ABA Calls Out the Risks of Bank Charter Arbitrage

ABA today called for more congressional oversight in light of recent efforts by federal and state agencies to create new bank charters or apply new interpretations to traditional charters that would allow entities to enjoy bank-like benefits while circumventing the rigorous regulatory framework that applies to traditional banks. While ABA has long supported charter choice and de novo bank formation, the association emphasized that such an approach to chartering for non-traditional entities could have serious implications for safety and soundness and consumer protection.

In a statement for the record for a House Financial Services hearing, ABA flagged several recent actions by state of Wyoming and the OCC that have enabled cryptocurrency businesses and other fintech providers to pursue bank charters. One example is Reno, Nevada-based Figure Bank, which applied for a national bank charter by the OCC despite not taking insured deposits—an attribute that would allow it to circumvent certain federal banking regulations. “Figure Bank would have a significantly different risk profile from a traditional bank and would also be subject to a very different set of regulations, given that many banking laws are triggered by insured deposit taking,” ABA said.

ABA emphasized that these non-traditional entities should not be granted access to master accounts at the Federal Reserve or Reserve Bank payments services until a uniform policy is adopted to address requests by non-traditional charter applicants. “The OCC should proceed with great care in its consideration of non-traditional applicants for national bank charters to ensure that it does not undermine the value of traditional charters by holding new applicants to less stringent standards,” ABA said. “Access to the Federal Reserve payment system is a privilege and not a right.”