My dad's friend tried to start up a bank - it failed. It is VERY tough to take on the big banks. You say: 'Well just offer a slightly higher interest rate on checking/savings accounts to steal their customers. The reason why this does not work was touched on indirectly by the poster Telozo. Suppose you start a bank called PIKER BANK. An individual called SAVER opens a savings account and deposits $1,000 into your bank. This is your balance sheet Assets $1,000 cash Liabilities $1,000 savings account owned by SAVER Say the current reserve ratio is 10%. This means you must keep $100 in reserve ($100 / $1000 = 10%) in and can loan out $900. You now loan out $900 to BORROWER. Now that BORROWER has $900, he will spend the $900 and the $900 will flow to RANDOM PERSON. Here is the KEY. RANDOM PERSON now has $900, but where does he bank at? If he banks at PIKER BANK, all is well. RANDOM PERSON then creates a savings account and deposits $900 back into PIKER BANK so there is no cash outflow. Here is the new balance sheet at PIKER BANK. Assets -> $1000 cash $900 IOU from BORROWER Liabilities -> $1000 savings account owned by SAVER $900 savings account owned by RANDOM PERSON The reserve ratio is 10% so PIKER BANK can lend out up to $810 this time, thus leaving $190 in cash which is 10% of liabilities ($1900). But what if RANDOM PERSON does not bank at PIKER BANK but banks at BIG SWINGING DICK BANK (where almost everyone banks at)? Then PIKER BANK will be forced to send out $900 in cash. This is the new balance sheet at PIKER BANK Assets -> $100 cash $900 IOU from BORROWER Liabilities -> $1000 savings account by SAVER Notice that PIKER BANK can no longer make any more loans. The reserve ratio is 10% and PIKER BANK has just that ($100 cash / $1000 savings acccount). That's why it's tough for small banks to compete against big banks. Small banks have limited ability to take advantage of fractional reserve banking (pyramiding loans on top of each other) cause 'RANDOM PERSON' most likely does not bank with them. Now you know why commercial banks are so eager to consolidate. The bigger the banks become, the more likely that 'RANDOM PERSON' will also bank with you, so the cash comes right back to you thus replinishing part of your bank reserves, and you can continue to pyramid loans on top of each other while collecting ridiculous amounts of interest. So if you the small bank want to steal customers by offering say a high interest of 7% on deposits, a big bank can easily match you or offer even 8% temporarily until you are bankrupt cause they are collecting interest revenue on multiple loans while you are only collecting interest revenue on 1 loan.