Simplifying Bank Charters: A Call to Action for U.S. Authorities
As the fintech industry continues to dominate the financial landscape, a group of lawyers is urging U.S. authorities to streamline the process of obtaining bank charters. In a letter to be released on Monday, the lawyers emphasize the need for regulators to encourage the formation of new banks, citing the current “nearly impenetrable barrier to entry” as a major obstacle.
A Pro-Business Regulatory Climate
The letter comes at a critical time, as corporate executives hope for a more business-friendly regulatory environment under President Donald Trump. The administration has pledged to reduce excessive red tape, and the lawyers believe that simplifying the bank charter process is a crucial step in achieving this goal.
The Complexity of Securing a New Bank Charter
Currently, the process of securing a new bank charter in the U.S. can take over a year and involves multiple agencies. This complexity has led to a significant decline in new bank charter applications, with an average of only five approved annually between 2010 and 2023. In contrast, between 2000 and 2007, an average of 144 new bank charters were approved each year.
Identifying the Root Causes
The lawyers point to the low-interest rate environment, burdensome regulation, and a heightened fear of bank failures post the 2008 financial crisis as key factors contributing to the decline. To promote innovation, regulators must set realistic benchmarks and recognize that failure is an inherent risk for new banks.
Unrealistic Expectations
The lawyers argue that regulators currently expect new bank charter applications to practically guarantee success, which is an unreasonably high standard. This approach has led to a culture of fear, where banks are hesitant to take risks and innovate.
A Call to Action
To address these issues, the lawyers recommend that regulators improve transparency in the application process and commit to a review period of 120 days. By doing so, they can encourage more firms to pursue bank charters, promoting competition and innovation in the sector.
A Healthy Pipeline of New Entrants
The Federal Deposit Insurance Corporation’s acting chair, Travis Hill, has already highlighted the need to encourage more firms to pursue bank charters. By simplifying the process and promoting a culture of innovation, regulators can ensure a healthy pipeline of new entrants in the sector, ultimately benefiting consumers and the economy as a whole.
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