Can a financial institution call itself a bank without having a banking license, that is, be a Bank In Name Only (BINO)?
Recently, the central bank of Brazil announced that using the word bank in the name requires permission and the fulfillment of particular capital requirements. Up until now, Brazil has been one of the few jurisdictions where identifying as a bank did not come with any extra restrictions.
That has forced the biggest fintech of Brazil, Nubank, to apply for a banking license, even if it has a twelve-year-long history of issuing credit cards and opening accounts for its 110 million customers.
Nubank has said it already holds ample capital reserves, and being regulated as a bank will not materially add to them. In September, Nubank applied for a US national bank charter.
So, let’s just recap what makes a bank. A bank is a financial institution that takes deposits/savings and uses those deposits to provide credit/loans.
The reason why being a bank requires a license, deposit insurance, and the holding of certain capital is to protect the depositors and the economy as a whole from the fallout of borrowers defaulting on their loans or the bank’s assets in general losing value.
That textbook definition seems pretty clear-cut, but, as with middle-aged night vision, the reality is a lot fuzzier.
Rather than banks being one thing and non-bank financial institutions being another, banking now exists on a continuum.
Old-school banks venture into new lines of business that taste more like, or directly partner with, fintech and private credit. Fintech firms expand into digital-only banks, AKA neobanks. And private debt and credit have become such big players in modern economies that some countries now suggest including them in annual stress testing to fully capture the impact of an economic downturn.
As a case in point, Bank of England (BoE) just launched its second System-Wide Exploratory Scenario (SWES), which focuses on how the private markets for equity and credit operate under stress and what that means for the UK economy as a whole. BoE will consult with PE and PC firms, though it will only publish system-wide and sector-specific stress test results.
So, while we might now have seen the end of the BINO—if it ever existed—the BAFT (Bank-Adjacent Fintech), the OBNB (Old Bank, New Business), and the PECNOD (Private Equity and Credit, No Deposits) are going stronger than ever.
FRG and The Risk Report find banking trends interesting because we work with all kinds of financial institutions and help with their stress testing.
Regitze Ladekarl, FRM, is FRG’s Director of Company Intelligence. She has 25-plus years of experience where finance meets technology.
This article is part of the FRG Risk Report, published weekly on the FRG blog. To read other entries of the Risk Report, visit frgrisk.com/category/risk-report/.