Interview with Peter Liu, founder of New Resource Bank

A Jim Henson Muppet once declared it wasn't easy being green. Nor is it apparently easy to start a new bank these days in America.

According to Peter Liu, it’s even tougher to do both at the same time.

Green lending is the mandate of New Resource Bank, an as yet still tiny new institution based in downtown San Francisco. As of today, this commercial and consumer-focused operation, funded by many of the who’s who of Silicon Valley, is officially open for business.

Peter Liu drives a Prius, covets the Tesla electric sports car, but says he plans to save that for some future mid life crisis.

Liu, 41, is founder and vice-chairman of New Resource Bank. He began the long process of starting the bank some two years ago. Previously, as Senior Vice President at Credit Suisse First Boston and Vice President of Chase Manhattan, Peter completed $6 billion in financing transactions as well as providing mergers and acquisition advisory services. He has been a private investor and strategic adviser to several clean energy technology companies, and currently serves on the Clean Technology Investment Advisory Boards of the California Public Employees Retirement System (CalPERS) and the California Teachers’ Retirement System (CalSTRS), respectively the largest and the third largest pension funds in the United States.

Tell us the story of how New Resource Bank came to be.

I got the idea when I and a group of others were helping the State of California treasurers’ office and the two largest pension funds review whether they should get into green investing. CalPERS and CalSTRS ultimately both adopted a comprehensive green investment program they called Green Wave. During that time I met many green businesses who were in favor if what the two were doing, but who also spoke about the need for banks who could understand the unique needs of green businesses.

Banks are often the most conservative part of the capital chain. Many green technology or other sustainability-related enterprises have strong, viable businesses, but their needs aren’t well understood by traditional banks.

CalPERS and CalSTRS decided to invest in green because they believe it’s a large opportunity. We decided to start this bank because we also believe there’s a large opportunity in green business sectors.

How hard has it been to start a bank from scratch?

There’s definitely a high barrier to entry for banking. You need to start first with getting your regulatory charter. Banks enjoy the protection of government deposit insurance (i.e. Federal Deposit Insurance Corporation membership, or FDIC), so the government, rightly, places a high barrier to entry for groups that want to start banks. That’s why it’s taken a year and a half to get this off the ground.

Raising capital was relatively easy, I think because of our investors’ belief in the strong business prospect of what we’re focusing on. We actually ended our capital raising one month earlier than planned, and had a 60% oversubscription. And we weren’t just oversubscribed in commitments – we actually received 60% more money in our escrow account than we were allowed to raise by mandate, and had to give investors’ money back.

Your founding community includes some high profile people.

Some leading companies and entrepreneurs have put money into our company. We formed an initial organizing group of 24 people who funded the initial seed capital to get the bank licensed and started. When we received our license earlier this year, after a year and a half of work, then we had the regulatory authority to go out and attract more capital, the so-called bank capital.

We were fortunate to have 240 real business and community leaders join us as a community of founding shareholders of the bank. This group is comprised of proven entrepreneurs like Bob Epstein, Bill Hambrecht, Mitch Kapor and more. As well as others who are leaders in the green business community, people like Paul Dolan - who was president of Fetzer Vineyards and a pioneer of organics and biodynamic techniques in winemaking.

We’ve raised a total of $25M, which is one of the largest-ever initial capitalizations for a new bank in Northern California. That gives us the ability to grow a loan portfolio of over $300M dollars without any addition equity. Typically, banks start with their opening capital, and, as well-understood investments, they have the ability to sell additional equity at a higher valuation if they can grow.

Further, our stock will soon be traded, because banks have the ability to be a traded security without SEC registration. We’ll be on the OTCBB in the next few weeks. Our market-maker has already applied for our ticker symbol.

You’re apparently borrowing ideas from other banks.

Yes. In Europe, almost nobody starts a bank these days. Triodos, a bank in Europe, had really proven that in banking, where services and products aren’t usually differentiated (often times a bank is just a bank), that a focus of lending and capital on areas some depositors may identify with value-wise can lead to brand differentiation.

Triodos started in the mid-80s and has grown very well in a difficult banking environment. It’s the only bank in the Netherlands to have successfully started up since the Second World War. The bank now has branches all across the Netherlands. We sought their advice in planning New Resource Bank.

Another inspiration for us was Silicon Valley Bank. Again, similar to what we’re doing in green, Silicon Valley Bank, back in 1983, decided to try to capitalize on the technology and life sciences opportunity. They were able grow with vendors. If you look at the startup bank ‘class of 1983’ – SV Bank is the only bank that’s still independent and existing, and is definitely thriving.

You’ve already announced it’ll soon be easier to get a solar power loan through NRB. What other special programs might be in the works?

We’re looking at a number of specialized programs in the home building area. This isn’t yet complete, but we’re looking for ways to support new techniques and new ideas in building homes, particularly to incorporate green technologies and to reduce waste in how buildings are made.

Although we have a green marketing focus, by our regulatory charter we have to serve our community at large in order to receive our FDIC insurance. Se we want to take green to the community, if you will. We believe we can help our non-explicitly green clients become more efficient, reduce waste, create a healthier work environment for their workers and improve their bottom lines at the same time. For instance, our SVP for construction and residential lending is an experienced banker with a number of clients in the development sector. Recently he took several developers to a green building conference to expose them to seminars, technologies and products showing how green can help them save money, and potentially make their projects more attractive.

Similarly, we can connect customers in the food services sector to industry groups such as the green restaurant association, or the organic trade association so they can source healthier and more sustainably produced products. They can also get advice on energy efficiency, and if they require capital investment to save lots of money in the future, we can provide that capital.

We plan to connect companies and individuals with these groups, and if one of those groups is a commercial customer of ours, we’ll have made a value-added introduction at the same time.

What’s the biggest challenge you face at this point?

The biggest challenge for any bank is to recruit great people. While we’re only at 15 people right now, we’re going to be growing. We’re looking for bankers who really believe in understanding their clients and understand the industry.

We’ve got a retail storefront at 405 Howard, at the ground floor of Howard and Fremont in San Francisco. It’s actually a very appropriate corner, because it’s the corner where all the East Bay casual carpoolers that come into San Francisco are dropped off. [Ed.: not familiar with the local "casual carpool" phenom? Read this.]

What are your plans for the scale of your business?

We believe we have a long term growth possibility, not too dissimilar from Silicon Valley Bank, which started from scratch and is now a $5B+ institution. We believe that there other communities similar to the Bay Area with similar clusters of green businesses, and more importantly, a community that supports green economic development like the Bay Area.

These will include other communities like Santa Monica, Boulder, Austin, Portland and New York. There are many other pockets that have a similar sort of outlook on sustainability as the Bay Area does. But we’re really focused on first executing our plan here in San Francisco, which will then hopefully provide us with growth opportunities.

How would you answer critics who might characterize this as just an opportunistic commercial venture?

We’re focused on providing our clients with the best value and service we can, and to help their businesses grow. At the same time, yes, we’re a commercial venture and we’re hoping to do this at a profit.

As a bank, profitability provides additional equity to the bank, and adds to our ability to redeploy that back into lending. If you look at the green business world, it certainly needs capital to grow. If we’re profitable and can grow our lending, then along the way we’ll be able to provide more capital to help green businesses grow, or to help community businesses become greener.