A senior US regulator has floated the possibility of ending the long-standing separation of banking and commerce, paving the way for the likes of Amazon, Facebook and Walmart to take on Bank of America, Wells Fargo, Citi et al.
Acting Comptroller of the Currency Keith Noreika used a speech on Wednesday to question whether the centuries-old practice of keeping banking separate from other commercial activity is still in the best interests of the banking system and the wider economy.
The separation has in part been driven by a determination to keep customer deposits safe from use in risky non-banking business. This was exacerbated by the 2008 financial crisis, leading to the Dodd Frank Act, which sought to strengthen the separation between deposit-taking and other activities.
Yet, Noreika rejects the link, arguing that non banks in the shape of Bear Stearns and Lehman were at the centre of the crisis, while the Glass-Steagall repeal actually helped, enabling Bank of America to buy Countrywide and Merrill Lynch.
In fact, Noreika says that allowing non-financial companies to operate banks would improve the system by boosting competition and reducing the risks associated with an industry that supports just a handful of mega banks.
His organisation, the OCC, is already working to open the system through its controversial plans to to grant special-purpose bank charters to fintech firms, arguing that it will promote financial innovation.
Meanwhile, the banking industry has been fighting off efforts from non-banks to obtain permission to operate as industrial loan corporations (ILCs), which let firms carry out banking services but also enable them to continue providing other non-financial commercial services.
ILCs were subject to a moratorium during the passing of the Dodd Frank Act but this was lifted in 2014. Since then retailer WalMart unsuccessfully applied for an ILC, with online lending startup SoFi and Square also applying in moves opposed by the banking lobby.
The banking industry has long feared the power of the retail and tech giants such as Amazon, Facebook and Walmart to disrupt their industry. Many of these potential rivals have already taken relatively small targeted steps into financial services in areas such as payments and lending.
A change to the rules could lead to some of these giants making a full banking play. Noreika says that he wants to reopen a debate on the issue, which was "silenced" by the last financial crisis.
"We need fresh research that looks at banking and commerce in a post-Dodd-Frank world. In having that conversation, we might find opportunities to do things a little differently, and we might start a powerful and beneficial economic engine."
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