Acting Comptroller of the Currency Keith Noreika laid out a case for rethinking, and possibly reversing, the decades-old restrictions keeping commercial firms from owning banks and vice versa, saying the barriers have little practical purpose and may restrict healthy competition.

“In practice … a general prohibition on the mixing of banking and commerce has resulted in the very sort of things the prohibition was set up to prevent: advantaging and aggrandizing a few at the expense of the many,” Noreika said. “In sum, [it’s] another win for the big guys.”


Keith Noreika, acting Comptroller of the Currency, listens during a Senate Banking Committee hearing in Washington.
"A general prohibition on the mixing of banking and commerce has resulted in ... advantaging and aggrandizing a few at the expense of the many," said acting Comptroller of the Currency Keith Noreika. Bloomberg News

In his prepared remarks to be delivered Wednesday morning at the Clearing House Association’s annual conference here, Noreika outlined the history of the restriction, which has antecedents to the earliest days after the American Revolution.

But the modern restrictions — which can be found in the 1956 Bank Holding Company Act, the Glass-Steagall restrictions between commercial and investment banking and provisions in the 1933 Banking Act — were born more out of a personal vendetta between moneyed interests than out of noble concerns of unfair practices. That is further evidenced by the various grandfathering clauses and loopholes that allow banks and commercial activities to mingle on limited bases, he said.

“If facts cannot explain why Congress took up Glass-Steagall, what does?” Noreika asked rhetorically. “Well, it may come down to the Rockefellers wanting to stick it to the Morgans.”

Noreika’s comments are the latest in a series of arguments the acting comptroller has been making in recent months in favor of eliminating those barriers between commercial and banking industries. He has also suggested that the OCC’s fintech charter should be open to commercial firms — a policy that the previous Comptroller Thomas Curry had opposed.

The comments also come as some online lenders have begun seeking industrial loan company charters to help them compete in the banking industry — a prospect hotly contested by community banks.

But Noreika argued that opening the door to a mixing of banking and commerce could help, not hurt, small banks.

"In smaller communities, fewer restrictions against mixing banking and commerce could allow for greater use of local capital, and support growth and business activity locally," he said. "It could help smaller community banks grow and take advantage of benefits previously only available to grandfathered companies and banks that are big and sophisticated enough to convince the Federal Reserve to grant them an exception.”

Noreika said that regulators and members of Congress should be willing to take up the question of whether these restrictions are serving their intended purpose or not, and foster an open inquiry into whether those restrictions ought to be tightened — a “not very thoughtful” proposal — or eliminated entirely.

He pointed to studies that he said show consumers could benefit from a blending of the issue.

"The takeaway from these studies is that mixing banking and commerce can generate efficiencies that deliver more value to customers and can improve bank and commercial company performance with little additional risk," he said. "We need to restart that dialogue. We need fresh research that looks at banking and commerce in a post-Dodd-Frank world. In having that conversation, we might find opportunities to do things a little differently, and we might start a powerful and beneficial economic engine."

Additionally, Noreika took issue with those advocates of reinstating Glass-Steagall, or a “21st century Glass-Steagall.” The financial crisis has ample evidence that both unregulated nonbank financial firms and traditional banks — including IndyMac, the bank that Treasury Secretary Steven Mnuchin ran — took losses, he said, and contributed to the crisis.

“Look at IndyMac, WaMu and Wachovia. Nothing about these banks was exotic. Still, they faltered, impacting millions of consumers, and played a significant role in the crisis,” Noreika said. “Reinstating Glass-Steagall or continuing to look for ways to separate banking and commerce even more will not make the system any safer, because mixing the two did not weaken the system in the first place.”

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.