Financial technology (fintech) companies and cryptocurrency firms are increasingly exploring the possibility of obtaining state or national bank charters, aiming to expand their operations and gain credibility in a regulatory environment they perceive as more favorable under the current administration. Industry executives and legal experts report a notable uptick in interest, with several firms actively preparing applications.
The move comes as these companies seek to capitalize on what they view as a more business-friendly regulatory climate. By becoming banks, fintech and crypto firms can reduce their cost of capital, access cheaper funding through customer deposits, and enhance their legitimacy in the eyes of consumers and partners.
Alexandra Steinberg Barrage, a partner at law firm Troutman Pepper Locke, noted, “We’ve seen a significant increase in interest. While it’s not yet in full swing, many clients are cautiously optimistic and preparing for a more streamlined approval process.”
Why Bank Charters Matter
Obtaining a bank charter offers several advantages, including lower borrowing costs, increased market opportunities, and the ability to operate with greater autonomy. Carleton Goss, a partner at Hunton Andrews Kurth, highlighted that access to deposits is a major benefit, allowing firms to reduce reliance on external funding sources.
Additionally, new bank entrants can foster competition, catering to underserved customer segments or regions. This shift could also help fintech and crypto firms navigate growing regulatory scrutiny by aligning more closely with established financial frameworks.
A Shift in Regulatory Sentiment
The push for bank charters follows a decade-long decline in new approvals. Between 2010 and 2023, U.S. regulators approved an average of just five new bank charters annually, a stark contrast to the 144 approved each year between 2000 and 2007. The financial crisis, low interest rates, and stringent regulations contributed to this slowdown.
However, industry experts believe the current administration’s focus on innovation and technology could pave the way for more approvals. Federal Reserve Governor Michelle Bowman, nominated as vice chair for supervision, has emphasized the need for faster processing of applications. Similarly, Travis Hill, acting chair of the Federal Deposit Insurance Corporation (FDIC), has expressed support for encouraging new entrants to ensure a healthy banking sector.
Challenges Ahead
Despite the potential benefits, the path to obtaining a bank charter remains challenging. Applicants must navigate rigorous regulatory requirements, including compliance with anti-money laundering laws and the Bank Secrecy Act. Additionally, setting up a new bank typically requires between 20millionand50 million in capital, posing a significant barrier for some firms.
Nigel Moden, global banking and capital markets leader at EY, noted, “While the regulatory environment appears more favorable, the licensing process is still rigorous. It remains to be seen how quickly new applications can move through the system.”
A Growing Trend
The trend reflects a broader shift in the financial landscape, where fintech and crypto firms are increasingly seeking to integrate into traditional banking systems. This move could also counterbalance the expected consolidation among regional banks, ensuring a steady pipeline of new entrants.
As the regulatory environment evolves, the coming months could see a surge in charter applications, marking a new chapter for fintech and crypto companies aiming to redefine their roles in the financial ecosystem.
