The End of Banking History? - Finishing the Unfinished Business of Financial Reform

They directly respond to the unfinished reforms from the GFC, the deregulation that occurred during the Trump administration, the recent stresses in the banking sector in 2023, and the increasing move of finance to digitally based businesses. [...] Two trends interrupted the reform-minded consensus that was forming in the wake of the GFC, causing the pendulum to again swing toward financial deregulation: (1) the focus on regulatory “tailoring” to reduce the burden of post-crisis regulations that had been imposed on the banking system, and (2) the increasing digitization of finance that changed the delivery, if not the fundamental nature, of. [...] The rapid growth of the nonbank financial sector, the recent bankruptcies of fintech companies like the firm Synapse (Son 2024), and the role of crypto bankruptcies in contributing to the 2023 banking stresses (GAO 2023) highlight the potential safety and soundness, financial stability, and consumer protection risks presented by the digital financial services ecosystem. [...] The ratios proposed in Table 1 are slightly below the midpoint of the optimal range to account for (1) the fact that banks tend to operate with a capital buffer in excess of their regulatory minimums and (2) the complementary benefits of the other policies included in this agenda. [...] Reining in Risky Bank Activities The National Bank Act limits national banks to the “business of banking”: permissible activities identified in the “bank powers clause.”26 Over decades, without any changes to this statutory language, the Office of the Comptroller of the Currency (OCC), the national bank regulator, has unilaterally used interpretive letters and orders to broaden the meaning of “ban.