Rakuten again withdraws application for bank charter

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WASHINGTON — Rakuten Bank America has withdrawn an application for deposit insurance for the second time, another delay for a company the banking industry has repeatedly tried to block from obtaining a bank charter.

Rakuten withdrew its application on July 27, according to Federal Deposit Insurance Corp. records. The move comes less than two months after the Japanese e-commerce and technology conglomerate filed its second application for deposit insurance in May.

Since 2018, the FDIC under Chairman Jelena McWilliams has signaled a willingness to consider new applications of industrial banks for deposit insurance, and the once-niche industrial bank charter has emerged as a promising path for some fintech companies and other non-lenders to break into banking. In March, the FDIC approved its first applications for industrial bank insurance in more than a decade for the payments firm Square and student loan servicer Nelnet.

But Rakuten Bank America has long been considered a bogeyman by banks due to their ownership under a commercial company. Community banks in particular have objected to Rakuten's application on grounds that it violates the traditional separation of commerce and finance in American business.

Pressure has also increased from Capitol Hill to slow or halt deposit insurance approvals for industrial banks at the FDIC. In late July, the Bank Policy Institute, the Independent Community Bankers of America and Center for Responsible Lending urged Congress to introduce a three-year moratorium on new approvals in the next round of pandemic stimulus legislation.

And just last week, Rep. John Kennedy, R-La., wrote to McWilliams to urge the FDIC to “pause its efforts” to finalize a rulemaking updating its approach to industrial bank applications and “refrain from approving any ILC-related applications, pending or otherwise.”

“This will preserve the status quo and avoid potentially devastating changes to our banking system,” Kennedy wrote.

Rakuten Bank America did not respond to a request for comment.

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ILCs FDIC Jelena McWilliams Community banks ICBA