US Regulator Issues Final Rule Unveiling Non-Bank’s Path to Deposit License Approval

US Regulator Issues Final Rule Unveiling Non-Bank’s Path to Deposit License Approval
Hundred dollar bills are are counted out by a banker counting currency at a bank in Westminster, Colo., on Nov. 3, 2009. (Rick Wilking/Reuters)

WASHINGTON—A federal banking regulator on Dec. 15 finalized new rules that should make it easier for non-bank companies to acquire a banking license, paving the way for a slew of technology companies to compete more effectively with traditional banks.

The rule, issued by the Federal Deposit Insurance Corporation (FDIC) offers special consideration in allowing non-banks to accept deposits and engage in other limited banking activities. The parent companies of the lenders must maintain significantly higher capital than other insured banks and enter an agreement on capital and liquidity maintenance, consent to FDIC examinations and annual external audits, and agree to record-keeping requirements, among other standards, the regulator said.

The rule, which was adopted after the agency sought public input in its March proposal, affects new “industrial loan charter” (ILC) banks, which are lenders chartered by states. They provide limited banking services and receive FDIC guarantees for their deposits.

The agency said its rules are aimed at ensuring that the parent companies of these banks back the risk assumed by the banks’ loans. The rules should also provide transparency on regulators’ expectations from new ILC banks applying for the special charter.

The measures formally codify what the FDIC had effectively already applied to existing ILC banks through contracts and supervision.

While the rules would likely assuage concerns from traditional banks that ILC banks are too lightly regulated, they also give the green light to firms that had effectively been put on hold by the agency for over a decade amid opposition from banks wary of other companies competing on their turf without the same rigorous oversight.

FDIC Chair Jelena McWilliams has said she is willing to consider new charters eyed by fintech firms such as Square Inc. and retailers such as Rakuten Inc., which have both submitted applications.

The FDIC on Dec. 15 also published final rules on brokered deposits, which would ease access to deposits for a greater share of customers, including unbanked and underbanked Americans, the agency stated.

By Katanga Johnson