The New Banks Are Coming Tra La, Tra La

Friday there was some big news in the financial world.  The Office of the Comptroller released a policy brief.  They announced plans to begin issuing national banking charters.  Financial technology firms may have a way to avoid regulation by 50 different state regulators.

Banking regulation is a thicket.  The Feds regulate, and so do states.  Since the financial crisis, we have seen local banking dry up.  Many startups that I have spoken with over the years face extremely high hurdles because they have 51 regulators to deal with.  It’s hard to expand like a traditional startup.

There is tension between state and federal regulators.  This is similar to the tensions between two federal regulators-think of the SEC and CFTC.  The tension goes back to the Federalist Papers when the founders argued over a strong central government versus state governments.  We have similar debates today.  In the field of economics, classical economists argue for more local control, and Keynesians argue for centralization.  Here is a quote I pulled out of the linked article.

“History has demonstrated that states, not the federal government, have the requisite knowledge and experience to effectively regulate nondepository financial service providers and guard against predatory and abusive practices,” New York Superintendent of Financial Services Maria T. Vullo said in a statement Friday.

It’s good to have the tension. It’s good to have 50 state experiments. However, when you see something working there has to be a way to adopt it across all 50 and standardize it.

For startups and investors, this could create some opportunity.  There is no telling what a Trump administration might do.  But, the tenor of the campaign was to keep business in America and put an exclamation point on economic growth.  Creating more access to capital through banking is a good way to do it.