The banking industry is not meeting demand for new bank startups, Federal Reserve Governor Michelle Bowman said on Friday. At the Wharton Financial Regulation Conference in Philadelphia, she argued that continued interest in chartering, the shift from core banking functions to non-banks, and the rise of banking-as-a-service partnerships demonstrate the demand for new banks.
She described what she termed a “charter strip” acquisition, in which a new ownership group buys a bank to acquire its charter but shifts the business model and markets, arguing that this signals a “dysfunction” at the bank of de novo chartering. “A start-up with a new business model should be agnostic between a charter stripe and de novo and might actually prefer the ‘clean slate’ of a new bank,” she said. “However, the continued demand for charter stripe formations demonstrates unequal treatment between de novo formations and charter stripe formations, an unequal treatment that reflects the different expectations and regulatory effort between these two pathways.”
Bowman also questioned whether demand for BaaS from existing banks could be “driven, at least in part, by the difficulty of de novo chartering,” noting that “when a tech company has a new technology interface and product design that customers Depending on your needs, it can be much quicker to partner with an existing bank than to set up your own business.”
Bowman outlined several policy solutions US regulators could take, including removing roadblocks, making oversight more efficient and increasing the transparency of the process. She gave a UK example of the New Bank Start-up Unit run by the UK’s Prudential Regulation Authority, the Financial Conduct Authority. “In my view, the approach taken by the New Bank Start-up Unit includes a number of characteristics that could help inform process improvements across the United States,” she said. Read Bowman’s comments.
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