For generations, local bank branches served as the center of the community where people could safely hold their deposits, secure a mortgage, or obtain financing to launch a business.
Times have changed. Today, more banking than ever occurs online. Onerous federal regulations have shuttered thousands of banks. As the industry evolves, policymakers must ensure regulations evolve too, so the U.S. financial system is modern, competitive, and accessible to all consumers.
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The choice facing regulators such as the OCC and FDIC is straightforward: they can encourage qualified new entrants to become federally supervised banks, bringing more lending under examination, capital standards, and consumer-protection rules.
Or, they can preserve an increasingly exclusive status quo that leaves millions of Americans with fewer choices and pushes more financial activity outside the regulated banking system.
Washington must also modernize regulations to ease burdens on banks of all sizes. Since Congress imposed stringent regulatory burdens following the Great Financial Crisis, the number of federally insured banks has fallen from roughly 7,600 to 3,900. In the past 8 years, over 5,000 brick-and-morter bank branches have closed their doors. On the opposite side of the spectrum, only a few dozen new banks have received their banking charter.
This leaves a real absence in communities large and small. It means fewer locally-based financial institutions and less competition for consumer and small business lending. Addressing the problem should start with allowing speedier approvals of bank applications. It can also mean that loans are only made available to consumers with pristine credit and long-established banking relationships. This system might work well for the well-to-do, but less so for the millions of working-class Americans who feel squeezed.
Consumers need all options available to them when they need a short-term loan. In fact, more than 12 million Americans rely on short-term loans each year, with 7 out of 10 borrowers using the loans for basic expenses such as rent and utilities. These short-term loans also help people cover unexpected expenses for things like car or home repairs, bills that pile up, or an unplanned event.
While there are still plenty of banks serving communities, more competition is an inherent benefit to consumers. Across the financial services industry, technology-driven lenders are increasingly seeking to become federally regulated institutions rather than operating outside the banking system. This means granting more bank charters to online lenders. When this happens, more lenders become subject to more examinations, serious capital requirements, consumer-protection laws, fair-lending reviews, and ongoing prudential supervision. If policymakers genuinely believe financial services should be transparent and accountable, they should welcome more institutions into that framework rather than keeping them out.
A growing number of fintechs, specialty lenders, and nontraditional financial-services companies are exploring charter pathways because they see value in becoming regulated financial institutions. S&P Global Market Intelligence reported increasing interest in charters as regulatory scrutiny of bank-fintech partnerships intensified.
America has always benefited from competition in banking. Community banks once expanded access to all banking services where larger institutions would not. Internet banking revolutionized convenience, and mobile technology fundamentally changed how consumers manage their finances. Today’s technology-enabled financial institutions could represent the next stage of that evolution. They should be judged not by whether they resemble the banks of decades past, but by whether they can safely and responsibly meet the financial needs of consumers who have too often been left behind.
Opponents often frame charter applications as consumer-protection issues and claim that these businesses offer sky-high interest rates that are unfair to consumers. Some states have even imposed price controls on their business, which actually hurts consumers rather than helping them. Research from the Federal Reserve Bank of New York found that state interest rate caps reduced access to credit for higher-risk borrowers without producing meaningful improvements in financial distress.
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In many cases, consumers simply lost access to regulated credit without finding better alternatives. The financial need never disappeared — it merely shifted elsewhere.
If the goal is greater financial inclusion, more competition, and stronger oversight, the better path is clear: America needs more banks, not more barriers to banking.
Thomas Aiello is Vice President of Federal Affairs at National Taxpayers Union
