Congress needs to level the playing field for American banks

Banks play an indispensable role in the U.S. economy. They serve as the bridge between depositors who seek safety and return on their savings and borrowers who need credit to buy a home, build a business or fund innovation. Without the uniquely American system of regulated banks — ranging from global institutions to thousands of community banks across the country — our economy would be smaller, less dynamic and less resilient.

Over the past 25 years, however, banks have steadily lost ground to private credit funds and fintech companies as large segments of consumer and commercial lending and related activities have migrated to these unregulated nonbank lenders. As a result, banks’ market share in corporate and consumer lending has been cut roughly in half. While these nonbank players contribute valuable innovation and liquidity, they operate without the same oversight or access to government support that stabilizes the banking system in times of crisis. Their loans are also typically more expensive, raising borrowing costs for consumers and businesses alike.

The decline in the number of banks — from roughly 10,000 a quarter century ago to about 4,500 today — has likely constrained economic growth and reduced financial inclusion.

That is why the Treasury secretary’s recent call for banks to “go on the offense — retake market share, chase after customers, champion technology, leverage the new regulatory landscape to your advantage, and expand your role in the American economy” is exactly right. This tone from the top, reinforced by actions at the FDIC and OCC to align regulation with true risk, reduce unnecessary red tape and empower innovation, represents a pivotal moment for the industry.

In addition, this effort perfectly aligns with the Federal Housing Finance Agency’s smart focus on expanding access to affordable and sustainable homeownership. America currently faces a housing shortfall of between 1.5 and 5.5 million units. As a result, Americans have experienced skyrocketing housing prices and rents, making it increasingly difficult for individuals and families to find affordable housing options. A stronger banking sector, working together with reformed government sponsored enterprises, can provide attractive financing to increase housing supply across the country. A competitive, innovative banking sector strengthens the channels that connect borrowers to mortgage credit — supporting FHFA’s broader goal of equitable, reliable housing finance.

My former colleagues in Congress on the House Financial Services and Senate Banking committees should embrace this approach and reform our laws to ensure that we have a competitive, innovative and growing banking system. 

Two smart bills with bipartisan support are H.R. 5317, the Community Bank Deposit Access Act,  and H.R. 3234, the Keeping Deposits Local Act. Both would modernize regulations governing how community and regional banks classify large deposits and make it easier for banks to manage insured balances without triggering antiquated reviews.

Further policies that make it easier for banks to re-intermediate asset classes increasingly lost to nonbanks will improve oversight of our markets and lower costs for borrowers. Laws that pave the way for banks to more fully embed AI in their operations, link banking services with nonfinancial platforms,\ and integrate fintech innovation into full service digital customer experiences will make banks more competitive. Regulatory changes in mortgage credit, like those proposed by the FHFA to allow crypto to be included in credit scoring, will expand access to homeownership. And allowing banks to lean into advanced analytics and data platforms to inform risk and pricing will make our financial system more stable.

Every member of Congress has local banks in their district. Unleashing these pillars of their communities to play the role they have historically played in our economy will benefit their constituents and our country.