ICLE White Paper

Tear Down This Wall: Rethinking the Separation of Banking and Commerce

Executive Summary

For more than a century, the United States has sought to separate banking and commerce. The impulse was largely political, not economic: a distinctly American distrust of concentrated economic power and a fear that control over credit could dominate local economies, distort markets, and threaten democratic governance. In response to banking crises, industrial consolidation, and the rise of large financial institutions, policymakers built structural rules to keep financial and commercial power apart.

This paper argues that those rationales belong to an earlier era of fragmented local banking markets, geographic restrictions, and limited competition. Even then, forcing economic forces and consumer demand into arbitrary legal categories was a losing battle. Today, the project is even less realistic. Interstate banking, embedded finance, platform economics, banking-as-a-service, and emerging technologies such as agentic artificial intelligence have transformed financial intermediation and increased demand for integrated financial and commercial services.

The wall between banking and commerce is now increasingly leaky and asymmetric. Technology companies perform quasi-banking functions, while regulated banks often serve as infrastructure providers within broader digital ecosystems. At the same time, regulators have more sophisticated supervisory tools than ever before to address risks without preserving an archaic and anticompetitive structure.

Financial regulation should therefore move away from rigid categorical separation and toward principles-based oversight focused on conduct, interoperability, competition, systemic risk, and consumer protection. Rather than prohibit integration outright, policymakers should regulate the specific behaviors and risks associated with platform finance and modern financial intermediation. The question is no longer whether banking and commerce should interact. They already do. The question is how best to govern that interaction while preserving competition, innovation, financial stability, and consumer choice.

I.   Introduction

The separation of banking and commerce has long been a defining principle of American financial regulation. Unlike most advanced economies, the United States historically restricted commercial entities from owning banks and generally prohibited banks from owning commercial enterprises. These limits sought to prevent concentrations of economic power and protect the federal safety net.[1] They were not merely technical banking rules. They reflected deep political, economic, and cultural assumptions about the dangers of concentrated financial power.

American suspicion of concentrated economic power predates the modern banking system. The United States emerged from a revolution against centralized authority and developed a political culture deeply skeptical of large institutions capable of exercising economic control over local communities.[2] These concerns shaped the nation’s political, economic, and constitutional development, particularly through the decades-long debate over the legitimacy, legality, and role of the Bank of the United States.[3] That skepticism influenced the structure of American government, federalism, and banking. Rather than concentrate banking authority in a handful of national institutions, policymakers encouraged decentralized local banking markets composed of thousands of small banks operating within geographically constrained areas.

The resulting system was unique. While many countries developed centralized banking systems dominated by a small number of national institutions, the United States produced thousands of community banks governed by overlapping federal and state regulatory frameworks that evolved incrementally over more than 160 years.[4] At its peak, the United States had nearly 25,000 commercial banks.[5] This fragmented structure reflected a deliberate preference for dispersed economic power and local control over credit allocation.

That preference also contributed to the creation of multiple banking regulators through repeated episodes of crisis-driven institutional layering. Rather than empower existing regulators to address emerging threats or replace obsolete institutions, policymakers typically added new agencies and authorities on top of existing ones. The result is one of the world’s most complex financial regulatory systems[6]—a system designed largely to stabilize a fragmented banking sector rather than manage a centralized one.

The original rationale for separating banking and commerce was grounded in legitimate concerns about the structure of the American economy and regulatory system at the time.[7] Policymakers feared that firms controlling both commerce and credit could distort markets, disadvantage competitors, and threaten financial stability. In local economies characterized by limited competition and government-created entry barriers, those concerns were substantial.[8] Banks often occupied monopolistic or near-monopolistic positions within their communities,[9] and policymakers worried that combining control over credit with commercial activity would create private economic empires capable of dominating regional economies.[10]

Conditions today are markedly different. Technological innovation and changes in market structure have increased the potential benefits of integrating commerce and finance while weakening many of the concerns that originally justified structural separation. Interstate banking increased competition among financial institutions. Digital platforms now integrate payments, lending, and other financial services directly into commercial ecosystems. Large technology firms increasingly perform quasi-banking functions without bank charters. Embedded finance and banking as a service arrangements further blur the distinction between financial and nonfinancial firms.[11]

As the concerns that once justified separation have weakened, the legacy system has increasingly become an obstacle to innovation and growth. Combining commercial enterprises and financial services can create convenient one-stop shopping experiences, enhance loyalty and rewards programs, generate consumer discounts, and improve information flows between commercial and financial services. Integration may also strengthen data security and allow more personalized consumer experiences.[12] Perhaps most importantly, it offers opportunities to expand financial inclusion by increasing consumer choice and competition.

To understand the separation of banking and commerce, it is useful to begin with a basic question: What distinguishes a bank from other financial firms? In legal terms, a bank—or more precisely, an insured depository institution—is authorized to accept federally insured deposits from the public.[13] That characteristic confers two enormously valuable privileges.

First, deposit insurance provided by the Federal Deposit Insurance Corporation guarantees depositor funds up to statutory limits, giving banks access to a stable, low-cost funding source unavailable to uninsured competitors. Second, access to the payments system—including Federal Reserve payment rails and interbank settlement infrastructure—allows banks to clear and settle transactions in ways that nonbanks generally cannot directly replicate.

These privileges explain why financial firms seek bank charters. They also explain why banks accept the regulatory obligations that accompany them, including capital requirements, safety-and-soundness supervision, and, historically, restrictions on commercial activities. The central premise behind separating banking and commerce is straightforward: Because banks benefit from a publicly supported safety net, the public has a legitimate interest in limiting the risks they may undertake. Commercial enterprises, which are generally more volatile and more exposed to market forces than traditional banking activities, represent precisely the type of risk that the regulatory framework evolved to constrain.

Today, evolving technology and changing consumer preferences are eroding some of banks’ traditional advantages. In May 2026, President Donald Trump issued an executive order directing the Federal Reserve to consider regulatory changes that would allow nonbanks, including fintech and digital-asset firms, greater access to Federal Reserve payment rails.[14] At the same time, nonbanks are increasingly issuing branded stablecoins or announcing plans to do so, a trend the GENIUS Act is likely to accelerate.[15]

Yet these developments have been asymmetric. Nonbanks increasingly enjoy access to privileges once associated exclusively with chartered banks, while banks remain constrained by legacy restrictions that limit their ability to offer complementary commercial products and services. The traditional wall separating banking and commerce rested on concerns that banks could leverage government subsidies and regulatory privileges to gain unfair advantages in commercial markets, or that commercial activities would increase prudential risk. As those concerns diminish, the case for maintaining the wall in its current form weakens as well.

