If You Can’t Compete, Lobby Against Them: ICBA Tells FDIC to Deny Square Bank License, Asks Congress to Stop ILCs Altogether

There are two ways that big business competes in the USA. You can provide a better product or service for your customers or you can work with elected and appointed officials to block innovative firms. Of course, the consumer loses out in all this, but that is how things work in the land of the free.

The Independent Community Bankers of America (ICBA) is a prime example of a highly regulated industry that is struggling to remain relevant in a fast moving, digital world. Fintech is poised to provide better and less expensive services in the banking space and the ICBA, a group that represents 5700 community banks, has chose to use their lobbying prowess to block innovations in banking.

In a release published yesterday, the ICBA called upon the Federal Deposit Insurance Corp. (FDIC) to block Square Financial Services Inc.’s application to receive an “Industrial Loan Charter” (ILC) that would enable Square to hold deposits. Additionally, an immediate two-year moratorium on ILC deposit-insurance applications. This will also block SoFi’s application to receive an ILC that is currently in process as well. The ICBA has asked Congress “close the ILC loophole.”

ICBA says that Square’s application as ILC is “designed to avoid legal prohibitions and restrictions under the Bank Holding Company Act.”

Christopher Cole, ICBA Executive Vice President and Senior Regulatory Counsel, is quoted on the issue;

“Square should be subject to the same restrictions and supervision that any other bank holding company of a community bank is subject to. Furthermore, Congress should close the ILC loophole because it not only threatens the financial system but creates an uneven playing field for community banks.”

It does not matter that many big financial institutions, like Merrill Lynch Bank and UBS Bank, have  received ILCs and thus it is a bit of a convenient stretch to call the ILC a loophole. And the fact the ICBA’s actions bely a growing fear of irrelevance, the truth of the matter is there are plenty of elected and appointed officials that will go along with the ICBA’s blatant attempt to crush emerging competition. Change is hard and it is simply easier to use finely tuned lobbying skills to crush innovation.

So will policy makers fall for the trap? Probably. there is a long history of big business “winning” by changing the rules and there are plenty of unsophisticated elected officials with small banker friends. As more advanced parts of the world proceed to open banking, the US may get mired in a petty squabble. In the end, the little guy and small business may lose out as the ICBA is not one to let the facts get in the way of their public opinions.


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