As the president of a small community bank, I feel the need to respond to certain misleading comments that have been made by banking industry representatives and community activists recently in opposition to the Social Finance application to charter an industrial bank.
I feel the need in particular to respond to comments as reported in the press by a representative of the Independent Community Bankers of America, an industry trade association I support. In essence, this individual stated opposition to SoFi’s recent application based on his assertion that industrial banks don’t follow the same rules as other banks. This assertion is not accurate.
I once served as the president of an industrial bank and I can assure you that that bank was examined by the same regulators and held to the same standards as my current community bank. Industrial banks are FDIC-insured banks, period.
The difference with industrial banks has nothing to do with the bank; it has to do with the holding company. It is true that industrial bank parents are not regulated by the Federal Reserve under the Bank Holding Company Act. However, state regulators and the FDIC have broad authority to examine the industrial bank parent and its affiliates, as well as require them to increase capital and liquidity whenever needed. I can also say without equivocation that regulations regarding transactions with affiliates were strictly enforced, ensuring that the parent or its affiliates could not disadvantage the bank. It is really not a question as to whether the rules apply; it’s more a question of who enforces them.
The fact that SoFi, an increasingly persistent antagonist of the banking industry, is applying for a bank charter and embracing all the strings attached to FDIC insurance is a huge victory for the industry. This flies in the face of the comment attributed to the ICBA representative: “We want these fintech companies to be subject to the same kind of regulations as banks are.” Isn’t that exactly what is happening?
So why oppose the charter? To me, this is more about competition than safety and soundness or consumer protection.
The banking industry is evolving. Doesn’t it make more sense to focus on how to evolve with it rather than how to reduce competition? After the financial crisis, like many other community banks, my little bank was forced to look beyond our traditional business model and innovate. By doing so, we have been able to diversify our product offerings, provide new services to our customers and strengthen our bank.
Competition makes us stronger. I am not afraid of any competition as long as it is fair. And after running both types of banks and knowing firsthand the level of regulation required for both bank models, I believe it is fair and I welcome SoFi to the fray. Perhaps I’ll learn something from them that will help my bank.
I need my advocates in Washington to fight for smarter regulations for all banks. In order to do that, we need to be working together as banks and welcoming anyone that wants to join our ranks. Community banks are not looking to their trade associations to protect them from fair competition. We are more than capable of competing.