This paper argues that the separation of banking and commerce was a reasonable, if imperfect, response to the economic and political conditions that produced it. The doctrine reflected real concerns about concentrated financial power, fragile local banking markets, weak supervisory tools, and the risks of extending the federal safety net into commercial enterprise. But those historical rationales no longer map cleanly onto modern financial markets. Interstate banking, digital platforms, embedded finance, stablecoins, banking as a service, and more sophisticated supervisory technology have blurred the functional boundary between banking and commerce while expanding the tools available to monitor and manage risk.

The central question is therefore no longer whether banking and commerce should interact. They already do. The challenge is how to govern integrated financial ecosystems in ways that maximize competition, consumer welfare, innovation, and systemic stability while limiting abusive conduct, regulatory capture, and excessive concentrations of economic power. This paper contends that modern regulation should move away from categorical structural prohibitions and toward a principles-based framework focused on conduct, risk, interoperability, data governance, and proportional supervision. That shift does not mean ignoring safety-and-soundness concerns. It means addressing those concerns directly with tools better suited to a financial system in which the old wall between banking and commerce has already become porous.

II.   The Political and Economic Logic of Separation

The historical development of banking regulation in the United States reflected broader concerns about economic concentration, industrial consolidation, and their implications for democratic governance. The separation of banking and commerce emerged gradually through a series of statutes and regulatory reforms designed to limit the ability of financial institutions to dominate commercial markets.

The American financial regulatory system did not emerge from a single coherent design. Instead, it evolved incrementally in response to financial crises, political pressures, and periods of economic instability. Reform efforts typically addressed the most recent shock or perceived market failure, layering new statutes, supervisory authorities, and regulatory agencies onto existing frameworks without fundamentally reconsidering the broader structure of the financial system.[16]

Over time, this crisis-driven approach produced a fragmented regulatory architecture characterized by overlapping jurisdictions, inconsistent policy objectives, and persistent tensions among competition, innovation, financial stability, and decentralization.[17] Understanding the historical origins, political motivations, and economic assumptions underlying these developments is essential to evaluating both the modern separation of banking and commerce and whether the rationale for that separation remains persuasive in today’s rapidly evolving financial system.

A.   The Political Origins of Banking Fragmentation

The American financial system was shaped by a deep distrust of concentrated power.[18] From the colonial era through the early Republic, agrarian interests expressed concern about the economic and political influence of banks. Thomas Jefferson and the Anti-Federalists favored decentralized political and economic institutions, viewing central financial authorities as threats to democratic self-government. As one scholar observes, banks were granted valuable privileges through special legislative charters, making bankers “keepers of credit and currency” who exercised substantial influence over both the economy and the political system.[19]

The Federalists’ victory in the debate over the First Bank of the United States did not resolve these tensions. When President Andrew Jackson vetoed the recharter of the Second Bank of the United States in 1832, he argued that the institution concentrated excessive economic and political power, warning that its influence was “dangerous to Government and the country.”[20] Jackson contended that centralized financial institutions could exert undue influence over both politics and commerce, benefiting elites at the expense of ordinary citizens and threatening democratic governance.[21]

This suspicion of concentrated financial power shaped American banking policy throughout the 19th century. Following the demise of the Second Bank of the United States, state governments became the exclusive chartering authorities for banks.[22] States frequently prohibited interstate banking, restricted branch banking, and imposed unit-banking requirements to preserve local control over credit.[23] Policymakers believed smaller, locally controlled banks would be more responsive to community needs and less capable of dominating regional economies.[24]

That decentralization came at a cost. Banks operating in geographically limited markets lacked diversification and remained vulnerable to local economic shocks. Financial panics in 1837, 1873, 1893, and 1907 exposed the instability of the fragmented banking system. Even so, policymakers generally preferred the risks associated with decentralization to what they viewed as the greater danger of concentrated financial power.

B.    Economic Dependency and the Company Store Analogy

The concerns underlying the separation of banking and commerce can also be understood through the historical experience of company stores in the 19th and early 20th centuries. In many industrial towns, employers paid workers in scrip redeemable only at employer-owned stores. This arrangement allowed firms to control wages, credit, and commerce simultaneously, creating systems of economic dependency that limited worker mobility and distorted local markets.[25]

Because workers were effectively locked into purchasing goods from their employers, firms could charge inflated prices and deepen employees’ economic dependence. The result was a vertically integrated system combining labor, credit, and retail markets that exhibited characteristics of both monopsony power and credit dependency. In response, states enacted “anti-truck” laws requiring employers to pay workers in lawful U.S. currency rather than company-issued scrip.

Banking regulations were not designed specifically to address company stores, but the analogy is instructive. Policymakers feared that institutions controlling access to credit could similarly influence downstream commercial behavior and distort competitive markets. The separation of banking and commerce is rooted, in part, in a broader effort to prevent firms from controlling multiple complementary economic functions in ways that undermine competition and economic freedom.

C.   National Banking Without a Central Bank

The National Bank Act (NBA) emerged during a period of profound economic and institutional change. The statute was not merely a technical banking reform. It responded to Civil War financing needs, monetary instability, and growing pressure for a more integrated national financial system.[26] Although these challenges reached a crisis point during the Civil War, their origins lay in the earlier “Free Banking Era” (1837–1863).

During that period, banking remained largely a matter of state regulation. Hundreds of banks issued their own banknotes, and the United States lacked a national currency.[27] Currency instability was pervasive. Merchants often relied on “banknote reporters” to determine the value of various notes, which depended heavily on both the solvency of the issuing bank and its geographic distance from the holder.

Particularly notorious were so-called “wildcat banks,” which operated in remote locations and issued notes that were difficult to redeem. When redemption was attempted, the issuing bank often failed. Economic downturns frequently triggered bank failures and widespread runs, contributing to severe contractions during the Panics of 1837 and 1857.

The Free Banking Era also hampered national financial coordination. The federal government struggled to manage the money supply, stabilize credit markets, and finance major national initiatives. The Civil War exposed these weaknesses dramatically. Although customs duties and land sales had historically provided most federal revenue, they proved insufficient to finance wartime expenditures. Congress responded by creating new revenue sources and a more integrated banking system through the National Banking Acts of 1863 and 1864.[28]

The NBA pursued three principal objectives: creating a national currency, financing the Civil War, and establishing federal bank supervision.[29] It created a uniform national currency backed by U.S. Treasury bonds. By requiring banks to purchase federal bonds in order to issue notes, the Act simultaneously created demand for government debt and helped finance the Union war effort.

The statute also established the national banking system and created the Office of the Comptroller of the Currency (OCC). Nationally chartered banks could engage in the “business of banking” and activities incidental to it. Although the Act neither expressly prohibited commercial activity nor comprehensively defined banking, its narrow conception of permissible banking functions implicitly limited direct participation in commerce.

The NBA identified powers “incidental” to banking that included discounting and negotiating commercial paper, receiving deposits, exchanging foreign currency, dealing in precious metals, making loans secured by personal guarantees, and circulating currency. These restrictions were primarily prudential. By confining banks to financial activities, lawmakers sought to protect depositors and preserve confidence in the banking system.

