The Federal Reserve must ensure fintechs and other firms with “novel charters” do not jeopardize banking system stability.
Washington, D.C. (July 12, 2021) — The Independent Community Bankers of America (ICBA) and Bank Policy Institute (BPI) today called on the Federal Reserve to strengthen proposed guidelines for evaluating account and services requests.
Due to the lack of oversight by federal banking regulators, fintech firms that hold novel charters pose greater risks to the banking system. Today’s joint letter encourages the Federal Reserve to establish a uniform set of standards that each of the 12 Federal Reserve Banks will apply as they evaluate requests for access to the payment system and to rigorously apply those standards — particularly for these novel charters.
“The question of which institutions should be permitted to open master accounts with a Federal Reserve Bank and obtain related services is a critical one, particularly in light of the increase in the availability of novel charters,” BPI SVP and Associate General Counsel Dafina Stewart and ICBA SVP of Payments and Technology Policy Deborah Matthews Phillips wrote in the joint comment letter. “Reserve Bank accounts and services stand at the center of our payments and monetary ecosystem, and both the resilience and the risk management of institutions that hold such accounts is a linchpin to the safety and effectiveness of the U.S. payments system.”
In their joint comment letter, BPI and ICBA said:
- The final guidelines should ensure the safety and soundness of the nation’s payment system and appropriately mitigate the risks posed by firms with novel charters that may obtain Reserve Bank accounts and services.
- The Federal Reserve should clearly identify which institutions are legally eligible to apply for Reserve Bank accounts and services, explain how it will monitor whether novel charter holders meet the application standards, and ensure all decisions regarding novel charters involve the Federal Reserve’s Board of Governors.
- The guidelines should account for relationships between an applicant with a novel charter and its affiliates and not delegate to the Reserve Banks decisions on the interest rate they pay on reserve balances.
The Independent Community Bankers of America creates and promotes an environment where community banks flourish. ICBA is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education, and high-quality products and services.
With nearly 50,000 locations nationwide, community banks constitute 99 percent of all banks, employ more than 700,000 Americans and are the only physical banking presence in one in three U.S. counties. Holding more than $5 trillion in assets, over $4.4 trillion in deposits, and more than $3.4 trillion in loans to consumers, small businesses and the agricultural community, community banks channel local deposits into the Main Streets and neighborhoods they serve, spurring job creation, fostering innovation and fueling their customers’ dreams in communities throughout America. For more information, visit ICBA’s website at www.icba.org.
The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.