Thursday, July 13, 2017
Rory Van Loo, Boston University School of Law advocates Making Credit More Competitive.
ABSTRACT: Despite hostile politicians and more innovative technology challengers, “Too Big To Fail” banks have in recent years grown significantly. This Article identifies an overlooked contributor: the organizational design of the administrative agencies responsible for banking competition. In the United States, that responsibility is spread across five entities, each of which prioritizes other industries or other missions. As a result, no regulator is optimally structured either to develop licenses suitable for fintech startups, or to prevent market failures that impede digital innovation. The Article also explains how the stakes of getting competition right are increasing in the fintech era. Big banks are rapidly becoming more digital and absorbing or partnering with startups. But as Google, Microsoft, and Facebook have shown, technology firms tend to produce higher market concentration than those in other industries. Similar concentration for credit products could greatly reduce consumer welfare and destabilize the financial system. Aligning competition authority, motivation, and expertise in a single body would better position regulators to manage the future of finance.