Congress further strengthened the national banking system through the Internal Revenue Act of 1866, which imposed a 10% tax on notes issued by state-chartered banks. The tax effectively eliminated state-bank notes by making their issuance economically impractical, encouraging banks to join the national system.[30]

The NBA also deftly avoided the central political controversy that had doomed the two Banks of the United States: fears of a powerful national bank closely aligned with the federal government. Rather than creating a centralized financial institution, Congress relied on the existing network of thousands of small banks to circulate the national currency and perform quasi-public functions.

As Hugh McCulloch, the first comptroller of the currency, observed, the new system accomplished the government’s objectives without creating a national bank capable of controlling “the business and politics of the country. It can have no concentrated political power…. It will concentrate in the hands of no privileged persons a monopoly of banking.”[31]

D.   Brandeis, the Money Trust, and Structural Antitrust

The decentralized banking structure established by the National Bank Act persisted well into the post-Civil War era, even as the national economy and federal government expanded dramatically. As Jamie Grischkan observes, the system reflected an implicit political bargain: to alleviate concerns about concentrated financial power, policymakers preserved a banking system composed of thousands of small institutions scattered across the country.

The result was a fragmented banking sector that effectively divided the nation into numerous local banking monopolies.[32] Many towns and rural communities had only one or a handful of commercial banks. To preserve the stability of this system, regulators often shielded banks from competition, even while acknowledging the resulting economic inefficiencies. Supporters justified these restrictions by emphasizing the public-utility characteristics of banking and the political value of maintaining dispersed financial power. As Grischkan explains, “by the dawn of the twentieth century, thousands of national and state unit banks dotted the landscape, a geographically segmented and peculiarly fragmented financial structure that limited competition in the service of democratic ideals.”[33]

These institutional arrangements did not eliminate broader concerns about concentrated economic power. During the Second Industrial Revolution (roughly 1870–1914), rapid industrialization transformed the American economy. Millions of Americans moved from farms to cities, immigration expanded the labor force,[34] and industrial giants such as Standard Oil and U.S. Steel emerged. Large corporations increasingly organized themselves as trusts, allowing a relatively small group of executives and financiers to control multiple firms across industries.

Investment banks played a central role in this transformation. They financed industrial expansion, organized major mergers, and often placed allies on corporate boards. As industrial consolidation accelerated, concerns intensified that a small group of financial institutions exercised excessive influence over both the economy and the political system. Interlocking directorates, concentrated control of credit, and the emergence of large financial conglomerates fueled fears that financial elites could dominate multiple sectors simultaneously.

Louis Brandeis became one of the most prominent critics of this concentration of power. He accused J.P. Morgan and other members of the so-called “Money Trust” of controlling “the life blood of business” through their influence over the flow of money and credit. As Brandeis argued:

Thus four distinct functions, each essential to business, and each exercised, originally, by a distinct set of men, became united in the investment banker. It is to this union of business functions that the existence of the Money Trust is mainly due.[35]

The Panic of 1907 heightened these concerns and helped pave the way for major financial reforms. Triggered by speculation and bank runs, the crisis exposed weaknesses in the American financial system and highlighted the absence of a central bank. In its aftermath, the country relied heavily on a small group of private financiers—most notably Morgan—to coordinate rescue efforts and stabilize markets.[36]

Morgan’s intervention may have prevented a broader collapse, but it also reinforced fears about concentrated financial power. Many observers found it troubling that a handful of Wall Street financiers could exercise quasi-central-bank authority over the nation’s financial system without democratic accountability.[37]

Those concerns culminated in the House of Representatives’ 1912 investigation of the Money Trust. Conducted by a subcommittee of the House Committee on Banking and Currency chaired by Rep. Arsène Pujo (D-La.), the inquiry documented the extent to which major financiers exercised influence through board memberships, underwriting relationships, and concentrated control of credit.[38] The Pujo Committee’s findings strengthened support for the structural antitrust principles championed by Brandeis and other Progressive Era reformers.

Brandeisian antitrust philosophy treated concentrated economic power as inherently dangerous, even absent direct evidence of consumer harm.[39] Preserving decentralized market structures was itself viewed as an important public-policy objective. The concern was not merely economic. Brandeis and other Progressives believed concentrated economic power could corrupt democratic institutions by allowing powerful private interests to shape government policy and obstruct reform.[40]

Subsequent reforms sought to address the structural sources of both financial and industrial concentration. Congress established the Federal Reserve System in 1913 to provide a central bank and reduce reliance on private financiers during periods of financial stress. A year later, Congress created the Federal Trade Commission to police unfair methods of competition and enacted the Clayton Act to strengthen merger enforcement and prohibit interlocking directorates among competing firms.

Although the Clayton Act was not principally concerned with separating banking and commerce, it reflected the same underlying concern that motivated other Progressive Era reforms: limiting the ability of financial elites to coordinate industries and exercise influence across multiple sectors through ownership, governance, and control of credit.

E.    Glass-Steagall and the New Deal Separation Model

The Banking Act of 1933, commonly known as Glass-Steagall, emerged from the banking collapse of the Great Depression. A key precursor was the Senate Banking Committee investigation led by Banking Committee Chief Counsel Ferdinand Pecora in the early 1930s. The Pecora hearings revealed conflicts of interest, insider dealing, and speculative securities practices that heightened concern about exposing depositor-backed institutions to capital-market volatility.[41] Those findings strengthened support for structural reforms, including the separation of commercial and investment banking.[42]

Glass-Steagall also reflected the New Deal’s broader extension of Progressive Era concerns about concentrated economic power, conflicts of interest, and the use of federally supported banks to subsidize speculative or commercial ventures. Policymakers sought to restore trust in banking by rethinking the relationship among finance, risk, and public confidence.

Glass-Steagall separated commercial banking from investment banking and introduced federal deposit insurance through the Federal Deposit Insurance Corporation (FDIC).[43] Commercial banks took deposits and made loans to businesses and households. Investment banks underwrote and sold securities, helping companies raise capital in financial markets. By separating those functions, Glass-Steagall sought to reduce conflicts of interest, limit speculative risk, and better protect depositor funds.[44]

The statute rested on the premise that the best way to reduce risks to the banking system was to separate ordinary banking—deposit-taking and lending—from activities considered riskier, such as securities issuance and trading. By removing deposit-funded institutions from volatile capital markets, Congress sought to reduce conflicts of interest in financial intermediation and align bank profitability more closely with long-term credit quality, loan performance, and interest-margin income rather than speculative securities activity.[45] Glass-Steagall thus represented a deliberate regulatory departure from integrated financial models, reflecting a judgment that integration’s systemic risks outweighed its potential efficiencies.

