Texas bankers’ interest aligns with the national interest
My concern is that these unregulated and unchartered banks put consumers at risk, while simultaneously damaging the trust banks have built in their communities."
To mark my tenure as Chairman of the Board of the Texas Bankers Association, I thought it appropriate to share my plans for the coming cycle. First off, the objectives set by former Chairmen Chip Jenkins and Rusty Rust will remain a priority.
That includes focusing on finding technology that is cost-effective to better position banks in the market and further developing an employment and education pipeline for future bankers.
My part in these goals is to expand on those priorities by addressing something that has been a red flag for me for a very long time.
Some of you may remember at this year’s TBA Annual Convention, I first shared my growing concern about nonbank competitors (i.e., neobanks or “challenger” banks as they are oftentimes referred) and how financial and banking regulators have turned a blind eye to them, allowing entry into the banking business without any regulatory oversight or accountability.
Aside from the obvious, my concern is that these unregulated and unchartered banks put consumers at risk, while simultaneously damaging the trust banks have built in their communities.
The standard of entry into the banking business has been lowered for some, resulting in the devaluation of our charters while unsafe deposit platforms appear to blossom. We have already seen our competitive disadvantage against the Federal Farm Credit Bank when it comes to agriculture loans. Now we are seeing the payment system, built for the banking industry, threatened.
My concerns are based off conversations I’ve had in recent years. On one particular occasion with a customer of my bank, we were on the topic of his son, a West Point graduate currently serving in the U.S. Army, and the need to send his father some money.
When the father suggested a check, the son replied that he did not have a check, or even a bank account. The young man said he preferred to avoid checks or use a checking account because Venmo was easier. That response hit me right between the eyes.
That’s when I realized that while we have been concerned about the unbanked in our community and how best to educate them about the value of banking — still a very important issue — we also need to educate the youth of our communities about the value of banking with an FDIC-insured and regulated financial institution we proudly call a bank.
I consider this a failure on our part in educating the public about the risk of leaving your money in a noninsured and unregulated company. History has proven easy money is never free, which is why there are so many consumer protections in place today.
On the flipside, this is also a failure on the part of the regulators to protect consumers by ensuring so many fly-by-night Fintech companies play by the same rules. This is especially true when these companies spend so much of their advertising time and money convincing consumers they are banks, yet they lack the protection that banks offer.
My take is these companies are able to move quickly in providing a better customer experience because they don’t need to follow the same long, and even burdensome, process that is designed to protect consumers.
As a reminder, the purpose of a bank was to allow people to take a piece of paper (we call a check) to a bank and that bank would turn that piece of paper into money. People would leave that money in banks, so it was also used to lend out in their communities to help it grow and prosper. Feel free to rewatch “It’s a Wonderful Life” for a nice refresher.
However, several times in our history, banks failed for one reason or another and people lost confidence in banks and sometimes all of their money in the process. It was so rampant that the FDIC was created as a safeguard for people’s money after the Great Depression.
Fast forward to today and we once again have large sums of money being left in unregulated companies, like Venmo, with no concern about the financial strength of the company that is holding their funds.
Prior to COVID, Venmo came second only to JP Morgan Chase for digital user transactions, ahead of Bank of America and Wells Fargo, and they do not even have a bank charter.
The business of being an unregulated bank is so good even H-E-B is now offering their own debit cards.
During my tenure as Chairman, I intend on highlighting this issue, and building a coalition that will remind the OCC, the FDIC, the Federal Reserve and our State Regulators this is more than a bank concern, this is a national concern for the safety and soundness of the deposits of the American people.