The Separation of Banking and Commerce

Position

  • ICBA supports the separation of banks and commerce. Allowing corporate conglomerates to own banks violates the U.S. policy of maintaining the separation of banking and commerce.
  • For safety and soundness reasons and to maintain the separation of banking and commerce, ICBA opposed the FDIC deposit insurance applications of SoFi Bank and Square Financial Services, Inc. Both applied for industrial loan corporations (ILCs) charters from the state of Utah.
  • The FDIC should impose a two-year moratorium on ILC deposit insurance applications.
  • Congress should close the ILC loophole because it not only threatens the financial system but creates an uneven playing field for community banks.

Background

The long-standing policy prohibiting affiliations or combinations between banks and non-financial commercial firms (such as Wal-Mart, Amazon, and Google), has served our nation well and was reaffirmed by the Gramm-Leach-Bliley Act (GLBA). Allowing large retail or technology conglomerates to own banks violates the U.S. policy of maintaining the separation of banking and commerce, jeopardizes the impartial allocation of credit, creates conflicts of interest and a dangerous concentration of commercial and economic power, and unwisely extends the federal safety net to commercial interests.

ICBA was the first national bank trade association to oppose Wal-Mart’s ILC application in 2005, and continues to exercise national leadership on the banking and commerce issue with its opposition to the deposit insurance applications of SoFi Bank and Square Financial Services, Inc. ICBA has called for a two-year moratorium on ILC deposit insurance applications. SoFi Bank has withdrawn its application, but Square is still pursuing FDIC deposit insurance for its ILC. Both applicants chose the ILC charter to avoid the legal prohibitions and restrictions on commercial activities under the Bank Holding Company Act.

ICBA believes that Square and all other applicants for deposit insurance should be subject to the same restrictions and supervision that apply to any bank holding company of a community bank. Congress should close the ILC loophole because it threatens the financial system and creates an uneven playing field for community banks. There are thousands of fintech firms already engaged in financial activities, and it is not difficult to envision some of Square’s competitors such as an Amazon or a Google joining their ranks. The integration of these technology and banking firms would not only result in an enormous concentration of financial and technological assets but also would pose immense conflicts of interest and privacy risks to our banking system.

Staff Contact: Chris Cole