After Elon says Twitter will Process Payments, Senate Banking Committee (Re)introduces Bill to Close ‘Shadow Banking’ Loophole

CNBC | Chelsey Cox | Dec 6, 2022

Unsplash Christian Lue Elon says Twitter wants to process payments - After Elon says Twitter will Process Payments, Senate Banking Committee (Re)introduces Bill to Close ‘Shadow Banking' Loophole

Image: Unsplash/Christian Lue

Senate Banking Committee Chairman Sherrod Brown will introduce a bill Tuesday that aims to close the so-called shadow banking loophole that allows retail and tech companies to offer banking services without the same stringent oversight as other financial institutions.

  • The Close the Shadow Banking Loophole Act comes about a month after Twitter’s new CEO Elon Musk shared his plan to transform the social media platform into a payment service and reportedly registered with the Treasury Department as a payments processor.
    • The bill was first introduced in 2007 as large commercial companies began exploring banking without being regulated like other parent companies of traditional banks, a senior democratic aide told CNBC. But interest soon died down during the 2008 financial crisis.
    • Called industrial loan companies, or ILCs, the nonbanking entities operate without the oversight required for traditional banks.

See:  Elon’s Vision for a Twitter Payment System (and then Super App)

  • The Independent Community Bankers of America, Americans for Financial Reform and the Bank Policy Institute are among 18 banking industry advocates that back the bill.
  • Sens. Chris Van Hollen, D-Md., and Bob Casey, D-Pa., co-sponsored the bill. The measure complements a House bill, approved by the Financial Services Committee in June, that would close the loophole for so-called industrial loan companies, or ILCs, by subjecting them to the same regulations as federally insured banks.
  • Twitter is one of several non-bank companies that sought to enable banking services for users through state-chartered ILCs. Unlike all other bank holding companies, the holding companies of ILCs are not subject to consolidated oversight by the Federal Reserve.

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