The special treatment of banks rests on what might be called the deposit-insurance bargain. When Congress created the FDIC and enacted Glass-Steagall, it was responding to mass bank runs and institutional collapses that wiped out depositors’ savings and destabilized the broader economy. Deposit insurance was the solution. But insurance creates moral hazard—the risk that protected institutions will take greater risks because someone else bears part of the loss. For that reason, insured risks must be bounded and manageable.

A bank that accepts federally insured deposits and then uses those funds to finance volatile commercial ventures—airlines, real estate development, or manufacturing, for example—exposes the deposit-insurance fund, and ultimately taxpayers, to losses unrelated to the traditional banking risks the fund was designed to cover. Government-sponsored deposit insurance also creates a powerful subsidy by allowing banks to raise capital more cheaply than ordinary businesses, giving banks a potential competitive advantage over nonbank firms.[46] That subsidy helps justify the regulatory limits that accompany it. Banks that benefit from the public safety net must accept constraints on the risks they take and on their ability to use government-backed privileges for competitive advantage.

At the same time, Glass-Steagall doubled down on the anticompetitive features of the National Bank Act by prohibiting interest on checking accounts and limiting interest rates on other deposits.[47] The Banking Act of 1935 further entrenched banking’s local-monopoly and public-utility structure by requiring the comptroller of the currency to consider the “convenience and needs of the community to be served” before approving a new bank charter.[48]

Regulators protected this inherently fragile system of small, undiversified banks by insulating them from competition, limiting entry, and effectively guaranteeing comfortable year-after-year profits. ^[49] As Prasad Krishnamurthy observes, “It would be difficult to come up with a better example of regulation operating to enforce a cartel than New Deal bank regulation.”[50] That approach did little for consumers or the broader economy.

A few years after Glass-Steagall’s enactment, President Franklin D. Roosevelt articulated the New Deal philosophy the statute embodied.[51] Echoing Brandeis’ earlier critique that the Money Trust had come to control large swaths of the American economy, Roosevelt warned:

Close financial control, through interlocking spheres of influence over channels of investment, and through the use of financial devices like holding companies and strategic minority interests, creates close control of the business policies of enterprises which masquerade as independent units. That heavy hand of integrated financial and management control lies upon large and strategic areas of American industry.[52] [Emphasis added.]

Roosevelt acknowledged that large-scale industry had become central to the modern economy, but he argued that “industrial empire building, unfortunately, has evolved into banker control of industry.” In his view, this concentration threatened “the small business man” and illustrated how unchecked economic power could corrupt democratic institutions. Roosevelt also invoked the specter of fascism, warning that concentrated private power could become a threat not only to competition, but to constitutional government.[53]

F.    The BHCA and Structural Separation

From the late 1940s through the 1960s, both commercial enterprises and financial institutions expanded significantly in size and complexity. At the same time, increasingly sophisticated corporate structures emerged, particularly bank holding companies. These organizations allowed firms to maintain the formal appearance of separate unit banks while controlling multiple financial institutions through parent companies that often operated beyond the full reach of existing regulatory frameworks.

Policymakers viewed these developments with growing concern. Influenced by New Deal traditions of trust-busting and longstanding skepticism of concentrated economic power, legislators and regulators worried about the implications of large financial-industrial conglomerates for competition, financial stability, and democratic governance. The broader Cold War environment reinforced those concerns. Excessive concentrations of private economic power were sometimes viewed as inconsistent with the decentralized and competitive form of capitalism the United States sought to distinguish from centrally planned economies.[54]

Transamerica Corp. became the most prominent example of these concerns.[55] Through a complex network of subsidiaries, Transamerica controlled Bank of America and dozens of other banks operating hundreds of offices. It also held substantial interests in insurance and a wide range of commercial enterprises, including a movie studio, record company, airline, car-rental company, manufacturing businesses, title-insurance firms, and consumer-finance companies.

To many policymakers, structures like Transamerica suggested the possibility of private financial empires capable of exercising nationwide influence over the allocation of credit. Yet the concerns were largely prospective rather than reactive. Congressional investigations uncovered little evidence of actual abuse by Transamerica or other firms.[56]

Even so, legislators worried that financial conglomerates could direct credit toward affiliated businesses, disadvantage independent competitors, and use depositor-backed institutions to support weaker firms within their corporate networks. These concerns exposed an important gap in the existing regulatory framework. While statutes such as Glass-Steagall regulated the activities of individual banks, they did not adequately constrain the activities of parent companies controlling multiple nominally independent institutions. Firms could comply with restrictions imposed on banks while effectively integrating banking and commerce at the corporate-group level.

Congress responded by enacting the Bank Holding Company Act (BHCA) of 1956.[57] As Mehrsa Baradaran observes, “Notably, the BHCA was a reaction to a perceived threat that had not yet materialized.”[58] The statute represented the high-water mark of structural separation in American banking law. It extended regulatory oversight beyond individual banks to the holding companies that controlled them and generally prohibited bank holding companies from engaging in nonfinancial commercial activities.

By doing so, it sought to prevent commercial firms from controlling banks and to limit the ability of banking organizations to expand into commercial industries.[59] More broadly, it reflected a policy objective of keeping credit allocation independent, competitive, and insulated from conflicts of interest. The statute also represented an early attempt to combat regulatory arbitrage by regulating entire corporate groups rather than individual legal entities.

Viewed in hindsight, however, the BHCA also marked the point at which the logic of structural separation began colliding with broader technological and economic trends. Advances in computing, telecommunications, and information processing increasingly made centralized and nationwide delivery of financial services both feasible and efficient.[60] The regulatory framework, by contrast, remained rooted in assumptions developed during an era of local banking markets and geographic isolation.

At times, efforts to fit new technologies into existing regulations bordered on the absurd. For example, geographic branching restrictions once led regulators to classify automated teller machines (ATMs) as bank “branches” subject to location-based limits.[61] Such outcomes reflected the growing difficulty of preserving a regulatory system designed for a radically different technological environment.

Banks continued to innovate around these constraints. As one commentator observed in 1983 regarding geographic restrictions on banking competition, “[T]hese statutory prohibitions merely hobble banking organizations in their ability to compete rather than prevent that competition.”[62]

By the latter half of the 20th century, the core assumptions underlying structural separation increasingly faced pressure from technological change, evolving consumer demands, and the growing integration of national markets. The following decades would witness a gradual but persistent erosion of many of the restrictions that had defined American banking law since the New Deal.

III.   How the Separation of Banking and Commerce Unraveled

In the decades following the BHCA, the costs of America’s fragmented banking system became increasingly apparent. During the 1960s and 1970s, the United States experienced slow economic growth, high inflation, repeated recessions, and declining international competitiveness. The simultaneous combination of high inflation, high unemployment, and sluggish growth became known as “stagflation”—a phenomenon many economists had previously believed impossible.[63]

At the same time, the United States faced growing competitive pressure from Europe and Japan, rising costs associated with maintaining the postwar welfare state, and the economic demands of the Cold War.[64] Together, these challenges increased pressure on policymakers to promote economic growth, productivity, innovation, and competition. Across a wide range of industries, regulators and economists began reexamining rules that limited competition and protected incumbent firms.

