Bank Regulation

Banking Trade Group Doesn’t Want Square To Be A Bank

The Independent Community Bankers of America (ICBA), the trade group for community banks, is calling on the Federal Deposit Insurance Corporation (FDIC) to deny a federal deposit insurance application by payment terminal company Square.

In a press release announcing the news, the trade group contends, in a letter to the FDIC, that Square’s application as an industrial loan corporation, or ILC, aims to get around legal prohibitions and restrictions under the Bank Holding Company Act. The ICBA also calls for a two-year moratorium of ILC deposit insurance applications effective immediately.

“Square should be subject to the same restrictions and supervision that any other bank holding company of a community bank is subject to,” ICBA Executive Vice President and Senior Regulatory Counsel Christopher Cole wrote in the letter. “Furthermore, Congress should close the ILC loophole, because it not only threatens the financial system but [also] creates an uneven playing field for community banks.”

According to the ICBA, by following its recommendation, the FDIC would promote “safety and soundness” in the commercial banking sectors as well as maintain a separation between banking and commerce. The group argues Square and its affiliates take part in a diverse set of commercial activities that clouds that separation. The ILC charter, says the group, would enable the payment terminal company to engage in banking and commercial activities without being subject to “consolidated” supervision.

The group wants Congress to intervene with further bank regulations, arguing that the integration of technology and banking firms would hurt competition, because it would result in an “enormous concentration” of financial and technology assets while posing conflicts of interest as well as privacy concerns.

This isn’t the first time the group has opposed a deposit insurance application. It called out SoFi Bank as another FinTech that had sought an application as an industrial loan corporation.

In response, a Square spokesperson recently issued this statement:

“Our application reflects Square’s ability to build a bridge between the financial system and the underserved, addressing the needs of small businesses that few community banks even reach. We believe each and every ILC application should be considered on its individual merits, not ICBA’s inaccurate view of ILCs. We trust the FDIC, who has direct oversight and regulation of all ILCs, to effectively assess our application’s safety, soundness and compliance with applicable laws before granting a charter.”

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