By Pam Martens and Russ Martens: October 17, 2024 ~

Broken Piggy BankThe risk of Big Tech firms like Alphabet (Google), Amazon, Apple, Meta (Facebook), and Microsoft getting an entrée into the federally-insured banking system by being allowed to buy or create a federally-insured industrial bank has raised alarm bells among three nonprofit watchdogs and the law professor who, literally, wrote the book on the mushrooming systemic risks in the U.S. banking system.

Arthur E. Wilmarth, Jr., Professor Emeritus of Law at George Washington University Law School, joined with the Consumer Federation of America, Americans for Financial Reform Education Fund, and the Center for Responsible Lending, to file an 18-page letter last Friday with the Federal Deposit Insurance Corporation (FDIC). (For background on Wilmarth’s seminal book, see our report: Everything this Book Predicted on Wall Street Megabanks Ruling their Regulators Is Now Unfolding.)

Friday’s letter was in response to the FDIC’s proposal to improve oversight of so-called “industrial banks,” which are allowed to skirt the Congressional mandate that prohibits the mixing of banking and commerce. From 2006 to 2020, the FDIC had imposed a moratorium on new approvals of industrial banks. That moratorium was lifted in 2020.

The letter reminds the FDIC of the recent history of emergency bailouts to the corporate parents of industrial banks, writing:

“Several large corporate owners of industrial banks failed or were rescued by the federal government during the global financial crisis of 2007-09, and the total number of industrial banks fell from 58 in 2007 to 23 today. Four very large corporate owners of industrial banks—General Motors Acceptance Corp. (GMAC), Merrill Lynch, Goldman Sachs, and Morgan Stanley—received huge bailouts from the federal government to prevent their failures. A fifth major industrial bank owner—GE Capital—encountered very serious liquidity problems during the crisis and received extensive financial assistance from federal agencies. A sixth corporate industrial bank owner—CIT Group—failed in 2009, thereby wiping out $2.3 billion of taxpayer-funded assistance that CIT received from the federal government’s Troubled Asset Relief Program (TARP)….”

Big Tech already possesses vast, Orwellian profiles of consumers. The letter captures the threat of combining that with banking as follows:

“Acquisitions of industrial banks by Big Tech firms would present a wide array of public policy issues, including concerns about unfair competition, exploitation of customer financial data, violations of customer privacy, and systemic risks resulting from ownership of FDIC-insured banks by giant technology firms. The combination of Big Tech companies’ massive datasets of consumer preferences and purchases with the extensive consumer financial information compiled by FDIC-insured industrial banks would greatly expand the reach of Big Tech firms into consumers’ finances by giving them greater insight into household income and spending patterns and would allow the combined firms to more fully exploit such data for commercial purposes while undermining consumer privacy. Further, Big Tech firms could condition or preference access by consumers and merchants to their digital commercial platforms or rewards programs on the willingness of those customers to use the financial services of their captive or shell industrial banks. Allowing a Big Tech firm to link its commercial platform with an industrial bank would allow the Big Tech firm to combine customer and merchant data to set bespoke, higher prices on transactions in the form of first-degree price discrimination that would benefit the platform while extracting unfair surplus value from consumers and merchants. The BHC Act [Bank Holding Company Act] prohibits banks from processing, storing, or sharing data that is not ‘financial, banking, or economic’ if that nonbanking data processing, storing, and transmission revenues exceed 49 percent of the bank’s total revenues, which would likely be the case with Big Tech shell or captive industrial banks.”

The letter’s authors also foresee a competition war breaking out between Wall Street’s megabanks and Big Tech’s banks should the separation walls be removed between commerce and banking. They write:

“Acquisitions of industrial banks by Big Tech firms would also generate intense political pressure on Congress to repeal the BHC Act’s restrictions on joint ownership of banks and commercial firms. Big Tech firms would not be satisfied with making ‘toehold’ acquisitions of industrial banks. They would push to build a bigger competitive presence in the U.S. financial industry by acquiring full-service commercial banks. Conversely, large commercial banks would argue that Congress must create a ‘level playing field’ that would allow commercial banks to acquire technology firms. Thus, allowing Big Tech firms to acquire industrial banks would probably lead to federal legislation allowing unrestricted combinations between giant technology firms and major banks. Such combinations would magnify the problems our nation already faces due to excessive levels of concentration and market power in our banking and information technology sectors as well as the dangerous political and regulatory influence that our technology giants and largest banks currently command and exploit.”

The nonprofit watchdog, Public Citizen, has been ringing the alarm bells for years about the stealthy and dangerous combination of banking and commerce at JPMorgan Chase – the largest federally-insured bank in the United States with $3.5 trillion in assets as of June 30. See our report: Watchdog to Fed: JPMorgan Is Controlling Fossil Fuels Empire, Which Just Spilled a Million Gallons of Oil in Gulf of Mexico.

These unprecedented concentrations of market power bring to mind what the late Supreme Court Justice, Louis Brandeis, presciently stated: “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.”

If American democracy increasingly feels like an out-of-control kleptocracy to you, look no further than the Brandeis warning and the U.S. Supreme Court’s Citizens United decision which opened the floodgates to corporate money in political campaigns.

And for what Facebook already attempted to pull off in the financial system in 2019, but failed, see our report: Senator Compares Facebook’s Libra Association to Spectre in James Bond Movie.