Big U.S. companies such as Amazon (AMZn-US), Facebook (FB-US) and Wal-Mart (WMT-US) could cannibalize Wall Street banking in the near future as authorities ease the barriers for non-banks to cross the line of business.
The U.S. Federal Deposit Insurance (FDIC) approved final rules on Tuesday to regulate so-called Industrial loan companies (ILCs), which would allow large companies to set up banks without being subject to capital and liquidity conditions that financial institutions must comply with, Bloomberg reported.
FDIC Chairwoman Jelena McWilliams said the new measures will give market participants a clearer understanding of the agency’s minimum standards for industrial bank parent companies and increase transparency. The ILC was meant to allow companies to offer microcredit to their employees. The new rules formalise a long-standing practice, but are likely to open the door to the future development of big banks.
The FDIC set the banking industry on fire when it enacted rules earlier this year, fearing that big firms would have the advantage of a customer base and could offer government-backed financial services (such as FDIC deposit insurance) with fewer regulations.
That has prompted a rare coalition of banks and Democratic lawmakers and consumer groups to call for the federal government to hold off on issuing ILC licenses until Congress tackles the unfair competition loophole.
The FDIC approved two ILC applications earlier this year to give payment company Square and student lender Nelnet conditional deposit insurance licenses.
But the FDIC also rejected the application of Rakuten, a Japanese online payment provider, to set up a bank, a sign that the first big test for non-financial firms to break down barriers between banking and commerce has failed.
The Bank Policy Institute, a banking lobby group, warned last month that if the FDIC approved Rakuten’s Bank, “it would set a precedent for all large technology companies to enter the banking industry under ILC licences without having to put regulations in place.
Facebook, Amazon and Google did not respond to this report.
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