Wall Street executives see the prospect of tougher regulation under the Biden administration as a threat — but also as a chance to neutralise a new generation of high-tech competitors.
Bank lobbyists and executives say a priority will be persuading the incoming administration that tech giants such as Facebook and Google, as well as upstart fintechs, should not be allowed to provide services that compete with banks without being subject to the same rules.
“Businesses that want to be in the banking business without the heavy regulation that banks have — that are playing the arbitrage game — are a concern for all of us [in the industry],” said Bill Daley, vice-chairman of public affairs at Wells Fargo and a former White House chief of staff under president Barack Obama.
One area of concern is a proposed streamlined “fintech” or “payments” charter for financial institutions that do not take traditional deposits, which has been developed at the Office of the Comptroller of the Currency, one of the three main US banking regulators.
The charter-lite concept, which amounts to a form of banking licence, was proposed during the Obama administration, and recently departed OCC commissioner Brian Brooks revived the idea in the final months of Donald Trump’s presidency. Several states are promoting low-regulation bank charters as well.
“These new ersatz bank charters lack protections for US consumers and are a risk to financial stability,” said Greg Baer, president of the Bank Policy Institute, a bank lobbying group. “They would enable tech companies to operate without the consumer and safety and soundness protections designed for a full-fledged bank.”
Jamie Dimon, chief executive of JPMorgan Chase, the biggest of the US banks, has long raised alarms about the competitive threat from tech companies — and the risk of regulatory arbitrage by non-bank finance companies. In a January call with analysts, he highlighted “examples of unfair competition” in payments, where some fintechs can charge higher exchange fees on debit card transactions than banks are allowed, while skimping on “know your customer” and anti-money laundering checks.
The sense that tougher regulation — if universally applied — could provide established financial institutions with an edge over new competitors extends beyond tech.
Banks may also find their competitive position bolstered by a regulatory crackdown on non-bank lending, which could pit banks’ lobbyists against those for large alternative asset management firms.
“The whole unregulated banking sector will be looked at and will be under a cloud,” said an executive at a large private equity firm that controls billions of dollars in direct lending funds that have replaced banks as the lenders of choice for many midsized businesses.
“Shadow banking sounds terrible, unregulated, dark, mysterious. It sounds like everything you don’t like,” the executive added. “And I think those views will prevail.”
Another senior executive at a large Wall Street bank agreed that politicians and regulators would conclude “banks are not the problem right now, no one believes banks are undercapitalised [or] have misbehaved”.
Source: FT
