Office of the Comptroller of the Currency will allow upstarts to become 'special purpose national banks'
Firms offering online loans, smartphone payments and other financial-technology
products would get new flexibility to expand and further shake up the U.S. banking industry under a proposed new federal policy.
A top regulator said
Friday that his agency would for the first time start granting banking licenses to "fintech" firms, giving them greater freedom to operate across the country without seeking state-by-state permission or joining with brick-and-mortar banks.
The move could open the door to more competition between the old and new financial firms, and provide a bigger opening for some large tech companies to consider new ways to offer digital payments or other services.
The announcement by Thomas Curry, head of the Office of the Comptroller of the Currency, was a significant move by regulators struggling to strike a balance between encouraging innovation while extending traditional protections to new financial products that have boomed since the financial crisis.
"It will be much better for the health of the federal banking system and everyone who relies on those institutions, if these companies enter the system through a clearly marked front gate, rather than through some back door," Mr. Curry said at a conference
Friday at Georgetown University Law Center.
CFPB Warning About Sales and Production Incentives
Unchecked Incentives Can Produce Unauthorized Account Openings,
Deceptive Sales Tactics, and Other Illegal Practices
"Tying bonuses and job security to business goals that are unrealistic or not properly monitored can lead to illegal practices like unauthorized account openings and deceptive sales tactics," said CFPB Director Richard Cordray. "The CFPB is warning companies to make sure that their incentives operate to reward quality customer service, not fraud and abuse."
A new Molly Wilkinson op-ed in the Washington Examiner rejects merchant assertions that price controls on debit card interchange fees reflect free market principles. The executive director of the Electronic Payments Coalition, wrote that Durbin Amendment price controls actually subvert market-based interchange fees through government interference that harms consumers.
In September, the House Financial Services Committee (HFSC) approved legislation that would repeal a Dodd-Frank provision called the Durbin Amendment that set limits on the fees some banks charge retailers to swipe debit cards.
In a frenzy of Orwellian doublespeak before and after this vote, Durbin Amendment supporters argued the provision is "free market" (it boosts competition!) and consumer friendly (it's a vital part of U.S. antitrust law!). The majority of the HFSC didn't fall for it.
That's because the Durbin Amendment is more akin to President Richard Nixon's price controls than anything else.
To prove this point, let's first take retailers' claim that the Durbin Amendment is necessary to ensure competition. The truth is that, even without the Durbin Amendment, merchants can-and do-directly negotiate with the networks to lower their interchange costs. They do so through a variety of incentive arrangements with networks, including deals in which the savings are rebated to the merchant. Some merchants prefer to handle the negotiation through their association or other group arrangement. Entire categories of merchants have obtained lower interchange rates based on their particular business needs.
Donald Trump' has selected Steven Mnuchin as Treasury Secretary and Wilbur Ross as Commerce Secretary, and Mnuchin has begun speaking about his top priorities should he be approved by Congress.
Mnuchin, who is best-known for his 17-year tenure at Goldman Sachs, explained in a CNBC interview that his top priority would be tax reform, stating that the administration's tax overhaul would be the largest since the Reagan administration. Explaining that the goal was to simplify the tax code, Mnuchin argues that his plans will not end in a tax cut for the upper class.
Mnuchin also pointed out Wednesday that he intended to alter the Dodd-Frank Act. "The Number one problem with Dodd-Frank is it's way too complicated and it cuts back lending, so we want to strip back parts of Dodd-Frank that prevent banks from lending and that will be the number one priority on the regulatory side. The number one priority is going to be to make sure that banks lend."
In addition, Mnuchin expressed his desire to privatize Fannie Mae and Freddie Mac. "We'll make sure that when they're restructured, they're absolutely safe and they don't get taken over again. But we gotta get them out of government control."
Both Mnuchin and Ross will require Senate confirmation once the Trump administration begins.
Community banks are now firmly planted in the fourth quarter of the year, with but a month to go until 2017. At the risk of being run out of town for using a football analogy, I think it is time for community banks to get back to the basics of blocking and tackling.
Traditionally, community banks engage in what I consider core, "bread-and-butter" banking-standard loan and deposit products and services that drive profitability through relationships.
Reaching beyond the basics
Over the past few years, everyone has been looking for a unique angle on profitability. This was the case in 2016 as well.
Many community banks I have worked with this year have looked to take actions that are unusual for them. This has included everything from exploring the acquisition of another bank, to buying a branch, to converting to Subchapter S, to redeeming a large block of company stock from a dissident shareholder, to issuing new equity.
All those are beneficial and exciting allocations of capital. However, they will not replace the need for core, long-term profitability.
The number one basic foundation of the obligation to enhance shareholder value is profitability.
It is for that reason I believe it is time for community banks to get back to the basics.
Community bank profitability involves a clear understanding of how the bank makes money, even in this difficult economic environment. The basics start with the fundamental profitability equation-the "secret formula" for making money in a community bank.
Revenue-Expenses=Profit
Each community bank board and senior management team should, at least annually, take a fresh look at this basic equation and figure out what adjustments need to be made.
products would get new flexibility to expand and further shake up the U.S. banking industry under a proposed new federal policy.
assertions that price controls on debit card interchange fees reflect free market principles. The executive director of the Electronic Payments Coalition, wrote that Durbin Amendment price controls actually subvert market-based interchange fees through government interference that harms consumers.
as Commerce Secretary, and Mnuchin has begun speaking about his top priorities should he be approved by Congress.
a month to go until 2017. At the risk of being run out of town for using a football analogy, I think it is time for community banks to get back to the basics of blocking and tackling.
