A U.S. House committee this week began reviewing the idea of allowing the likes of Amazon or Facebook to receive charters to operate as banks — an idea that’s already gotten plenty of pushback from traditional financial institutions (FIs).
The House committee held a hearing on the idea after Acting Comptroller of the Currency Brian Brooks in July proposed a new special purpose national banking charter for payments companies.
Overseen by the Office of the Comptroller of the Currency (OCC), the charter would allow firms like Facebook, Google or Amazon to bypass the process by which they need to collect money transmitter licenses state by state. It would instead offer payment companies a national servicing platform to replace the regime of state regulations such firms would be subject to under existing laws.
However, the banking industry doesn’t like that one bit.
“We oppose the OCC’s effort to grant commercial companies like Amazon or Facebook a national payments charter to access to the Federal Reserve payments system and safety net, [the] most critical part of our country’s financial infrastructure … without protecting the financial system and consumers from the concomitant increase in systemic risk,” industry leaders wrote in a recent letter to key lawmakers.
Co-signed by the American Bankers Association, Bank Policy Institute, Independent Community Bankers of America and The Clearing House, the letter argues that banks and non-bank technology firms are both already embracing innovation in customer service offerings. The groups argue that such efforts are secured under the current regulatory regime, and that allowing innovation at the expense of the financial system’s stability isn’t beneficial.
“Commercial companies accessing a payments charter would avoid oversight and regulations that protect the financial system and consumers,” the bank industry leaders wrote.
This isn’t the OCC’s first attempt to create a special banking charter that would benefit tech firms. The agency first proposed a special banking charter for FinTechs in 2014 that would limit pushback from the Federal Deposit Insurance Corp. (FDIC), the states and the courts.
But last fall, a federal appeals court questioned the OCC’s authority to issue such a charter. And as the banking industry’s letter shows, FIs are still displeased with the idea as well.
Among the issues the industry has raised are concerns that special purpose payment banks won’t be subject to the federal Bank Holding Company Act (BHCA) and other relevant statutes.
The industry claims that means payments banks wouldn’t be subject to the same capital liquidity requirements that regular banks are. Nor would they be required to develop plans for recovery or restitution of funds in the event of a catastrophic situation, FIs…
Read More: Banks Push Back On Possible Banking Charters