Everyone wants to be a bank now. Banks aren’t happy about it.

The statement “Everyone wants to be a bank now. Banks aren’t happy about it” encapsulates a growing trend in the U.S. financial sector, where non-traditional entities, including automakers and cryptocurrency companies, are pursuing banking charters to expand into financial services. This development has elicited strong opposition from established banks, which perceive it as creating unfair competition and regulatory inconsistencies. The following analysis draws from recent reporting on this issue, providing a structured overview of the key dynamics involved.

Overview of the Trend

Non-banking companies are increasingly applying for specialized banking charters, particularly industrial loan company (ILC) charters, which enable them to offer services such as loans and deposit-taking while benefiting from Federal Deposit Insurance Corporation (FDIC) insurance. These charters allow such firms to operate with potentially lighter regulatory oversight compared to traditional banks, which are subject to comprehensive supervision by the Federal Reserve. This push reflects a broader evolution in the financial landscape, where companies outside the traditional banking sector seek to leverage their existing customer bases and technological capabilities to enter lucrative banking activities.

Reasons Non-Banks Are Seeking Banking Charters

The primary motivations for these applications include gaining access to stable funding sources through insured deposits and expanding revenue streams by offering financial products directly to consumers. For instance:

• Automakers aim to integrate banking services into their ecosystems, potentially financing vehicle purchases or managing customer deposits more efficiently.
• Cryptocurrency firms view charters as a pathway to legitimacy and integration within the regulated financial system, allowing them to handle deposits and lending in a manner that supports their digital asset operations.

This trend is not entirely new; historical attempts by retailers like Walmart and Home Depot to secure similar deposit insurance faced resistance, but recent applications signal a resurgence amid evolving market conditions.

Concerns Raised by Traditional Banks

Established lenders, represented by organizations such as the Bank Policy Institute (BPI) and the Independent Community Bankers of America (ICBA), argue that granting ILC charters to non-banks establishes a “regulatory double standard.” They contend that these entities would engage in bank-like activities without equivalent prudential supervision, potentially undermining financial stability and consumer protections. Key concerns include:

• Risk Amplification: Banks cite past failures, such as the 2008 collapse of GMAC (now Ally Financial), as evidence that commercially owned ILCs pose systemic risks due to inadequate holding-company-level regulation.
• Unfair Competition: As articulated by Paige Pidano Paridon, co-head of regulatory affairs at the BPI, “Banks don’t oppose competition. They oppose a regulatory double standard that imposes more lenient regulations on a small group of market participants engaged in the same activities as a bank.”
• Consumer Harm: The ICBA has emphasized that such structures could lead to undue market concentrations, harming consumers through reduced competition or heightened vulnerabilities.

These objections have manifested in formal letters and advocacy efforts directed at regulators, highlighting fears that the trend could erode the integrity of the banking system.

Specific Examples of Companies and Applications

Recent applications underscore the breadth of this movement:

• Automakers: General Motors (GM), Stellantis, and Nissan have submitted applications for ILC charters to obtain FDIC deposit insurance. The status of these applications remains under review, but they represent a strategic pivot toward embedded financial services.
• Cryptocurrency Firms: Circle and Ripple are actively pursuing banking charters, aiming to bridge traditional finance with blockchain-based operations. Details on the exact charter types and approval timelines are not fully disclosed, but these efforts align with broader fintech ambitions.

Regulatory Context

The resurgence of these applications coincides with a shifting regulatory environment under the Trump administration, which is reevaluating financial regulations to potentially ease barriers for new entrants. Notably, the FDIC has issued a request for information on its ILC approval process and rescinded a prior Biden-era proposal that would have imposed greater scrutiny on state-level charters. This could lower the threshold for approvals, intensifying banks’ concerns about accelerated competition.

Implications and Outlook

This tension highlights a fundamental debate over innovation versus stability in finance. While non-banks’ entry could foster competition and consumer choice, traditional banks’ resistance underscores legitimate worries about regulatory equity and systemic risks. As applications progress, stakeholders should monitor FDIC decisions and potential policy changes, which may reshape the boundaries between banking and other industries. For professionals in finance, this trend warrants careful assessment of competitive landscapes and regulatory compliance strategies.