Amazon buying Capital One? Fat chance, but fun to ponder

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Amazon is itching to buy Capital One. No way that could happen … well, er, right, everybody?

OK. Admit it. You think that would be illegal, but you don’t remember why anymore. After all, anything before the smartphone and the financial crisis feels like prehistory, so there’s no way in the world you should remember the banking-and-commerce provisions of the Gramm-Leach-Bliley Act (party like it’s 1999) or the Bank Holding Company Act (from the “happy days” of 1956).

And there are plenty of reasons why you’ve sworn off “nevers” lately: Brexit won, Donald Trump won, and so did the Chicago Cubs.

Thus when stories pop up like “Amazon is thinking about buying Capital One,” as one did this week, you can’t help but do a double take. Indeed, the concept of a major tech company — Google, Amazon, Facebook or Apple — buying its way into financial services is often pondered at fintech events.

But trust us — though the retailing might of Amazon and the credit card expertise (not to mention the national bank charter) of Capital One sound like a meet cute, it’s a nearly impossible match. Such a transaction would most certainly fail to pass the muster of regulators — and would likely run afoul of decades-old banking laws.

“There is a longstanding and firm barrier between banking and commerce,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics, describing it as a “foundational” principle of banking law dating to the Bank Holding Company Act.

The legal principle is designed to prevent various conflicts of interest, such as the flow of deposits into a company’s own enterprises, according to Petrou.

While there are some “cracks” that work around that barrier — including limited-purpose charters, such as the one that Nordstrom uses to issue credit cards — they likely would not apply in this case. “Those cracks are nowhere large enough to authorize a transaction such as this on — even if both parties wanted it,” Petrou said.

Neither company responded to a request for comment.

Legal arguments aside, there is some precedent for retail behemoths attempting to enter U.S. banking market, albeit unsuccessfully. Walmart — one of the world’s largest retailers — has tried to do so at various points over the past two decades.

In the late 1990s, for instance, it unsuccessfully sought permission from regulators to buy a thrift in Oklahoma. It also applied for a banking license in 2005 but abandoned those plans two years later amid a storm of opposition from lawmakers and industry executives.

There are other, more practical reasons an Amazon-Capital One deal is unlikely. Consider capital costs required to get into the banking business. Or the simple fact that high-tech firms — from small upstarts to Silicon Valley behemoths — have proven, again and again, that there is good money to be made in opportunistically stepping in where U.S. banks fall short.

PayPal, for instance, capitalized on consumer demand for fast and easy payments, Petrou noted.

If there’s even the teeniest, tiniest sliver of an opening for Amazon to skirt federal banking laws, it would be for the Seattle company to establish or acquire a limited-purpose, state nonmember bank — and do so in a state that is amenable to such a move, Petrou said.

It is easy to dream about, but much harder to make happen.

“I think there are significant regulatory challenges to such a transaction,” said Chris Donat, an analyst with Sandler O’Neill. “I’m skeptical that a retailer could become a bank holding company — or would want to.”

So it is not going to happen. At least, we are pretty, pretty sure. And if down the road we are proven wrong, don’t hold it against us too much. These are interesting times.

Robert Barba contributed to this story.