A group of financial services lawyers, led by Michele Alt of Klaros Group, has called for reforms to streamline the process of obtaining bank charters in the United States. In an open letter, they argued that current regulatory hurdles stifle innovation, limit competition, and keep many FinTech firms operating outside direct regulatory oversight. This appeal comes amid growing reliance on technology-based financial services, highlighting the need for modernized banking policies to foster innovation and enhance customer access to diverse financial solutions.
Why is bank formation declining?
The process of acquiring a bank charter, as outlined in the letter, is described as overly complex and burdensome. This has contributed to a significant decline in new bank formations, reaching historically low levels. According to Alt, this situation negatively impacts both traditional institutions and FinTech companies, discouraging fresh entrants into the banking sector. The letter emphasizes that many FinTech firms, which play a crucial role in delivering financial services, remain outside the regulatory framework due to these barriers.
What changes do experts recommend?
The letter outlines specific steps for the Federal Deposit Insurance Corp. (FDIC), Office of the Comptroller of the Currency (OCC), and Federal Reserve to simplify the chartering process. These include revising interagency business plan guidelines, setting clear success metrics for new banks, aligning agency review processes, and adhering to firm deadlines for application decisions. Additionally, the authors call for minimizing disruptions from “frivolous protests,” providing detailed rejection notices for denied applications, and clarifying expectations for pre-opening examinations.
The push for reform coincides with statements from FDIC Acting Chairman Travis Hill, who has prioritized a comprehensive review of bank regulations. Hill expressed his commitment to ensuring that regulatory frameworks promote a robust and growing economy. He noted that this review would evaluate rules, guidance, and practices to streamline their application and foster a healthy banking system.
In previous discussions on this topic, industry experts have long highlighted the challenges faced by FinTech companies seeking entry into the banking system. While some incremental changes were attempted in recent years, these efforts have often been criticized for falling short of addressing the core issues. The current call for reform appears to be a more unified and urgent plea for actionable changes.
The letter’s authors stress that the proposed measures do not require Congressional approval, making them feasible for quick implementation. They urge regulators to prioritize new bank formation, equating its importance to the ongoing supervision of existing institutions. Their proposals aim to strike a balance between innovation and regulatory oversight, ensuring that emerging players in the banking industry can operate within a structured framework.
A simplified and efficient chartering process could significantly impact the financial landscape by allowing diverse businesses, including FinTech firms, to offer regulated banking services. This would promote healthy competition, drive service innovation, and ensure regulatory compliance. For consumers, it could mean increased access to tailored financial products and lower costs, driven by market competition. As regulators review these recommendations, stakeholders across the industry will likely monitor closely for any policy shifts.
