The only newsletter that scans and analyzes the full breadth of regulatory developments every day. Written and curated by Rob Garver for SourceMedia.
10.4.17 - As threats go, it isn’t the most colorful or the most dramatic, but when a banking lawyer warns commercial companies seeking entry into the financial services world that they are courting “Walmart 2.0,” there’s no mistaking that a line in the sand has been drawn.
The banking industry was unnerved by Comptroller of the Currency Keith Noreika’s suggestion last week that companies like Google, Amazon, and other commercial firms could be eligible for the agency’s so-far-only-notional fintech charter, allowing them to operate as limited financial services companies without the full burden of banking regulations applied to depository institutions.
There is a healthy debate raging over whether the OCC actually has the authority to start granting the new kind of charter, but in general, the banking industry is less interested in legal niceties than it is in protecting itself from what it sees as potentially unfair competition. And it will fight bitterly to prevent that competition from taking root.
That’s what attorney Joseph Lynyak III, a partner at Dorsey, meant when he spoke to American banker’s Lalita Clozel this week about commercial firms gaining fintech charters. “It may be legally permissible, but politically, it raises very serious concerns," he said. "This may become Walmart 2.0."
While Lynyak’s warning might seem to have been directed at Noreika and the OCC, it was surely meant to be heard by any commercial companies who are toying with the idea of entering the financial services world.
If you haven’t spent the past decade or more immersed in the debates over financial regulation, the reference to Walmart may be lost on you. Lynyak was referring to a full-scale mobilization of the banking industry’s lobbying power that was mounted in the years prior to the financial crisis to prevent the retail giant from getting an Industrial Loan Company charter.
Despite protests from Walmart that the entire purpose of its application was to create internal systems that would help it save money on credit card processing, the banking industry fought a pitched battle from 2005, when the company’s intentions became clear, until 2007, when Walmart finally withdrew its application.
Led by community bankers concerned that their firms would be devastated by the retail giant like mom and pop grocery stores unable to compete with the Bentonville, Arkansas company’s prices, the fight raged in Congress and in bank regulatory agencies for two years.
From the outside, it might have looked like a lopsided contest, with the largest commercial firm in the country taking on tiny banks, but the combined weight of the lobbying against Walmart, as well as an aggressive effort to portray the company as a rapacious destroyer of small businesses, eventually took its toll.
In 2007, Walmart withdrew its application, which it announced in an angry press release that said, in part, “Unlike dozens of prior ILC applications, Wal-Mart’s has been surrounded by manufactured controversy since it was submitted nearly two years ago. At no stage did we intend to use the ILC to establish branch banking operations as critics have suggested -- we simply sought to reduce credit and debit card transaction costs.”
Among bankers’ biggest concerns about the fintech charter is that it could allow competitors who don’t have to abide by the full suite of regulatory controls imposed on banks to compete with them in some key areas. Allowing them to do so without incurring all of the additional costs of operating as a bank could allow them to price banks out of the market.
The message the industry is sending to the Amazons and Googles of the world is plain. If regulators are willing to lower the barriers to entry in some areas of the financial services market, established firms are prepared to step in and impose some barriers of their own, in the form of aggressive lobbying campaigns, negative advertising, and long, expensive legal challenges.
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Today’s Key Reads
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FASB proposes targeted fixes to accounting guidance
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New CEO, same drubbing for Wells on Capitol Hill
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Can the OCC really grant fintech charter to a Google?
American Banker - Not so fast. That was the message industry observers were sending to acting Comptroller of the Currency Keith Noreika after he suggested last week that commercial firms, including Google and Amazon, could legally obtain a fintech charter if they applied. They said that if the OCC opened the door to such a move, it would set off a political firestorm.
Innovation vexing for banks and fintechs alike
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Fed’s Powell says U.S. bank capital is 'about right'
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NCUA's goal: Avoiding future assessments
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Private flood insurance bill avoids costs of floodplain management
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Declining capital at Fannie, Freddie 'irresponsible': FHFA's Watt
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As ex-Equifax CEO testifies, all credit bureaus are on trial
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Equifax Breach Caused by Lone Employee’s Error, Former C.E.O. Says
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Yellen: Why AIG is no longer ‘too big to fail’
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After Hack, SEC Defends Plan to Amass Traders’ Sensitive Data
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