Mike Cagney tests the limits of the banking system for himself and for others – Heaven32

Founder Mike Cagney always pushes the boundaries and investors love him for it. Not long sexual harassment charges led him to leave SoFi, the personal finance company he co-founded in 2011, $ 50 million for a new loan startup called Figure who has since raised at least $ 225 million investors and was valued a year ago at $ 1.2 billion.

Now Cagney is trying to do something unprecedented with Figure, which he says uses blockchain to facilitate home equity, mortgage refinancing, and personal and student loan approvals faster. The company has applied for national banking status in the United States, in which it would not accept FDIC-insured deposits, but could accept uninsured deposits of more than $ 250,000 from accredited investors.

Why is this important? The point of view, as explained by American Banker, would bring regulatory advantages. As reported earlier this week, “Since Figure Bank would not hold insured deposits, it would not be subject to FDIC oversight. Likewise, the absence of insured deposits would preclude Federal Reserve oversight under the Bank Holding Companies Act. This law places restrictions on non-banking activities and is seen as a deal breaker for tech companies where banking is said to be a secondary issue.

In fact, if approved, the figure could pave the way for many fintech startups and other retail companies who wish to trade and trade financial products for profit without the oversight of the Federal Reserve or the United States. FDIC, to obtain banking licenses. non-traditional.

Like Michelle Alt, whose year financial consulting firm helped Figure with their app, tells AB: “This model, if approved, wouldn’t be right for everyone. Many potential banks want to be banks specifically to have more resilient sources of funding. But if he succeeds, he adds, “a lot of people will be interested.”

One can only guess what the domino effects would be, although Amazon Bank doesn’t surprise anyone following the company.

Meanwhile, the strategy would seemingly be a high-risk, high-return development for a smaller group like Figure, who could operate with much more freedom than traditional banks, but also without a safety net for himself or his people. clients. The most obvious danger would be a bank shift, in which accredited people who are now ready to lend money to the platform at high interest rates began to demand repayment of their money at the same time. time. (This come.)

Either way, Cagney might find a receptive audience right now with Brian Brooks, a former Fannie Mae executive who served as Coinbase’s legal director for two years before joining the Office of the Comptroller of the Currency ( OCC) this spring. , an agency that ensures that national banks and federal savings associations operate in a safe and healthy manner.

Brooks was appointed acting director of the agency in May and gave the green light for one of the first national statutes to move to a fintech, Varo Money, last summer. At the end of October, the OCC also granted SoFi preliminary and conditional approval on your own application for national banking status.

While Brooks won’t comment on the Figure app speculation, as of July, at a Brookings Institution eventHe reportedly commented on trade groups’ concerns about their efforts to give fintech and payments companies status, saying, “I think the misconception in which some of these trade groups operate is that somehow or other on the other hand It will trigger a lighter status with fewer obligations and make the playing field level. . . I think the opposite is true.

Christopher Cole, Executive Vice President, Business Group Independent Community Bankers of America, does not seem convinced. Earlier this week, he raised concerns over Figure AB’s request for bank status, saying he suspected Brooks “of getting this approved quickly before leaving office.”

Brooks’ days are surely numbered. Last month I was appointed President Donald has a full five-year term as head of the federal banking regulator and is currently awaiting confirmation from the Senate. The move, designed to slow down the incoming Biden administration, could be overturned by President-elect Joe Biden, who could dismiss the controller of the currency at will

and appoint an acting alternate to serve until his candidate is confirmed by the Senate.

Still, Cole’s suggestion is that Brooks still has plenty of time to find a way forward for Figure, and if his new status claim is approved and he stands up to legal challenges, plenty of other companies are doing it too.