Banking Fintech

America’s regulations are not the problem

America's regulations are not the problem when it comes to banking innovation. Photo: iiiphevgeniy,
Written by Chris Skinner

Chris Skinner shares two thoughtful responses to his recent post about banking innovation and regulations in America.

I received a very thoughtful response to last week’s blog (about Dodd-Frank being the issue with the US seeing zero neobanks starting up) from two people: Nahum Goldmann and David Gerbino.

Nahum and I have corresponded for some time about banking matters, and his email sparked various views in my mind. Here’s his view:

 Chris thanks, an excellent and challenging article, as always from you.

The problem is not regulations, they are just a tool. Actually, there is no problem. For the last 25-30 years (since quite before Dodd-Frank), all the US banking regulatory agencies have proactively and successfully worked in concert to decimate the number of banks in the US. Ideally to a handful of the systemically important banks too big to fail (ie the same number as we have in Canada (6)). Why – we can discuss if you wish, but there’s little secret about it in the US banking community. They are unlikely to change their direction in the foreseeable future.

Yes, UK regulators do allow some digital startup banks, but it’s mainly smoke and mirrors to make your politicians happy. There isn’t much chance either that they would ever let them achieve critical survival mass – even according to the Metro Bank organisers; not that they were that innovative either with their dog biscuits to attract the chattering classes. Risk is as much a four-letter word in the City as it is in NYC. Again, we can discuss it but the corresponding UK outcome stats are as stubborn as they are in the US.

BTW, in contrast to their UK counterparts, the US regulators do not care much about their own politicians and they always make it quite clear to all the bankers involved, especially the ones they annually target to close. It hasn’t much to do with Dodd-Frank or even Basel III/IV either, but their own convenience and being pragmatic. The bottom line is that banking innovation is as dirty a word on this side of the pond as it is in the UK. If you wish, I could provide you with the corresponding anecdotal evidence, but the results do speak for themselves.

And there’s not much evidence that Britain is beating the US at financial innovation (with what? Mobile? Big data? Blockchain? Any other flavour of the month?). Just today, FT announced that New York has lost 27,000 financial services jobs in the past five years, leaving it with 331,000 positions, and London has lost 15,000, leaving it with 358,000 posts, according to estimates provided last month for the FT by consultancy Boyd. Hardly a healthy success in either country.

Remarkably, the EU with PSD2 certainly does beat everybody in the innovation game, so regulations may go both ways. Hopefully, PSD2 will force some real and enforceable innovation across Europe, which may eventually (Y3K?) spread elsewhere.

David Gerbino is part of what’s known as the Fintech Mafia, and made this comment:


While I do agree that the regulatory framework in the US regarding financial services is rooted in a bygone era which leads to it being a burden on banks and credit unions, it is what it is. Banks and credit unions in the US have to contend with multiple regulating bodies – some federal and some at the state level. Despite all those challenges, there are too many banks and too many credit unions in the US.

Late last century, we had more and that was fine, as banking needed to be ubiquitous. Now that we finally have some modern constructs, the US is ‘overbanked’. Making it hard to get a bank charter post the financial crisis makes sense. I don’t have to totally agree with it, but on many levels it makes sense.

Creating a new bank or creating a new digital-only bank in the US is relatively easy for those who already have the bank charter. Since the internet age, there have been many, and in the app store age there have been some too.

The cool thing about America is I can go into any box store, major pharmacy chain and even some smaller stores and get a basic checking account like a product off a shelf. There has been no lack of companies trying to create banking and bank-like products and services. The simple fact is there’s more opportunity now for Americans to get basic banking services today than there was before the financial crisis.

The real problem is nearly all of it is built on a framework, an infrastructure and a product set rooted in last century’s world. That wasn’t caused by regulations. What we need is financial services built for today’s and tomorrow’s customers and their needs. The regulatory bodies as they are constructed today may be a hindrance, and it’s up the industry to work with the regulators to resolve the issues. This by no means easy.

Here’s another thought. Imagine if the regulations were so restrictive that banks couldn’t lease/rent their banking licence. There would be no Movens, Simple, and others. Most of us would not have heard of The Bancorp bank or CBW Bank.

READ NEXT: Is American banking falling behind?

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Photo: iiiphevgeniy,

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

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