ABA: Rakuten Application Poses Risk to Deposit Insurance Fund

A recent deposit insurance application by Rakuten—a major Japanese e-commerce company—for its U.S. bank subsidiary Rakuten Bank America could pose potential risks for the Deposit Insurance Fund if approved, the American Bankers Association cautioned in a letter to FDIC Chairman Jelena McWilliams today. The association specifically raised concerns about the excessive dependence of proposed Rakuten Bank America on its parent company and affiliates.

“The Rakuten Bank America application . . . presents a clear example of the potential risks to the Deposit Insurance Fund of an institution business plan dependent on the success of non-financial affiliates,” ABA said. “The lack of a depository institution-focused business plan means that adverse business events in the parent and nonbank affiliates could be transmitted to the bank, which would then lack a viable plan for mitigation and recovery.”

In recent updates to its deposit insurance application handbook—which included special considerations for applications received from entities that are not considered banks under the Bank Holding Company Act—the FDIC itself acknowledged that risks to the deposit fund could increase “as the degree of dependence on the parent company or affiliates expands.”

While ABA has long been a strong advocate for charter choice, the association reiterated concerns raised in a previous letter that the approval of Rakuten’s application would undermine both the well-established separation of banking and non-financial commerce and the value of consolidated supervision of banking organizations.