Defending the Bank Charter

Position

• Corporate conglomerates or other companies engaged in commercial activities should not be allowed to own full-service or special purpose banks in violation of the longstanding U.S. policy of maintaining the separation of banking and commerce.
• Congress should close the ILC loophole and prevent the creation of special purpose national bank charters because they not only threaten the financial system but create an uneven playing field for community banks.
• The OCC should have explicit statutory authority from Congress before issuing any special purpose national bank charter for financial technology (fintech) companies. Any new federal charter should be subject to the same standards of safety, soundness, and fairness as other federally chartered institutions.
• The Federal Reserve Banks should conduct rigorous due diligence of state chartered special purpose depository institutions (SPDIs) before granting them access to the payments system.
• Policymakers must ensure that stablecoin issuers and other crypto-related entities do not have access to Federal Reserve master accounts or the payment system. Special purpose bank charters or similar alternatives should not be granted to cryptoasset entities that do not fully meet the requirements of federally insured and supervised chartered banks.

Background

The long-standing policy prohibiting affiliations or combinations between banks and non-financial commercial firms (such as Wal-Mart, Amazon, and Google) has served our nation well and was reaffirmed by the Gramm-Leach-Bliley Act (GLBA). Allowing large retail or technology conglomerates to own banks violates the U.S. policy of maintaining the separation of banking and commerce, jeopardizes the impartial allocation of credit, creates conflicts of interest, a dangerous concentration of commercial and economic power, and unwisely extends the federal safety net to commercial interests.

In 2020, the FDIC approved ILC charter applications for Square and Nelnet. ICBA believes that GM Financial Bank, Ford Credit Bank and all other applicants for deposit insurance through ILCs should be subject to the same restrictions and supervision that apply to any bank holding company of a community bank.

Furthermore, it would be a violation of Section 2 of the Federal Reserve Act for the OCC to approve a national bank charter to a non-depository institution. Section 2 is clear that every national bank must be a member of the Federal Reserve System and every member of the Federal Reserve System must be an insured bank.