Everyone wants to be a bank now. Banks aren't happy about it.
Banks, not surprisingly, aren't happy about any of this.
Their fear is that many of these new entrants are seeking novel, lighter-touch charters that would, in practice, let them offer banking services while bypassing some of the regulatory obligations that traditionally come with that business.
"Banks don't oppose competition," Paige Pidano Paridon, co-head of regulatory affairs with the lobbying group Bank Policy Institute, said in an emailed statement.
"They oppose a regulatory double standard that imposes more lenient regulations on a small group of market participants engaged in the same activities as a bank."
The battle over who gets to be a bank is once again heating up in Washington, D.C., as the Trump administration reexamines a slew of regulations governing the financial services industry.
The process is expected to result in looser rules for banks, but it could also mean a lower bar for newer entrants that want access to the regulated banking ecosystem.
This past week, the Federal Deposit Insurance Corporation made it clear that it wants to make adjustments for these newer entrants as it released a request for information on its process for approving "industrial loan companies."
The FDIC also rescinded a Biden administration proposal that would have heightened scrutiny of companies seeking such state-level charters.
Automakers General Motors, Stellantis, and Nissan have all recently applied for ILCs, which would grant them the same FDIC deposit insurance coverage that traditional banks offer while allowing them to make loans and collect deposits. Their parent companies wouldn't have Federal Reserve supervision as traditional banks do.
Learn more about high-yield savings accounts, money market accounts, and CD accounts.
Banks and nonbanks have clashed before. Walmart (WMT) and Home Depot (HD) subsidiaries filed for deposit insurance coverage roughly two decades ago, which generated fierce pushback from mainstream lenders.
In a March letter to the FDIC, banking lobbyists at the ICBA argued that "ownership of ILCs by automakers has a history of failure." The letter described the 2008 collapse and eventual federal bailout of financier GMAC, which is now known as Ally (ALLY).
"ICBA has opposed the approval of all ILCs with commercial parent companies because they are risky, lack appropriate levels of prudential regulation and supervision at the holding company level, and harm consumers by creating companies with undue concentrations," ICBA wrote.
Tim Spence, CEO of Cincinnati regional bank Fifth Third (FITB), told Yahoo Finance he believes these novel charters "have a role to play, provided that they stay limited purpose as opposed to being used to basically conduct the activities of a bank without actually having to comply with the same set of rules."
'Dangerous concentration'
Many crypto and fintech companies are following a different regulatory path to the banking system than the automakers: They are instead seeking national trust banking charters with the Office of the Comptroller of the Currency (OCC).
So far this year, at least 18 different businesses have applied for this kind of charter, which wouldn't allow a company to make loans or take deposits but would allow them to offer certain bank custody services.
That is a 70% jump compared with the number of companies that applied over the same period during the Biden administration in 2024, according to the OCC.
The list includes Circle, which issues the world's second-largest stablecoin and caught Wall Street's attention last month with its chart-topping IPO.
Others include major crypto firm Ripple, British fintech Wise, and Fidelity Digital Assets, the crypto subsidiary of Fidelity Investments. Erebor, a digital bank startup backed by Silicon Valley billionaires Palmer Luckey and Peter Thiel, has also applied for a full-service national bank charter.
"Applications of this sort pose unique challenges," the ICBA wrote in a July 10 letter to OCC Acting Comptroller of the Currency Rodney Hood.
Along with violating the "separation of banking and commerce," creating conflicts of interest and "dangerous concentration," ICBA argued in the letter that granting these charters to crypto firms "unwisely extends the federal safety net to commercial interests."
ICBA's letter to the OCC cited a US Government Accountability Office report on the resolution of two sizable bank failures of crypto-friendly regional banks — Silvergate and Signature — in the spring of 2023.
The report identified the banks' exposure to the crypto world as a driver of their ultimate failure.
For some of the new crypto applicants that deal with dollar-pegged stablecoins, getting a national trust bank charter fulfills a registration requirement within new legislation passed this week, known as the GENIUS Act, which sets rules for those digital assets.
Read more: Can you buy crypto with a credit card? See the pros and cons.
Because the legislation will open stablecoins to existing banks, there is reason to believe these firms also need the credibility of a charter if they want to compete for clients against mainstream banks.
"Even in a world where we have this full-fledged OCC charter, we would still totally partner with banks," Circle head of strategy Dante Disparate said.
Disparate said having a national trust bank charter would also make it easier for it to "harmonize" its various regulatory licenses in other countries.
"It also allows for the contemplation of other potential activities in the future, those will be subject to the licensing itself with the OCC," Disparate added.
Big banks are also preparing for what they expect to be wider spread use of stablecoins.
JPMorgan CEO Jamie Dimon, a longtime skeptic of cryptocurrencies, said this past week that his bank needs to embrace stablecoins as a way to keep pace with payment rivals.
Last month, JPMorgan announced plans to launch a so-called deposit token called JPMD that is somewhat like a stablecoin but available only to JPMorgan's institutional clients.
"We're going to be involved in both JPMorgan deposit coin and stablecoins to understand it, to be good at it," Dimon said.
He also made it clear he hasn't dropped his skepticism entirely: "I think they're real, but I don't know why you'd want to [use a] stablecoin as opposed to just payment."
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance. His email is david.hollerith at yahoofinance.com.
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