Recently, Ram Ahluwalia wrote an Op-Ed for American Banker that posed a somewhat controversial take on banking. Ahluwalia said outdated banking rules are denying access to Big Tech firms, like Apple and Amazon, who could enter the banking sector and bring loads of capital as well as new ideas to transform the financial services sector.
Ahluwalia is a founder and a repeat entrepreneur who launched PeerIQ – sold to Cross River – and now is CEO of Lumida Wealth, an SEC-registered investment advisor specializing in alternative investments and digital assets. Ahluwalia frequently comments on issues in the digital asset sector as well as his perspectives on more traditional financial topics.
In his article, Ahluwalia described the Bank Holding Company Act of 1956 as “outdated” and a law that is holding back innovation in the financial services realm. Ahluwalia stated
“Our financial system is at a crossroads, with regional and community banks under pressure as deposits flow to global systemically important banks and money market funds. Other banks hesitate to step in and save their competitors, opting instead to cherry-pick assets or poach top talent. The result? A weaker financial sector and declining confidence among consumers.”
Ahluwalia declared that the US should be encouraging de novo bank charters and joint ventures in the banking industry.
“Technology firms and private equity firms could serve as a source of strength, providing capital and innovation, while seasoned bank operators focus on running the bank. This collaborative approach would level the playing field and maintain competitive markets.”
Big Tech has long been interested in providing financial services. Apple is emblematic of an emerging Fintech platform – one of the largest in the world, offering payments as well as savings and credit. Much of this is done in partnership with Goldman Sachs (Marcus), which has a bank charter as well as the tech platform to power some of these services.
CI reached out to Ahluwalia to ask several questions, including the one that policymakers (and bank lobbyists) frequently worry about. Should Big Tech become federally chartered banks? If so, would this put establishment banks at a disadvantage?
Ahluwalia said that Big Tech should do what technology companies do well: innovate and service customers. However, Big Tech – has excess capital and technology. Big Tech should be permitted to compete with federally chartered banks via bank holding subsidiaries or have controlling interests in such banks provided the subsidiaries meet safety and soundness standards.
“This would create competition and add much-needed capital and technology in the banking sector, and reduce regulatory arbitrage,” said Ahluwalia.
There are thousands of banks in the US – regional, local -etc., unlike most other countries around the world. We asked Ahluwalia if he anticipates the number of smaller banks will continue to decline, asking if this is a good thing for the country. He said that the bank consolidation trend will continue as larger banks benefit from the perception of being ‘too big to fail.’ At the same time, Ahluwalia believes this is not in the public interest.
“Small community and regional banks can deliver access to credit and banking services in underserved markets and to growth engine of the American economy – small businesses.”
So why should policymakers enable more de-novo bank charters or, at least, allow Big Tech to acquire chartered banks? Is this about more competition? Is this about providing more sophisticated banking services to more people? Why would elected officials support this?
It is all about tech and access to fresh capital, as the banking sector needs fresh capital to address current HTM [held-to-maturity] issues and future issues around Commercial Real Estate. Also, the banking sector needs modern technology to improve the consumer experience and risk management, said Ahluwalia. The public cannot afford further bailouts, and the FDIC fund has less than $120 billion in coverage capacity.
“Technology firms can serve as a “source of strength” for bank holding company subsidiaries. Technology firms have strong and liquid balance sheets. They can serve as a backstop or step in and recapitalize troubled banks. Of course, there should be common sense regulation (such as preventing bank subsidiaries from financing the parent’s operations) which is also regulated by existing Affiliate Lending rules,” Ahluwalia stated.
Asked about his opinion on digital asset banks and if Congress should push through laws to enable digital banks to provide services beyond traditional deposit/lending/investing, such as blockchain-enhanced services. Ahluwalia shared his opinion that consumers are looking for regulated, trusted institutions to access digital assets.
“The issues of 2022 are largely non-banks acting as banks – rehypothecating, custodying, lending, and taking deposits without the proper safeguards of a regulated bank. The standard for offering such services should meet high safety and soundness standards.”
One way or another, Big Tech is inching further into financial services. It simply makes sense. Consumers and businesses want to access financial services in a digital environment and not have to visit a dozen different platforms. They want a handful at most, and certain Big Tech firms have established themselves as trusted partners in a consumer or business’s financial existence – and they have access to hundreds of millions of customers.
