Financial Technology and Crypto Firms Seek Bank Charters Under Trump Administration

New York, March 18 (Reuters) — Amid a shifting regulatory landscape, financial technology (fintech) firms and cryptocurrency companies are actively pursuing state or national bank charters to expand their business and enhance their credibility in the market. Industry executives report that this growing interest aligns with what they consider a more industry-friendly atmosphere under U.S. President Donald Trump.

A New Opportunity for Fintechs

According to several industry leaders, the current administration’s approach has created an opportunity for companies previously hesitant to apply for banking licenses. This shift comes after a notable decline in new bank charters over the past decade; the number of new bank charters reached an all-time low of just four approved applications in 2023, according to S&P Global data.

Alexandra Steinberg Barrage, a partner at Troutman Pepper Locke, stated, "We have seen a lot more interest. We are working on several applications now." She added, however, that while enthusiasm is growing, applicants are exercising caution as the administration continues to appoint new heads for banking agencies.

The increase in discussions and preparations for bank charters signifies a potential turning point for firms looking to solidify their standing in the financial sector. "Is it in full swing yet? I don’t think so," Barrage noted.

Benefits of Becoming a Bank

Securing a bank charter allows fintech and crypto firms to lower their costs of doing business and increase their credibility with customers. As Carleton Goss, a partner at Hunton Andrews Kurth, pointed out, a bank license enables companies to reduce their borrowing costs by drawing on customer deposits while simultaneously boosting competition within the industry.

SmartBiz, a fintech firm, recently became the first to receive a bank charter since 2021 after acquiring Centrust Bank, a Chicago-based community bank. The approval by the Office of the Comptroller of the Currency signals a possible resurgence in charter grants, laying the groundwork for broader industry evolution.

The Regulatory Landscape

Historically, the charter approval process has been lengthy and difficult, with many applications taking years to process. Regulatory complications often deterred firms from applying. Recent trends, however, suggest a shift in this paradigm as many fintech firms prepare to navigate regulatory scrutiny more proactively.

Between 2010 and 2023, regulatory bodies averaged just five approvals annually, compared to 144 annually during the 2000-2007 period. The decline can be attributed to low-interest rates that squeezed banks’ profitability, alongside a regulatory environment perceived as overly burdensome.

Commenting on the potential changes under Trump’s administration, Nathan Stovall, director of financial institutions research at S&P Global Market Intelligence, noted, "We haven’t seen a flurry of charter applications since the financial crisis period, but we certainly saw more in the first Trump administration."

Potential Challenges Ahead

While the prospect of increased charter applications is promising, industry experts warn that a rigorous licensing process remains in place. Significant financial investment—between $20 million to $50 million—is often necessary to establish a new bank, and compliance with stringent regulations such as anti-money laundering laws and the Bank Secrecy Act poses additional challenges.

Nonetheless, leaders within the federal regulatory framework, including the Federal Deposit Insurance Corporation’s acting chair, Travis Hill, have expressed a commitment to fostering an environment conducive to new banking entrants, reiterating support for innovation and competition.

As the marketplace anticipates further transformation, stakeholders remain cautiously optimistic. "There are still rigorous licensing processes in place," says Nigel Moden, global banking leader at EY. "So time will tell as to how quickly new applications can move through the system."

In conclusion, while optimism is building among fintech and crypto firms, and regulatory agents appear to be more amenable to granting charters, it remains to be seen how effectively these businesses will navigate the complexities of becoming federally recognized institutions. The landscape’s dynamics will likely evolve as the new administration settles into its leadership roles within banking regulatory agencies.

Nupur Anand, a banking correspondent for Reuters in New York, brings extensive experience in financial reporting, including significant coverage of major banking institutions and emergent trends in the fintech sector.

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