Last week, the Independent Community Bankers of America (ICBA) sent a letter to the attention of Kathy Moe, Regional Director of the FDIC in San Francisco. The subject of the letter was the ICBA’s vehement opposition to Fintech darling SoFi’s effort to become a licensed bank.
SoFi announced it would file for an Industrial Loan Charter bank license in May. If approved, SoFi would be able to hold FDIC insured deposits potentially becoming a digital only challenger bank, providing the same (or better) service that traditional banks seek to provide – minus the brick and mortar locations.
According to the ICBA, their main point of contention is their opinion that SoFi is benefiting from a regulatory loophole and, as the letter states; “for safety and soundness reasons and to maintain separation of banking and commerce … SoFi should be subject to the same restrictions and supervision that any other bank holding company of a community bank is subject to.”
The ICBA asked that Congress close the alleged “ILC loophole” because it not only threatens the financial system but creates an uneven playing field for community banks.
So is SoFi really poised to cause havoc and mayhem to the financial system? Is the sky going to fall if SoFi is granted an ILC license? Uh.. not so much.
SoFi is not doing anything wrong as the ICBA indirectly points out. The ICBA supposition is based on the possibility that SoFi may do something mischievous at some point in the future. The sentiment of the ICBA is clear: they, as a group, are anxious because Fintech disruption and the emerging revolution in digital financial services may challenge their current market position. Christopher Cole, Executive Vice President and Senior Regulatory Counsel of the ICBA, is blunt in his concern about looming competition poised to challenge traditional banks;
“… Congress should immediately address this issue and permanently close the ILC legal loophole before it is too late and we have huge commercial or technology firms like Amazon, Google or Wal-Mart owning FDIC-insured ILCs and operating them without adequate holding company supervision and without any restrictions on the types of activities in which the holding company or the ILC’s affiliates can engage.
Cole is correct that big tech is looking to offer more financial services to consumers. This phenomena is already happening around the world. SoFi is just one of the first digital platforms seeking to offer bank like services, minus the legacy systems and costs, all delivered on a digital platform.Community Banks are anxious because #Fintech disruption may challenge their current market positionClick To Tweet
The FDIC should not block SoFi from gaining a charter. The competition SoFi can provide versus traditional banks will help drive costs down and improve services for consumers and small business. If the FDIC blocks the charter, based on the ICBA opinion alone, the regulator will be doing a disservice for everyone. This includes community banks that will not be compelled to adapt and change and provide better services in the near future.