Beginning under President Gerald Ford and accelerating under President Jimmy Carter, Congress and federal regulators dismantled anticompetitive regulatory structures in industries ranging from airlines and trucking to telecommunications and energy. Financial regulation did not escape this scrutiny. Beginning with the Depository Institutions Deregulation and Monetary Control Act of 1980, Congress enacted a series of reforms intended to modernize banking, increase competition, expand financial inclusion, and encourage innovation.[65] The era of protected local banking monopolies and “bankers’ hours” was coming to an end.

This broader shift in thinking also transformed views about the separation of banking and commerce. As Bernard Shull observed, barriers to competition combined with government subsidies such as deposit insurance created concerns that banks could enjoy unfair advantages when competing against nonbank firms.[66] Reducing those barriers and privileges therefore became an important precondition for allowing greater competition between banking and commercial enterprises.

Meanwhile, the practical distinction between banking and commerce was steadily eroding. Although the legal separation remained formally intact, technological change, financial innovation, regulatory exceptions, and evolving consumer preferences increasingly blurred the line between financial and commercial activity. By the early 1980s, the separation doctrine was already under significant pressure from both economic reality and regulatory practice.

A.             Deregulation and Competition

One source of pressure came from changing views about competition and regulation. During much of the 20th century, banking regulation reflected assumptions similar to those that guided antitrust policy.[67] Policymakers often sought to preserve competition by preserving competitors—favoring large numbers of small firms and viewing consolidation with suspicion. In banking, this approach produced extensive restrictions on branching, interstate banking, interest rates, and entry.

By the 1970s and 1980s, those assumptions increasingly came under challenge.[68] Empirical research found little consistent relationship between market structure and competitive outcomes.[69] Economists also recognized that many firms gained market share not through anticompetitive conduct, but by innovating and offering consumers better products at lower prices. Large firms were not necessarily less competitive than small firms; in many cases, economies of scale and scope allowed them to deliver substantial benefits to consumers.

At the same time, economists increasingly recognized that complex regulatory systems often empowered organized interest groups rather than protecting consumers.[70] Banking regulations that purportedly protected competition frequently insulated incumbent institutions from competitive pressure. Geographic restrictions, entry barriers, and limits on product offerings reduced incentives to innovate and often increased costs for consumers.[71]

These changing ideas influenced banking policy. First intrastate branching and later interstate banking gained support as tools to increase competition, reduce local monopolies, improve service quality, and expand access to financial services. Larger banking organizations could exploit economies of scale, invest in new technologies, and spread risks across broader geographic markets. Increased competition also weakened discriminatory practices that had persisted under less competitive regulatory regimes.

The result was a gradual but important shift away from the assumption that decentralized banking structures were inherently superior. Increasingly, policymakers viewed competition, innovation, and consumer welfare—not simply the preservation of small institutions—as the primary objectives of financial regulation.

B.             The Wall Becomes Porous

Even as the legal separation of banking and commerce remained on the books, the boundary between the two became increasingly difficult to maintain in practice. Although policymakers frequently described separation as a foundational principle of American banking law, the wall was never absolute. Over time, Congress, regulators, and market participants created numerous exceptions that weakened the conceptual clarity of the distinction.

One source of erosion came from statutory and regulatory carve-outs. Although the BHCA prohibited bank holding companies from engaging in general commercial activities, it permitted activities deemed “closely related to banking.” Over time, that category expanded substantially through regulatory interpretation and legislative amendment.[72] Financial institutions increasingly participated in data processing, leasing, insurance, securities activities, real-estate services, and other businesses possessing both commercial and financial characteristics. These developments demonstrated that the distinction between banking and commerce depended less on clear economic principles than on evolving regulatory judgments.

Alternative charters created additional exceptions. Savings and loan associations, industrial loan companies (ILCs), credit-card banks, and certain trust companies operated outside portions of the traditional bank-holding-company framework.[73] Commercial firms could therefore obtain limited banking powers indirectly, creating competitive asymmetries in which traditional banks remained constrained by separation rules while newer entrants exploited regulatory gaps to offer bank-like products and services.[74]

Perhaps the most striking example was Sears, Roebuck and Co. Founded as a mail-order retailer, Sears gradually expanded into consumer finance. By the 1970s and 1980s, it had become the nation’s largest credit-card issuer, far surpassing any individual bank.[75] Sears owned Allstate Insurance, Dean Witter Reynolds, and Coldwell Banker. In 1985, it launched the Discover Card and built a payment network capable of competing with Visa, Mastercard, and American Express.

At that point, Sears was arguably as much a financial institution attached to a retail chain as a retailer offering credit.[76] Yet Sears never qualified as a bank holding company. When it acquired Greenwood Trust Co. in 1985 to support Discover, it stripped the bank of its commercial-lending authority specifically to avoid BHCA classification.[77]

Sears was hardly unique. JCPenney, Target, Nordstrom, and other retailers developed substantial financial-services operations while remaining outside the traditional banking framework. Today, the trend has accelerated. Apple Pay, PayPal, Amazon, Starbucks, Target, Kroger, and numerous other firms now provide payment services, prepaid products, digital wallets, and other financial offerings that would have seemed remarkably bank-like only a few decades ago.

Starbucks provides a particularly revealing example. At the end of fiscal year 2025, the company reported approximately $1.8 billion in stored-value card liabilities and deferred revenue associated with prepaid balances held through gift cards and mobile-app accounts.[78] These consumer funds function in many respects like deposits, yet they remain outside the traditional banking system and are not protected by FDIC insurance.

The persistence of these business models reflects strong consumer demand for integrated financial and commercial services. Consumers value convenience, one-stop shopping, rewards programs, and seamless payment experiences. Commercial firms consistently sought to expand into financial services because doing so created value for both businesses and consumers.

As a result, Congress and regulators found themselves engaged in a recurring cycle of patching gaps in an increasingly outdated regulatory framework. While regulators could generally prevent banks from offering certain commercial services, they found it far more difficult to prevent commercial firms from offering financial services. The wall thus became increasingly asymmetric. Banks remained subject to restrictions on commercial activity, while commercial firms gained growing access to financial services through exceptions, partnerships, and alternative organizational forms.

The erosion extended beyond retail payments and consumer finance. Industrial loan companies, credit-card banks, and various fintech partnerships gained access to FDIC insurance despite operating outside the traditional bank-holding-company structure.[79] Many fintech firms now provide customers with pass-through deposit insurance through “for benefit of” account arrangements maintained at partner banks.[80] These developments demonstrate that commercially affiliated firms and technology platforms already participate extensively in the federally insured banking ecosystem.

