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If they buy up the bank charter, doesn't that mean the whole company then becomes regulated like a bank charter? Wouldn't it make more sense to just continue us

If they buy up the bank charter, doesn't that mean the whole company then becomes regulated like a bank charter? Wouldn't it make more sense to just continue using their services?

vageli 5y ago
> If they buy up the bank charter, doesn't that mean the whole company then becomes regulated like a bank charter? Wouldn't it make more sense to just continue using their services? It likely would remain its own entity, similar to how banking and credit services are provided by different subsidiaries at places like Capital One.
hn_throwaway_99 5y ago
Well, the point is, right now, when a fintech partners with a bank, they still have to go through an extensive due diligence process and conform to all the regulations that are relevant to them because the bank is still on the hook from a regulatory viewpoint. For example, let's say you're a fintech like Chime, which partners with The Bancorp Bank and Stride Bank to actually store deposits. When you open an account at Chime, Chime is responsible for just as much required KYC (Know Your Customer regulations) for account holders as if you opened directly with a bank. The partner banks demand periodic audits of the KYC processes because if anything is deficient, it's the bank's charter that is on the line.
jcrawfordor 5y ago
For exactly this reason, US financial regulators recognize Bank Holding Company (BHC) as a separate category from chartered banks. BHCs are subject to a more limited form of the examination banks receive, in order to ensure that they are not in danger of going insolvent (leading to the insolvency of their bank subsidiary). But the examination for BHCs is nonetheless much lighterweight. Interestingly, all BHCs are regulated by the Federal Reserve (which is not true of banks proper, which may "choose" their regulator within certain limits from the FRS, OCC, and FDIC, occasionally others). There are some advantages that come from the FRS's approach to BHCs, including better access to FRS lending. As a result, many "banks" today, in terms of consumer branding, are actually BHCs that do all of their actual banking (depository financial institution/DFI) within a subsidiary. "Bancorp" is a somewhat informal term for BHCs, so "banks" with bancorp in the name are often (but not always, the term has older uses) actually BHCs.
deleted 5y ago
[deleted]

If they buy up the bank charter, doesn't that mean the whole company then becomes regulated like a bank charter? Wouldn't it make more sense to just continue using their services?

vageli 5y ago

> If they buy up the bank charter, doesn't that mean the whole company then becomes regulated like a bank charter? Wouldn't it make more sense to just continue using their services? It likely would remain its own entity, similar to how banking and credit services are provided by different subsidiaries at places like Capital One.

hn_throwaway_99 5y ago

Well, the point is, right now, when a fintech partners with a bank, they still have to go through an extensive due diligence process and conform to all the regulations that are relevant to them because the bank is still on the hook from a regulatory viewpoint. For example, let's say you're a fintech like Chime, which partners with The Bancorp Bank and Stride Bank to actually store deposits. When you open an account at Chime, Chime is responsible for just as much required KYC (Know Your Customer regulations) for account holders as if you opened directly with a bank. The partner banks demand periodic audits of the KYC processes because if anything is deficient, it's the bank's charter that is on the line.

jcrawfordor 5y ago

For exactly this reason, US financial regulators recognize Bank Holding Company (BHC) as a separate category from chartered banks. BHCs are subject to a more limited form of the examination banks receive, in order to ensure that they are not in danger of going insolvent (leading to the insolvency of their bank subsidiary). But the examination for BHCs is nonetheless much lighterweight. Interestingly, all BHCs are regulated by the Federal Reserve (which is not true of banks proper, which may "choose" their regulator within certain limits from the FRS, OCC, and FDIC, occasionally others). There are some advantages that come from the FRS's approach to BHCs, including better access to FRS lending. As a result, many "banks" today, in terms of consumer branding, are actually BHCs that do all of their actual banking (depository financial institution/DFI) within a subsidiary. "Bancorp" is a somewhat informal term for BHCs, so "banks" with bancorp in the name are often (but not always, the term has older uses) actually BHCs.

deleted 5y ago

[deleted]