively.

For example, one of our clients, a global financial institution, needed to build its capital and liquidity stress testing capability ahead of authorization for a US state bank charter. A manually built suite can take three to four months and produce only one or two scenarios, enough to satisfy a submission, but little more.

Instead, we built an automated, agent-driven capability that delivered six scenarios in around three weeks, meeting regulatory expectations while creating a modeling engine that could evolve with the business.

This matters because US capital and liquidity expectations can evolve depending on the business model. Firms can become so focused on asking "Are we ready to comply?" that they overlook the more important question: "Are we ready to compete?"

Don't build capabilities simply to get approved. Build them to make the business competitive once you are.

The time to address these issues is during the approval process, not after launch.

Organizations should use that time to define an operating model that can scale and is digital by design: deciding where capabilities and accountability sit, embedding scalable technology and automation, designing controls around the customer journey, and building the finance, risk, and regulatory infrastructure required for growth.

Whether the objective is lower-cost funding, greater control of the customer relationship, new products or entry into new markets, regulatory approval should enable the strategy, not become the strategy.

The organizations that get this right won't simply emerge with permission to operate. They'll emerge with a bank designed to compete.

For organizations considering establishing a regulated banking entity in the US, Baringa can help turn regulatory readiness into long-term customer and commercial value. Reach out if you would like to chat more about what this means for you and your organization.

^[1] Banks Experience Asset Growth amid Ongoing Consolidation | St. Louis Fed