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What Is a Bank IPO?

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  • Written By: Kristie Lorette
  • Edited By: O. Wallace
  • Last Modified Date: 24 September 2016
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IPO stands for initial public offering. A bank IPO occurs when a bank offers its stock for sale to the public for the first time. Typically, the sale of stock occurs when the bank goes from a privately held financial institution to a publicly held institution.

Generally, a bank issues stock in a bank IPO as a new source of income. Since banks use the money that people deposit into the bank accounts as the money the bank lends, it is important to have a sufficient amount of money on hand. In addition, banks are required to keep a minimum amount of money in reserve. Issuing a bank IPO can help banks meet these minimum requirements.

When a bank issues an initial public offering of its stock, it is a risky move for the bank to take. First, it is a risk because each stock represents ownership of the bank. Shareholders of the bank stock then have a say in the way that the bank is run and the decisions that the bank officials make, as long as it is in accordance to banking regulations and laws.

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The second risk from a bank IPO is the value of the stock in the future. While the initial stock price can be set by the bank and the demand for the stock, there is no way of predicting what the demand will be in the future. Since supply and demand plays a role in the stock price of the bank stock, this is a risk that banks take when they have an initial public offering.

The risk after the initial public offering also originates from uncertainty. The uncertainty pertains to the resale value of the stock. In other words, the price that the stock will sell for after the initial batch of investors buys the stock that is made available to public for the first time.

Generally, a bank that offers a bank IPO has reached a certain stage of growth. When the growth becomes stagnant or falls short of the place where the bank wants to be, a bank IPO can be the source of financing that takes the bank to the next level. It may offer the money that individual bank branches need to get bigger. The money from the IPO may be the money the bank needs to open new branches. It may even provide the funding the bank needs to open branches in other areas of town, other areas in the country or even internationally.

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