Over the last 10-15 years I have seen the creation of a few dozen impact investment funds providing debt or equity capital. However, I have never been involved in the creation of a new bank for the social economy, and I am therefore happy to be a part of a new and promising initiative.
The question is “How do you build a bank for the wider social economy in 2025?”. The follow-up question for this article is “How can you capitalize the bank?”.
The development of the European banking sector
Let us start with some basics.
We see a continuous decline in the number of banking entities across the European Union. According to numbers from the European Banking Federation, we had more than 9,000 credit institutions in 2001. This number fell to below 5,000 in 2023 and there are no signs of a reversal visible.

This trend was not driven by bankruptcies but by a constant wave of consolidation. UniCredit acquired HypoVereinsbank in 2005, BNP Paribas acquired a part of Fortis in 2008, Commerzbank acquired Dresdner Bank in 2008, UBS acquired Credit Suisse in 2023 in a move to protect the Swiss banking sector. But we also have smaller mergers like Raiffeisenbank Mittelkärnten and Raiffeisen-Bezirksbank St. Veit a.d. Glan-Feldkirchen creating Raiffeisen Mittelkärnten in 2023.
A notable exception was NewB. In the years from 2009 to 2011, they have developed the idea and set up the cooperative, which was followed by a large fundraising campaign in 2013. Only in 2020, NewB received its banking license. It’s worth noting that it took 11 years to get from the idea to the license.
However, only 2 years later the bank had to dismantle its banking activities as it failed to raise €40 million which were a regulatory requirement. The bank was able to return the €170 million of the deposits but the closing meant a financial loss for the cooperative members. In early 2023, the bank announced an alliance with vdk bank to become a digital agent.

Why is it tricky to create a new bank?
Permissionless activities
Most start-up activities are more or less permissionless. Of course, you need to fill out some forms or apply for licenses to operate a retail store, develop B2B software or construct buildings. This is very different for banks, which are a central element of all modern economies. The time to acquire a banking license is probably only beaten by getting the license to open a nuclear power plant.
Funding requirements
All start-ups need money. However, you can go a long way if you can cover the costs of a small team for 12-18 months. The funding requirements are again very different for new banks. First, banks need a certain ratio of equity capital to provide loans. Second, there are high costs for operations. Third, there are high costs to comply with all kinds of regulatory requirements from anti-money laundering to disclosure requirements.
Valuation
A typical bank has a P/E multiple in the range of 5-10x. UniCredit has a market cap of €68 billion, a P/E multiple of 7.7x and a dividend yield of 4.2% (Reuters). The numbers are comparable for Erste Group, Deutsche Bank or BNP Paribas and a bit higher for Goldman Sachs or Morgan Stanley.

Compare that to a typical valuation of a technology company which has a P/E-multiple of 30x like Meta or Visa. That can partly explain why we have seen more funding activity in the fintech space in the last 10 years.
Scaling is expensive
A typical start-up needs to hire new staff and offices to scale up its operations. If a bank wants to expand its lending business, it needs to keep its equity ratio, which implies continuous fundraising. For every additional dollar in its loan book, the bank needs to raise 10 cents to keep its regulatory capital requirements. Especially, for a growing bank it is almost impossible to cover the capital needs from its profits.
Funding strategy for a new bank
Necessary amount
The question we need to ask ourselves is how you can raise the €30 million which is a lower amount necessary to set up a new bank.
One of the most visible bank creations in recent years was bank99 which was established by the Austrian Post AG together with Schelhammer Capital Bank AG. However, even these established institutions were acquiring a full license by buying Brüll Kalmus bank. The total costs were estimated to be in the range of €70-80 million.
Many of the fintechs that have applied for banking licenses in recent years are well capitalized as they have raised hundreds of millions from traditional VCs. However, the approach of a bank focused on the impact economy makes it less attractive for these investors. Numbers from Goldman Sachs Global Investment Research show the flows in global and European fintech companies since 2016.

The sustainability problem in the social finance and microfinance space
Let me take a step back.
Financial intermediaries typically charge 2% for the management of the funds. For equity funds, it is the management fee the LPs have to pay. For loan funds, it is the difference between the average lending rate and the average deposit or funding rate which is usually referred to as interest spread. You lend money at 8% and get your capital at 4%. Deduct your default costs and you have the amount which is available to fund your operations.
For equity funds, the recommendation is to aim for €30 million in assets under management to generate €600,000 in annual management fees. Otherwise, it is difficult to sustain the fund over the long term.
There are many loan funds which are smaller but if we assume that the interest spread won’t be much higher than 2%, a similar fund size seems to be reasonable.
Looking at the landscape across Europe, there are many funds that do not have a sustainable business model given that they are only managing small funds. In addition, there are no paths forward to substantially increasing their assets under management.
Capitalization of a bank in 2025
The obvious solution to the problem above is to use synergies. One fund manager with €10 million might not be sustainable but if you bring together 5 fund managers with €10 million, you have a very attractive business model.
The solution might take the following form:
- A German fund which owns €5 million in loans transfers the loan portfolio to the bank.
- The German fund (most likely a cooperative or a family office as part of their private credit allocations) receives share of the bank which will be equivalent to the value of the loan portfolio.
- This transaction increased the share capital (equity capital) of the bank by €5 million.
- The bank can instantly benefit from a balanced and mature loan book.
- The high equity ratio allows the bank to take on external funding or deposits.
Capitalizing the bank in such a way would help to consolidate the social finance and microfinance market and create a stable and attractive bank.