Derisking Dilemma: In the wake of regulatory pressure to identify customers likely to be engaged in illegal activities, some banks have responded by giving entire industries the boot. This week BankThink authors spilled a lot of digital ink debating the derisking phenomenon. The National Pawnbrokers Association's Fran Bishop criticized banks for severing ties with law-abiding pawnbrokers, arguing that the timing of the account closures points to the Justice Department initiative Operation Choke Point as a motivating factor. Bishop notes that regulators have taken steps to clarify their position on derisking and ensure that legal businesses have access to banking services, but laments that banks are evidently still gun-shy. The Federal Deposit Insurance Corp.'s Barbara Hagenbaugh weighed in to emphasize that banks should assess customers according to the risk posed by individual firms and to add that the banks cutting off pawnbrokers wholesale are not under the FDIC's supervision. Meanwhile, anti-money-laundering expert Amber D. Scott offered a couple of ideas about how to solve the derisking problem, ranging from creating a government-run bank that caters to high-risk businesses to passing laws that would require banks to offer their services to clients that pass a certain compliance standard.
Also on the blog: The Bitcoin blockchain has the potential to transform the financial industry much in the same way that Napster and peer-to-peer file sharing shook up the music business, writes Counterparty Foundation community director Chris DeRose. He makes the case for why faster, cheaper and more effective options ultimately win out.
Banks should consider assembling advisory boards to help them get a better grasp of the competitive landscape in new markets and recruit new clients, write Susan and Edward Stautberg of PartnerCom.
Biometric technology has a lot to offer banks, but it also has a tendency to stoke fears of dystopian scenarios should the information fall into Big Brother's hands. Risk and compliance expert Andrew Waxman advises banks to take the privacy concerns of customers and employees seriously.
Former Fed chair Paul Volcker has the right idea in recommending a consolidated regulatory system, but the idea has been floating around for decades without gaining much traction, according to author Richard J. Parsons.
If marketplace lenders want to act like banks, they should be regulated like them too, says former Oklahoma governor and American Bankers Association head Frank Keating, rebutting comments made by regulatory veteran-turned-aspiring disruptor Larry Summers last week.
Community bankers can tell regulators they're overburdened by compliance requirements until the cows come home, but regulators won't believe it unless they study the problem themselves, says the Independent Community Bankers of America's Christopher Cole. He calls on regulators to do just that.
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