The banking industry is not meeting demand for new bank formation, Federal Reserve Governor Michelle Bowman said on Friday. Speaking at the Wharton Financial Regulation Conference in Philadelphia, she argued that the ongoing interest in charter acquisition, the shift of core banking functions to nonbanks and the rise in banking as a service partnerships are evidence of demand for new banks.
Describing what she called “charter strip” acquisition in which a new ownership group purchases a bank to acquire its charter but shift business model and markets, she argued that these signal “dysfunction” in de novo chartering. “A startup with a new business model should be agnostic between a charter strip and de novo and may actually prefer the ‘clean slate’ of a new bank,” she said. “The ongoing demand for charter strip formations, however, reveals a disparity in treatment between de novo formations and charter strips, a disparity attributable to the difference in expectations and regulatory burden between these two paths.”
Bowman also asked whether the demand for BaaS from existing banks could be “driven—at least in part—by the difficulty of de novo chartering,” noting that “if a technology company has a new technology interface and product design that may better serve customer needs, it can be substantially faster to partner with an existing bank than to seek a standalone charter.”
Bowman outlined several policy solutions that U.S. regulators could take, including removing barriers, making supervision more efficient, and increasing transparency in the process. She cited a British example of the New Bank Start-up Unit run by the U.K. Prudential Regulation Authority the Financial Conduct Authority. “In my view, the approach adopted by the New Bank Start-up Unit includes a number of features that could help inform process improvements in the United States,” she said. Read Bowman’s remarks.