The debate today is therefore not whether banking and commerce should interact. They already do. The more relevant question is where regulatory boundaries should be drawn and what safeguards are necessary to manage the risks of integration. Longstanding exceptions demonstrate that policymakers have repeatedly tolerated varying degrees of integration when supervision, capital requirements, activity restrictions, or other safeguards were deemed sufficient to manage risk.[81]

C.             Benefits of Allowing Greater Integration

The persistence of integrated financial and commercial services reflects more than regulatory arbitrage. It also reflects substantial consumer demand. Consumers increasingly value products that combine shopping, payments, credit, rewards programs, and financial management into a single, convenient experience. Allowing greater integration of banking and commerce can increase competition, expand consumer choice, generate economies of scale and scope, improve risk assessment, encourage innovation, and promote financial inclusion.

The most obvious benefit is increased competition. Allowing banks to offer certain commercial services, and allowing commercial firms to offer financial services subject to appropriate safeguards, can put competitive pressure on incumbents in both markets. Greater competition can lower prices, improve quality, expand consumer choice, and encourage firms to develop more useful products.

Integration can also create informational efficiencies. A clearer picture of a consumer’s payment patterns, purchasing behavior, and financial condition can help firms improve fraud detection, assess credit risk more accurately, design better products, and offer more relevant discounts or rewards. Consumers already experience some of these benefits when banks flag unusual transactions that depart from established spending patterns. Integrating financial and commercial information, even for only a portion of a consumer’s purchases, can provide richer information that improves security and responsiveness.

Those same information flows can support more useful consumer products. For example, using a credit card to book a flight can generate information that helps market hotel rooms, rental cars, dining options, and other travel-related services. If a bank could invest in or create a subsidiary offering some of those services, it might provide consumers with additional discounts, loyalty rewards, and convenience. Properly structured, those arrangements could lower prices while making financial and commercial services easier to use.

The same logic applies to sports and entertainment. Financial institutions already hold naming rights for many arenas and stadiums.[82] Allowing banks to sell tickets to concerts and sporting events through branches or online platforms could increase convenience and give consumers alternatives to high-fee ticketing intermediaries. Yet such activity could run afoul of the BHCA despite the apparent benefits to consumers and competition.

More broadly, allowing financial services to be distributed through retail channels could offer consumers longer service hours, more convenient locations, integrated rewards, easier dispute resolution, and one-stop shopping. Shared infrastructure—including branches or stores, information-technology systems, marketing, advertising, and customer service—can reduce costs and streamline delivery. The core regulatory question is how to protect insured deposits if an affiliated commercial business fails. But prohibiting banks from offering these services outright creates its own risk by steering consumers toward nonbank providers that face fewer restrictions while offering bank-like services.

Walmart’s experience illustrates the potential consumer benefits of greater integration.[83] For more than a decade, Walmart unsuccessfully sought a financial-services charter, first as a thrift holding company and later as an industrial loan company.[84] Blocked from offering a full range of financial services, Walmart nevertheless developed Money Centers that provide check cashing, money orders, remittances, wire transfers, and other products.

Where Walmart competes in these markets, its prices have often been substantially lower than those charged by incumbent providers, forcing competitors to cut prices in response.[85] Walmart’s success in lowering prices and expanding access suggests that entry by other large retailers or technology firms, such as Amazon, could further improve quality, reduce costs, and expand consumer choice. The same logic could also allow banks to offer more convenient in-person or online shopping experiences when appropriate safeguards are in place.

Integration may also improve short-term liquidity and reduce avoidable consumer harm. A retailer with visibility into a consumer’s financial condition may be able to distinguish between a consumer who cannot pay and one whose funds will arrive shortly. Rather than triggering an overdraft, declined transaction, or missed purchase, an integrated provider could allow a consumer to complete a purchase or repair a car based on reasonable confidence that funds will soon be available. Used responsibly, that kind of information can support better credit decisions and more humane consumer-finance products.

These benefits do not eliminate legitimate regulatory concerns. Integration can create risks involving conflicts of interest, tying, data misuse, excessive concentration, and losses that might threaten insured deposits. But those concerns do not necessarily justify categorical separation. The better question is whether regulators can address specific risks through supervision, capital requirements, activity restrictions, affiliate-transaction rules, consumer-protection enforcement, and other targeted safeguards while preserving the benefits that integration can offer consumers and the economy.

D.            Technology Changes the Economics of Integration

Technological developments further weakened the traditional distinction between banking and commerce. Historically, banks operated primarily as localized institutions that accepted deposits, made loans, and processed payments within geographically constrained markets. By the late 20th century, advances in telecommunications, electronic payments, computing, and data processing increasingly transformed finance into an information business.

Automated teller machines (ATMs), electronic funds-transfer (EFT) systems, national credit-card networks, computerized underwriting, and digital communications reduced the importance of geographic and institutional barriers. Commercial firms with large customer networks and sophisticated data capabilities increasingly possessed competencies once associated primarily with financial institutions. Retailers, telecommunications companies, and technology firms began offering payment services, consumer credit, and other financial products.[86] Even when these firms were not legally classified as banks, they increasingly performed functions traditionally associated with banking.

This functional convergence weakened the logic of regulating institutions solely based on charter type. A commercial firm could influence access to credit, consumer payments, and financial data flows without technically becoming a bank. As a result, formal legal distinctions increasingly diverged from economic reality.

The growth of securitization and capital markets further blurred traditional boundaries. Historically, banks served as the primary intermediaries between savers and borrowers. By the 1980s, however, a growing share of financial intermediation occurred through securities markets rather than bank balance sheets. Large corporations increasingly obtained financing directly through bond and equity markets, while nonbank financial firms replicated many traditional banking functions.[87]

These developments exposed a deeper conceptual problem. If commerce and finance were already intertwined through technology, data, payments, and capital markets, maintaining a rigid institutional separation became harder to justify on functional grounds. Critics increasingly argued that banking law was preserving categories developed for an earlier industrial economy characterized by localized banking, paper transactions, and geographically constrained markets.[88] In an increasingly digital and service-oriented economy, information, payments, and credit flowed across sectors in ways that made the traditional boundary appear increasingly artificial.

Defenders of separation responded that technological change strengthened rather than weakened the case for safeguards. They feared that commercial firms with extensive consumer data, powerful distribution networks, and substantial market power could use affiliated financial operations to entrench dominance, allocate credit preferentially, or extend economic concentration into the financial system.[89] In their view, technological convergence did not eliminate the concerns underlying separation; it merely transformed them. Questions of local credit monopolies increasingly gave way to concerns about data control, platform dominance, network effects, and systemic risk.

