2020: The Year of Living Disintermediated
January 7, 2020
The future of financial innovation will be decided in 2020 by a series of piecemeal regulatory and central-bank decisions largely aimed at other targets.
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Although the House and Senate will this year consider high-profile legislation to curb fintech bank charters, the 2020 election will absorb all of the political energy needed to make hard policy decisions. A series of one-off regulatory and Fed actions aimed at other targets will instead redefine the companies that take insured deposits in concert with lending, brokerage, asset management, and payment services. What to watch:
- new brokered-deposit rules making it far easier for insured depositories to raise funds outside traditional deposit channels and to gather funds from commercial or brokerage operations outside the reach of bank regulators;
- the Fed’s plan to make it considerably easier for nonbanks to cherry-pick bank privileges such as FDIC insurance, FHLB membership, and payment system access; and
- payment-system transformations catapulting giant tech firms into finance as the Fed plods ahead with its own faster-payment service. Payment-processor consolidation will redefine the role not just of smaller banks, but also the need to use a bank at all. The push will be on for new financial-market utility designations in the U.S., but these will prove hard to get.
Although the Fed is on the sidelines as other central banks build out their own digital currencies, global developments combined with U.S. innovation will force its hand. This isn’t a 2020 action item, but the Fed could well move a lot more quickly than most analysts anticipate.
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