Trump's anticipated second term to ease regulations for establishing charter schools
In the realm of finance, the regulatory landscape for fintechs and nonbanks could see a significant shift if a second term for former President Donald Trump materialises. During Trump's administration, the Office of the Comptroller of the Currency (OCC) initiated a move that allowed crypto and fintech firms to apply for bank charters, making it easier for them to become regulated banks and reduce their dependence on traditional banks.
This shift was a stark contrast to the more cautious approach taken during President Biden's term. Regulators under Biden's administration have been more stringent, requiring crypto firms to seek additional permissions and limiting approvals. As a result, only a few fintechs, such as Anchorage Digital (backed by KKR), managed to secure or retain bank charters.
The current regulatory environment under Biden's administration has been criticised for being restrictive, with federal regulators being accused of discouraging banks from working with crypto firms, effectively "debanking" the sector. This has been met with criticism from fintechs, who argue that such a move is detrimental to innovation.
Major banks have been reported to impose high fees and barriers to fintechs and crypto firms in an effort described as "Operation Chokepoint 3.0," raising concerns about fintechs' access to customer data and financial services. This environment contrasts sharply with Trump’s policies, which were seen as more supportive of fintech expansion in banking.
The GENIUS Act, recently passed by the U.S. House, aims to regulate stablecoin issuers by setting reserve requirements and allowing them to act as custodians with federal oversight. This aligns more with the regulatory openness seen during Trump’s administration. Fintech and crypto firms are actively applying for OCC charters to bypass dependency on traditional banks and reduce costs, a trend that was supported during Trump's term but was constrained under Biden.
It's likely that General Motors' subsidiary, GM Financial, will refile its application for an Industrial Loan Company (ILC) charter. ILC charters, which enable nonbanks to issue loans and accept federally insured deposits, are in high demand among potential applicants. More states may consider offering charters like Utah's industrial loan company charters or Wyoming's special-purpose depository institutions charter.
Purchasing licensing rights could be a strategy for fintechs and nonbanks seeking to expand their banking capabilities. Companies armed with banking capabilities may still need to rely on a bank partner to conduct some business. However, ILC charters are regulated by the states in which they're chartered and the FDIC, with California, Colorado, Hawaii, Indiana, Minnesota, Nevada, and Utah offering ILC charters, according to the FDIC.
Regulators may put significant limits on a new bank's growth, especially for fintechs and nonbanks newly armed with banking capabilities. Community banks have also pushed back on such charter approvals. Despite these challenges, the demand for ILC charters remains high.
If a second Trump term comes to pass, the regulatory landscape for fintechs and nonbanks could see a resurgence of the more permissive environment that was present during Trump's first term. Fintech had become a "dirty word" during the Biden administration, but is expected to change with a second Trump term, potentially offering a friendlier climate for fintechs and nonbanks to charter or acquire banks.
- The potential for a second term of former President Donald Trump could lead to a resurgence of investing in fintechs and nonbanks, as the regulatory landscape may shift back to a more permissive environment that allows for easier bank charter applications, reducing their dependence on traditional banks.
- The current business climate under President Biden's administration is often criticized by fintechs for being restrictive, with regulators imposing stringent requirements and limiting approvals for bank charters, which is seen as detrimental to innovation and fostering growth in the fintech industry.
