Karen Petrou: Say Bye-Bye to the Banking/Commerce Barrier
In his comments last week about stablecoins, FRB Gov. Barr worried aloud about cracks in the banking/commerce barrier. How quaint. This barrier has been crumbling for years, but two decisions last week knocked it down. The big issue these days isn’t keeping commercial firms out of banking – give it up, they’re in. Instead, the big question is whether this nation also wants relationship-focused, regulated banks insulated from conflicts of interest and buffered against market shocks. If it does, then traditional banks need new powers, fast.
The most impermeable barrier between banking and commerce was supposedly erected in the 1956 Bank Holding Company Act along with the narrow set of permissible BHC powers allowed in 1970. These laws sought to keep insurance and commercial firms from controlling insured depositories much as the Glass-Steagall Act did in 1933 when it came to securities firms. However, Sears Roebuck took advantage of gaping loopholes, opening a bank in the early 1980s. Congress did little but legitimize these charters, allowing a class of “nonbank banks” in 1987 and broadening bank/nonbank affiliation in 1999.
FDIC Acting Chair Hill has now made it clear that he will go even farther. Next time a bank fails, look for a private-equity company or other nonbank to pick up the pieces. Mr. Hill stated that the FDIC will now not only cotton to these acquisitions, but even facilitate them with “seller financing” and a pre-qualification program akin to one established in 2024 by the OCC.
Would these nonbank owners …