Technologizing The Bank Charter Presented by: Mr. Zaring Date: 15 June 2020 Motivation - Alternative sources of funding, aside from the portion of the UN's regular budget devoted to the Council's work, are needed to enable the Council's SPMHs enjoy more resources than they currently do in order to discharge their mandates more effectively. - OCC special purpose fintech charter • Studied during Obama administration, opened for business during Trump Administration. • Extending charter to nonbanks "has the virtue of bringing technology oriented financial companies that provide banking services out of the shadows." Keith Noreika, Acting Comptroller (2017) • "The federal banking system must continue to evolve and embrace innovation to meet the changing customer needs and serve as a source of strength for the nation's economy .... Companies that provide banking services in innovative ways deserve the opportunity to pursue that business on a national scale as a federally chartered, regulated bank." Comptroller Joseph M. Otting (2018) - • Lawsuits against fintech charter filed in SDNY, DDC. • No applicants for the federal fintech charter yet. Techno-utopianism v. cautious regulatory innovation with two questions with broad implications • Should OCC be allowed to interpret ambiguous language it has used to allow banks to offer nonbanking services to allow nonbanks to obtain a banking charter (albeit nonbanks that do not take deposits)? • - Should the fintech charter be extended to big tech? Is there a new entrant problem in banking? The Business of Banking - Obtaining a bank charter /= obtaining a corporate charter - Preemption, high fees and one regulator, if a firm is engaged in activities permissible for a national bank, and if that firm wants an OCC-granted charter Chartering Takeaways - Chartering is onerous, and for years was quietly suspended in the US. - Chartering begins a close relationship between the regulator and the entity. - Entry problem in financing? OCC's Proposed Fintech Charter - Potentially Momentous - Practically conservative The OCC's Chartering Powers - - The OCC may charter banks upon a showing of, inter alia: • Managerial capacity • Adequate capital, unlikely recourse to DIF • Public convenience and necessity • Likely compliance with Community Reinvestment Act A chartered bank may engage in • all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes. But Its Special Purpose Charters Are Few, And It Has Slow-Walked The Chartering Decision. - SPBC created in 2003, offers national preemption - Credit Card Charter Holders: 9 - Trust Company Charter Holders: 55 - Shelf Charter Holders: 2 taken off the shelf - Bankers' banks, community development banks? ~0 - This conservative practice should relieve those worried about Amazon creating an Ant Financial. Is The Fintech Charter Illegal? - Vullo v. Office of Comptroller of Currency, 378 F.Supp.3d 271, 299 (2019) • "The Court concludes that the NBA's 'business of banking' clause, read in the light of its plain language, history, and legislative context, unambiguously requires that, absent a statutory provision to the contrary, only depository institutions are eligible to receive national bank charters from OCC." The Fintech Charter Should Not Be Illegal. - Anti-deposit essentialism! Even though this is chartering a nonbank - "Business of banking" in Section 24 (Seventh) is ambiguous as to whether it encompasses the sale of annuities. NationsBank of N.C., N.A. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 256 (1995) (deferring to OCC's interpretation that banks could sell annuities). - A national bank's "activities" may be lawfully "restricted ... to less than the full scope of statutory authority" Independent Community Bankers Association of South Dakota, Inc. v. Board of Governors of the Federal Reserve System, 820 F.2d 428 (D.C. Cir. 1987). - Trust banks do not take deposits, and they get special charters. - Credit card banks do not take deposits, and they get special charters. Conclusions - The OCC should prevail in litigation over whether it can offer a special purpose fintech charter - Chartering internet firms that are not purely financial companies Amazon's payment system, Google, Apple, and Facebook's wallets - is a major question. It would end the separation of banking and commerce and should only be permitted upon the passage of legislation. - Fintech chartering thus would not seriously solve the new entrant problem, but it might introduce new business models to banking. - A turn away from techno-utopianism.