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