U.S. regulator says time to review mixing banking with other businesses

[November 08, 2017]   By Michelle Price

WASHINGTON (Reuters) - U.S. regulations that bar companies such as Wal-Mart Stores Inc <WMT.N> from providing banking services need to be reviewed as they reduce competition thereby concentrating more risk among a smaller number of banks, a U.S. banking regulator said on Wednesday.

At a banking conference in New York, acting Comptroller of the Currency (OCC) Keith Noreika urged in prepared remarks the resumption of debate over whether it was safe to allow traditional banking to mix freely with other commercial activities.

Mixing banking and other commercial activities has traditionally been prohibited in the United States, amid fears customer deposits would be used to fund or subsidize unrelated and potentially risky non-banking business.

Additional restrictions were imposed in the 2010 Dodd Frank Act after some banks' risky bets during the global financial crisis of 2007-2009 endangered their traditional deposit-taking banking businesses.

"Unfortunately, the crisis has been used as an excuse to silence that discussion, even though the evidence and data show that combining banking and commerce had little to do with the cause of the crisis," Noreika said. "We need to restart that dialogue."

Noreika on Wednesday said that allowing non-financial companies to run banks could strengthen the banking system by boosting competition and increasing diversity. The OCC is exploring providing a charter specifically for financial technology providers such as payment processor Square Inc <SQ.N>.

Noreika cited research by academics that many banks including Wachovia and IndyMac faltered during the crisis even though they had no "exotic" commercial operations.

One of a handful of exceptions to the current restrictions allows non-financial firms to apply for an industrial loan company (ILC) license, which is subject to oversight by the Federal Deposit Insurance Corporation (FDIC).

Noreika's comments are likely to stoke tensions between his agency and the FDIC, which imposed a moratorium on commercial entities seeking these ILC licenses after Wal-Mart applied for one in 2005. Community banks strongly opposed the Wal-Mart application, claiming the world's largest brick-and-mortar retailer might use it to expand into other financial services. Community banks also opposed Square Inc's attempt to secure ILC licenses.

(Reporting by Michelle Price; Editing by Lisa Shumaker)

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