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Here Comes Facebook Bank

December 16, 2020 By Jeremy Jones, CFA

By Thongden Studio @ Shutterstock.com

This is just what the U.S. needs. More control in the hands of big tech firms that abuse anti-trust law. Jeff Bezos became the world’s richest man (worth an astounding $185 billion) by putting small mom and pops out of business. Amazon’s success is at least partly attributable to it not having to collect sales tax for years. Mom and pop retailers weren’t given that advantage. Amazon now must collect sales tax, but the firm’s scale is so large it doesn’t matter.

Do we really want firms like Facebook that is controlled by Mark Zuckerberg in charge of your money?

Apparently so says the FDIC.

Bloomberg has more:

Amazon.com, Facebook Inc., Walmart Inc. and other corporate giants may soon give Wall Street a run for its money as a key U.S. regulator smooths the path for nonbanks to get into lending.

The Federal Deposit Insurance Corp. on Tuesday approved a final rule governing so-called industrial loan companies that will allow major businesses to seek banking charters while escaping capital and liquidity demands faced by dedicated financial firms.

The measure will “provide transparency to market participants regarding the FDIC’s minimum expectations for parent companies of industrial banks,” said Chairman Jelena McWilliams. The new rule formalizes years of agency practice with the ILC charters, which were created to let commercial firms make small loans to workers but have morphed to become a back door into big-time banking.

The proposal released earlier this year sparked alarm in the banking industry over the prospect of competition against massive companies that could leverage their huge customer bases and guaranteed consumer traffic to gain meaningful toeholds in banking. And they could offer customers financial services backed by the government — including FDIC deposit protections — with fewer regulatory demands.

Bankers, in an unusual alliance with Democratic lawmakers and consumer groups, have called for a halt in approving new charters until Congress closes a loophole that allows what they see as an unfair advantage.

Conditional Approval

The FDIC cleared two ILCs earlier this year when it granted conditional deposit-insurance approval for mobile payments firm Square Inc. and student lender Nelnet Inc. But an effort by Japanese online retailer Rakuten Inc. to set up its own bank is seen as a major test case for a non-financial firm to break down the traditional barrier between banking and commerce.

“If the FDIC approves Rakuten’s application, it will set a precedent for every other Big Tech company (Amazon, Facebook, Google, etc.) to enter banking through an ILC charter without consolidated supervision,” the Bank Policy Institute, a Washington-based industry lobbying group, wrote in a blog post last month.

Facebook declined to comment, and Amazon and Google didn’t respond to emails seeking comment.

The FDIC said in a rule notice released Tuesday that the agency is obliged to implement federal law as it exists today, citing an increased urgency to clarify the application process as more companies express interest in seeking charters.

“Whether commercial firms should continue to be able to own industrial banks is a policy decision for Congress to make,” the agency said in its notice.

Read more here.

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  • Author
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Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Richard C. Young & Co., Ltd. was ranked #10 in CNBC's 2019 Financial Advisor Top 100. Jeremy is also a contributing editor of youngresearch.com.
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