Fintech Firms See Opportunity in Bank Charters Under a Possible Trump Administration
NEW YORK, March 18 (Reuters) – Financial technology and cryptocurrency firms are increasingly exploring the path to becoming state or national banks. The motivation? A growing belief that a potential Trump administration will foster a friendlier regulatory landscape for the industry, according to discussions with over half a dozen industry executives.
These firms, eager to expand and build trust with customers, view U.S. President Donald Trump’s potential return to office as a chance to secure licenses. These licenses were previously slow or difficult to obtain when regulators were in place.
Alexandra Steinberg Barrage, a partner at law firm Troutman Pepper Locke, noted, “We have seen a lot more interest. We are working on several applications now.” She tempered her optimism, adding, “Is it in full swing yet? I don’t think so. Our clients are being cautiously optimistic, they’re waiting for things to settle,” as the administration begins installing heads of banking agencies.
Discussions and preparations regarding bank charters have intensified, according to two additional sources involved in potential applications. The actual number of firms that will fully commit remains to be seen.
While becoming a bank involves stricter regulatory oversight, it can lead to reduced capital costs and streamlined business operations. Holding a license can also lend greater credibility the eyes of customers and boost market opportunities.
Carleton Goss, a partner at law firm Hunton Andrews Kurth, who is assisting three firms with applications, highlighted another key advantage: “This will also allow firms to reduce their borrowing costs by drawing on deposits.”
Industry specialists and analysts also suggest that the establishment of new banks could increase competition and better serve specific customer groups or geographic regions.
On Monday, the Office of the Comptroller of the Currency granted fintech firm SmartBiz permission to acquire Centrust Bank, a Chicago-based community bank. This acquisition grants SmartBiz a national bank charter, marking the first such approval for a fintech company since 2021. Industry analysts expect this trend to persist.
A Shift in Administration
The surge in interest follows a decline in new bank charters granted by U.S. regulators since the financial crisis. Approvals reached a low point in 2023, with only four applications approved, according to S&P Global.
Goss stated, “Online companies know that they will be coming under greater regulatory scrutiny. It makes sense for them to get ahead of the curve, and in turn, get more credibility and capital at a lower cost by applying for a charter.”
Barrage and other regulatory lawyers, in a recent open letter, highlighted that an average of just five new bank charter applications were approved annually by regulators between 2010 and 2023. This is a stark contrast to the 144 applications approved each year between 2000 and 2007.
The letter also mentioned that approvals sometimes took years and, in some cases, were withdrawn by the applicants.
Applications declined due to low interest rates, which squeezed profits and made bank status less appealing, along with burdensome regulations that discouraged potential applicants.
Adding to the situation, regulators have proposed strengthened rules for banks collaborating with fintechs following the collapse of Synapse Financial Technologies, a bank-fintech middleman, last year.
There are expectations that a deregulatory, pro-business environment promoted by Trump could pave the way for more bank charters in a new administration.
Nathan Stovall, director of financial institutions research at S&P Global Market Intelligence, observed, “We haven’t seen a flurry of charter applications since the financial crisis period, but we certainly saw more in the first Trump administration.”
Stovall added that newly-installed regulators under Trump have signaled their focus on innovation and technology, which has been well-received by fintech firms.
Nigel Moden, global banking and capital markets leader at EY, pointed out, “The administration ‘is encouraging regulators to adjust risk appetite and take a more pro-growth line.’ That could lead to an opening up of the market to some more competition.”
Additionally, Travis Hill, the acting chair of the Federal Deposit Insurance Corporation (FDIC), stated that the agency would encourage more firms to seek bank charters in the coming months to ensure that there are plenty of fresh entries into the sector.
Federal Reserve Governor Michelle Bowman, nominated by Trump as vice chair for supervision, has advocated for quicker approval processes for new banks.
Challenges to Consider
While industry experts view rigorous scrutiny of bank charters as crucial for financial stability, they believe the application turnaround could be accelerated.
Legal sources indicated that setting up a new bank typically requires between $20 million and $50 million. Meeting various requirements, like anti-money laundering laws and the Bank Secrecy Act, are among the main hurdles for firms seeking these charters (both sources requested to remain anonymous).
Moden said, “There are still rigorous licensing processes in place and so time will tell as to how quickly new applications can move through the system,” adding that charter-related activity was picking up.
The U.S. has over 4,500 banks. With an anticipated increase in mergers and acquisitions among regional lenders, this number is expected to shrink even as new entrants emerge.
