Mike Cagney is testing the boundaries of the banking system for himself — and others

Mike Cagney is testing the boundaries of the banking system for himself — and others

Founder Mike Cagney is at all times pushing the envelope, and buyers love him for it. Not lengthy sexual harassment allegations prompted him to depart SoFi, the private finance firm that he cofounded in 2011, he raised $50 million for brand new lending startup known as Figure that has since raised at the very least $225 million from buyers and was valued a yr in the past at $1.2 billion.

Now, Cagney is attempting to do one thing unprecedented with Figure, which says it makes use of a blockchain to extra rapidly facilitate dwelling fairness, mortgage refinance, and pupil and private mortgage approvals. The firm has utilized for a nationwide financial institution constitution within the U.S., whereby it might not take FDIC-insured deposits but it surely might take uninsured deposits of over $250,000 from accredited buyers.

Why does it matter? The method, as American Banker explains it, would convey regulatory advantages. As it reported earlier this week, “Because Figure Bank wouldn’t maintain insured deposits, it might not be topic to the FDIC’s oversight. Similarly, the absence of insured deposits would forestall oversight by the Fed beneath the Bank Holding Company Act. That legislation imposes restrictions on non-banking actions and is broadly regarded as a deal-breaker for tech corporations the place banking can be a sidelight.”

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Indeed, if accepted, Figure might pave the way in which for lots of fintech startups — and different retail corporations that wish to wheel and deal profitable monetary merchandise with out the oversight of the Federal Reserve Board or the FDIC — to nab non-traditional financial institution charters.

As Michelle Alt, whose year-old monetary advisory agency helped Figure with its utility, tells AB: “This mannequin, if it’s accepted, wouldn’t be for everybody. A variety of would-be banks wish to be banks particularly to have extra resilient funding sources.” But if it’s profitable, she provides, “lots of people can be .”

One can solely guess at what the ripple results can be, although the Bank of Amazon wouldn’t shock anybody who follows the corporate.

In the meantime, the technique would seemingly be a high-stakes, high-reward improvement for a smaller outfit like Figure, which might function way more freely than banks historically but in addition with out a security internet for itself or its clients. The most evident hazard can be a financial institution run, whereby these accredited people who’re at present keen to lend cash to the platform at excessive rates of interest started demanding their a refund on the similar time. (It occurs.)

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Either manner, Cagney may discover a receptive viewers proper now with Brian Brooks, a longtime Fannie Mae government who served as Coinbase’s chief authorized officer for 2 years earlier than leaping this spring to the Office of the Comptroller of the Currency (OCC), an company that ensures that nationwide banks and federal financial savings associations function in a secure and sound method.

Brooks was made appearing head of the company in May and green-lit one of many first nationwide charters to go to a fintech, Varo Money, this previous summer season. In late October, the OCC additionally granted SoFi preliminary, conditional approval over its personal utility for a nationwide financial institution constitution.

While Brooks isn’t commenting on hypothesis round Figure’s utility, in July, throughout a Brookings Institution occasion, he reportedly commented about commerce teams’ issues over his efforts to grant fintechs and funds corporations charters, saying: “I feel the misunderstanding that a few of these commerce teams are working beneath is that by some means that is going to set off a lighter-touch constitution with fewer obligations, and it’s going to make the enjoying subject un-level . . . I feel it’s simply the alternative.”

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Christopher Cole, government vice chairman on the commerce group Independent Community Bankers of America, doesn’t appear persuaded. Earlier this week, he expressed concern about Figure’s financial institution constitution utility to AB, saying he suspects that Brooks “needs to approve this rapidly earlier than he leaves workplace.”

Brooks’s days are absolutely numbered. Last month, he was nominated by President Donald to a full five-year time period main the federal financial institution regulator and is presently awaiting Senate affirmation. The transfer — designed to decelerate the incoming Biden administration — may very well be undone by President-elect Joe Biden, who can hearth the comptroller of the forex at will and appoint an appearing substitute to serve till his nominee is confirmed by the Senate.

Still, Cole’s suggestion is that Brooks nonetheless has sufficient time to determine a path ahead for Figure — and if its novel constitution utility is accepted, and it stands as much as authorized challenges — a variety of different corporations, too.


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