On Friday, the U.S. Treasury Department announced that it has granted a new banking license to World Liberty Financial, which is seen as a major event in the financial landscape, especially considering the aftermath of the 2008 financial collapse.
This new charter, issued by the Office of the Comptroller of the Currency (OCC), has stirred up more discussion than previous licenses. There’s significant controversy surrounding this decision since World Liberty Financial is closely tied to the cryptocurrency industry. The involvement of Alex and Zach Witkoff, who co-founded the company and are the sons of billionaire Steve Witkoff—an advisor to Trump—has also added to the scrutiny of this move.
The OCC explained that de novo banking licenses are meant for institutions that create a banking entity from the ground up, as opposed to merging with or acquiring an existing one. Typically, these de novo banks are newly formed and thus face stricter federal oversight during their early years.
“Corruption at this level always ends in tears,” remarked Matt Stoller, the director of research at the American Economic Freedom Project, in a comment to the Daily Caller.
Nonetheless, officials from the OCC communicated to the Daily Caller that their main objective is to cultivate a strong pipeline of de novo banking institutions, viewing this as essential for a sound national banking system. While World Liberty Financial’s connection to cryptocurrency presents inherent risks, the OCC seems to be balancing that against the need for enhanced competition in the banking sector amidst ongoing consolidation among banks. The association with the Trump family is likely to provoke concerns and backlash from financial regulators and legislators.
OCC officials mentioned that overly cautious post-2008 regulations discourage potential applicants for federal charters or deposit insurance. They are worried about a noticeable drop in new charter applications—fewer than four per year from 2011 to 2014—and emphasized the need to boost the approval rates for new charters following actions from Congress.
However, not everyone in the financial world is pleased with Friday’s announcement.
There are significant worries that banks working with cryptocurrencies become too dependent on tech sector clients, making them vulnerable to risks similar to those faced by Silicon Valley Bank (SVB), which collapsed due to a failed deposit run.
The Caller has also reported this year that the range of exposure risks extends beyond just SVB, with Goldman Sachs now under investigation by the Securities and Exchange Commission (SEC) regarding its purported role in SVB’s downfall.