Those concerns remain relevant today. The rise of platform economies, embedded finance, fintech partnerships, digital wallets, and technology firms offering payments and lending services has further accelerated the convergence of commerce and finance. The challenge for policymakers is no longer simply whether banking and commerce should interact, but whether existing legal and supervisory frameworks remain capable of governing increasingly integrated financial ecosystems.

E.              Interstate Banking and Increased Competition

The original rationale for structural separation depended heavily on localized banking markets characterized by limited competition. Throughout much of the 19th and early 20th centuries, restrictions on branching, interstate banking, and mergers fragmented financial markets and often left communities served by only a handful of institutions. In such environments, control over credit could translate directly into local economic power. Policymakers therefore frequently viewed institutional size itself as inherently suspect.

At the same time, views about competition policy were changing. Just as economists increasingly criticized anticompetitive regulation as a drag on economic growth, they also challenged traditional antitrust assumptions that equated market concentration with reduced competition.[90] Earlier approaches to antitrust and banking regulation shared a common objective: preserving competition by preserving competitors. Both often favored large numbers of small firms and viewed consolidation with suspicion.[91]

By the 1970s and 1980s, however, a growing body of empirical research found only a limited relationship between market structure and competitive outcomes. Economists increasingly recognized that firms often gained market share not through anticompetitive conduct, but by innovating and offering consumers better products at lower prices. In many industries, larger firms generated substantial efficiencies that benefited consumers through lower costs, improved quality, and expanded output.

Scholars also increasingly recognized that complex systems of regulation and antitrust enforcement could empower organized interest groups rather than consumers. Rather than protecting competition, regulatory barriers often protected incumbent firms from competitive pressure.

These developments influenced banking policy. Restrictions on branching and interstate banking increasingly came to be viewed as barriers to competition that preserved local monopolies and raised costs for consumers. Larger banking organizations could exploit economies of scale, diversify risks across broader geographic markets, and invest in technologies that smaller institutions often could not afford.[92]

Interstate banking ultimately transformed the competitive landscape. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permitted banks to operate across state lines and accelerated nationwide competition among financial institutions.[93] Although the legislation contributed to consolidation, it also increased competitive pressure by allowing banks to enter markets previously protected by geographic barriers.[94]

As interstate banking expanded, consumers and businesses increasingly gained access to financial services beyond their local communities.[95] National institutions frequently challenged entrenched regional monopolies by introducing broader product offerings, lower transaction costs, and new sources of capital. The relationship between size and market power became more complicated than earlier policymakers had assumed. In many cases, technological scale increased competition by enabling firms to serve broader markets and compete against locally entrenched institutions.

The rise of fintech firms further accelerated this transformation. Many fintech lenders use digital distribution channels, alternative underwriting models, real-time data analytics, and lower-cost operating structures to serve consumers and small businesses historically underserved by traditional financial institutions. In many rural communities and lower-income urban areas, traditional banks reduced branch presence, tightened underwriting standards, or exited certain markets altogether due to profitability constraints and rising compliance costs.[96] Fintech firms increasingly filled portions of that gap.

These developments suggest that technological scale and platform-based financial intermediation can, in some circumstances, expand competition and increase access to financial services rather than diminish them. Digital lenders can originate loans nationally without maintaining expensive branch networks, while alternative underwriting models based on cash-flow data, payroll information, transaction histories, and other nontraditional indicators may allow firms to serve borrowers overlooked by conventional credit-scoring systems.

None of this eliminates concerns about concentration of economic power. It changes the form those concerns take. Earlier policymakers worried about geographically dominant banks controlling local credit markets. Modern concerns increasingly focus on platform dominance, control over financial and behavioral data, network effects, and the ability of large technology ecosystems to intermediate both commerce and finance simultaneously.

The modern challenge is therefore not determining whether scale is inherently good or bad. It is determining when scale promotes competition, innovation, and financial inclusion, and when it instead facilitates exclusionary conduct, dependency, or excessive concentrations of informational and economic power.

F.              Financial Modernization and Gramm-Leach-Bliley

By the 1970s and through the 1990s, inflation, globalization, technological innovation, and the growth of capital markets placed increasing pressure on the segmented financial system established by Glass-Steagall. Financial institutions argued that strict separation among commercial banking, investment banking, and insurance placed American firms at a competitive disadvantage relative to universal banks operating in Europe and Asia.[97]

At the same time, financial innovation transformed the traditional role of banks. Large corporations increasingly obtained funding directly through securities markets rather than relying on bank loans. Securitization, derivatives, and institutional investment reduced the dominance of traditional deposit-based intermediation.[98] As these developments accelerated, banks increasingly sought to expand into underwriting, insurance, asset management, and other fee-based businesses, creating growing tension between existing regulatory structures and evolving market realities.

The culmination of these pressures came with the Gramm-Leach-Bliley Act of 1999.[99] The legislation relaxed longstanding restrictions on affiliations among commercial banks, securities firms, and insurance companies, effectively dismantling core components of Glass-Steagall’s separation framework. Although Gramm-Leach-Bliley preserved the formal distinction between banking and general commerce, it reflected a broader shift away from rigid structural barriers and toward functional supervision, risk management, and consolidated oversight.

The legislation reflected a growing consensus that financial integration could generate efficiencies, improve international competitiveness, and better align regulation with modern market realities. By the end of the 20th century, policymakers increasingly viewed many New Deal-era restrictions as impediments to innovation rather than essential safeguards against instability.

Recent developments in digital assets and stablecoins suggest how a similar approach might apply to the banking-and-commerce debate. The GENIUS Act, which President Donald Trump signed into law in July 2025, generally requires stablecoin activities to be conducted through separately capitalized subsidiaries supported by dedicated reserves.[100] This approach seeks to isolate risks to the banking system while still allowing consumers to access new products through established financial institutions.[101]

That model offers a potential framework for expanding permissible banking activities more broadly. Consumers interested in stablecoins or other digital assets may prefer obtaining them through existing banking relationships rather than navigating unfamiliar platforms. At the same time, conducting those activities through separately regulated subsidiaries can protect insured deposits and limit risks to the FDIC insurance fund.

More broadly, the GENIUS Act reflects a regulatory philosophy that seeks to manage risks through targeted safeguards rather than categorical prohibitions. Rather than preventing integration altogether, policymakers can require organizational structures, capital protections, and supervisory controls that isolate risks while preserving the benefits of innovation and consumer choice.

G.            Industrial Loan Companies and Regulatory Arbitrage

One of the clearest illustrations of the erosion of traditional banking-and-commerce barriers is the rise of industrial loan companies. Although ILCs originated as specialized institutions designed to extend credit to industrial workers, they gradually evolved into one of the most significant exceptions to the separation framework.

