Two and a half years after filing its first application, Square announcedlast week that it has received the green light to move forward with creating an industrial bank for small businesses.
Approval of the company’s deposit insurance application last Wednesday by the Federal Deposit Insurance Corporation (FDIC) requires Square to establish the bank within 12 months. The bank will be headquartered in Salt Lake City. Square also received approval of its charter from the Utah Department of Financial Institutions.
The company plans to launch Square Financial Services next year to offer small business loans and deposit products. The bank will operate as a subsidiary of Square.
In its press release, the FDIC said that applications are evaluated across seven factors, including financial history, adequacy of the company’s capital structure and its future earnings prospects. It also considers the convenience and needs of the community the bank is expected to serve.
“We appreciate the FDIC’s thoughtful approach to our application, and their recognition that Square Capital is uniquely positioned to build a bridge between the financial system and the underserved,” Jacqueline Reses, Square Capital lead and executive chairwoman of the board of directors for Square Financial Services, said.
“We’re now focused on the work ahead to build out Square Financial Services and open our bank to small business customers.”
Unsurprisingly, Square’s interest in a banking license has been met with resistance. In March last year, the Independent Community Bankers of America asked Congress to close what it called a loophole that “allows commercial interests to own full-service banks while avoiding key regulations and consolidated supervision by the Federal Reserve—threatening the financial system and creating an uneven regulatory playing field.”
The day before the Square announcement, the FDIC said it was seeking comment on a proposed rule regarding industrial banks owned by parent companies that are not supervised by the Federal Reserve Board. It would require “capital and liquidity support” from the bank’s parent company.
According to the Wall Street Journal, Square’s approval came with conditions, “including maintaining ‘significantly higher’ levels of capital than other banks and consenting to have its parent company, Square, examined by the FDIC.”