Under federal law, qualifying parent companies that own industrial loan companies are generally exempt from key provisions of the BHCA. As a result, commercial firms owning industrial loan companies are not treated as bank holding companies and therefore avoid consolidated Federal Reserve supervision and many of the restrictions ordinarily imposed on commercial ownership of insured depository institutions.[102]

This exemption has allowed major commercial and technology firms to gain access to the federal banking system without fully entering the traditional bank-regulatory framework. Automobile manufacturers such as BMW, Toyota, and General Motors have used industrial-loan-company charters to support captive-finance operations.[103] More recently, technology and fintech firms, including Block and Rakuten, have pursued industrial-loan-company charters to facilitate integrated payment, lending, and platform-based financial services.[104]

Walmart’s attempt to obtain an industrial-loan-company charter during the mid-2000s became a focal point in the broader debate. Critics warned that permitting a major retailer to own an insured depository institution would undermine the traditional separation of banking and commerce. Supporters countered that Walmart’s entry could increase competition and expand access to lower-cost financial services.[105]

The industrial-loan-company experience highlights both the potential benefits and the practical realities of integration. Captive-finance institutions often possess substantial informational advantages regarding the products they finance and the customers they serve. Automobile manufacturers, for example, may have better information about resale values, maintenance costs, and borrower behavior than traditional lenders. These advantages can translate into lower borrowing costs and more efficient underwriting for consumers.

Consumers also benefit from one-stop shopping and integrated offerings that combine financing, warranties, insurance, and related services. Such arrangements can reduce transaction costs, improve convenience, and create opportunities for more tailored products.

Perhaps most importantly, the historical performance of commercially owned industrial loan companies challenges many traditional assumptions about the dangers of combining banking and commerce.[106] Despite decades of concern that commercial ownership would threaten safety and soundness, no commercially owned ILC has ever failed in a manner that imposed losses on the FDIC insurance fund.[107] On average, industrial loan companies have generally maintained stronger capital positions and higher profitability than many traditional banks.[108]

As Mehrsa Baradaran observed shortly after the 2008 financial crisis, “it is… probable that if Wal-Mart had opened a bank in 2005, its bank today would be one of the safest in the country. In contrast to small and large traditional banks that failed by the hundreds, a bank backed by the retail behemoth would most likely have thrived.”[109]

The broader lesson of the ILC experience is that structural restrictions often prove easier to circumvent than to enforce. Even when statutes seek to maintain a formal separation between banking and commerce, firms frequently respond by adopting organizational structures that replicate many of the same economic relationships while avoiding the full application of bank-holding-company regulation.

As a result, many commercial and technology platforms now participate extensively in financial services through charter ownership, embedded-finance arrangements, payments ecosystems, and bank partnerships. The practical question is no longer whether commerce and finance can be integrated. It is whether existing regulatory frameworks are designed to supervise that integration effectively.

H.            Embedded Finance and Platform Ecosystems

Technological innovation has accelerated the convergence of commerce and finance through embedded finance and platform-based ecosystems. Consumers increasingly access payments, lending, savings, and financial-management tools directly through e-commerce platforms, software applications, and digital marketplaces rather than through traditional banks.

These developments create significant opportunities for consumers. Integrating financial services into existing commercial platforms can increase convenience, reduce transaction costs, improve product customization, and strengthen competition. Consumers increasingly value seamless experiences that combine shopping, payments, credit, rewards programs, and financial management within a single platform.

The benefits extend beyond convenience. Financial and commercial integration can improve fraud detection, enhance risk management, and enable more personalized products and services. Information about purchasing patterns, payment behavior, and consumer preferences can help firms better identify suspicious transactions, tailor products to individual consumers, and reduce operational costs.

These efficiencies are not merely theoretical. Consumers already experience many of them through integrated payment systems, retailer-issued credit products, digital wallets, loyalty programs, and platform-based financial services. Embedded finance represents a natural extension of those existing trends.

At the same time, integration creates new regulatory challenges. Critics argue that combining commercial and financial activities may allow firms to accumulate unprecedented amounts of consumer information. Platform operators may be able to combine transaction data, purchasing histories, location information, online activity, communications, and other behavioral information to develop highly detailed consumer profiles.[110]

Some observers worry that these capabilities could facilitate unfair discrimination, exclusionary conduct, or highly individualized pricing practices sometimes described as “surveillance pricing.” Others raise concerns about platform dominance, data concentration, and the potential for large firms to leverage financial services to reinforce market power in adjacent markets.

These concerns deserve serious attention. Yet they differ substantially from the concerns that originally motivated the separation of banking and commerce. Earlier policymakers worried primarily about local credit monopolies, interlocking directorates, and the concentration of industrial and financial power. Today’s concerns center on data governance, privacy, platform economics, and digital market power.

To the extent these risks materialize, they can often be addressed more effectively through targeted enforcement of competition law, consumer-protection law, privacy rules, and prudential regulation than through categorical prohibitions on integration. The costs of broad structural restrictions are increasingly difficult to justify when less restrictive alternatives are available.[111]

As George Benston argued in criticizing the Bank Holding Company Act framework, absent evidence of coercion or monopolistic tying, a “consumer cannot be made worse off by having an opportunity to purchase things together.”[112] Whether one ultimately agrees with that conclusion, it reflects a broader shift in regulatory thinking away from prohibiting integration outright and toward addressing specific harms directly.

I.      Banking-as-a-Service and Functional Integration

Banking-as-a-service (BaaS) arrangements represent perhaps the clearest example of the growing disconnect between formal legal categories and economic reality. Under these arrangements, regulated banks provide charters, compliance infrastructure, payment-system access, and balance-sheet capacity, while fintech firms manage product design, branding, customer acquisition, and user experience.[113]

From the consumer’s perspective, the fintech platform often appears to be the primary provider of financial services. Legally, however, the underlying banking functions remain housed within a regulated bank. The result is a form of functional integration that resembles many of the economic relationships historically associated with banking and commerce, even though ownership-based restrictions technically remain intact.

Rather than obtaining bank charters and becoming subject to comprehensive prudential supervision, fintech firms increasingly partner with regulated banks while retaining substantial influence over customer relationships, product design, and economic value creation. These arrangements allow firms to participate extensively in financial services without becoming banks in the traditional sense.

As a result, the risks associated with banking-commerce integration are not eliminated. They are simply reorganized through contractual relationships rather than common ownership. The economic substance of integration remains, even when the legal form differs.

This dynamic highlights a broader challenge confronting modern financial regulation. Statutory frameworks built around institutional form increasingly struggle to govern financial systems characterized by functional integration, platform economics, data-driven services, and technological interdependence. The law often regulates entities based on what they are formally classified as rather than what they actually do.

The growth of banking-as-a-service arrangements also illustrates an important asymmetry in the current regulatory framework. Nonbank firms can increasingly combine commercial activities and financial services through partnerships, platforms, and contractual relationships. Banks, by contrast, remain subject to significant restrictions on their ability to engage directly in many commercial activities.

The result is a one-way integration model. Commerce increasingly enters banking, while banking remains constrained in its ability to enter commerce. This asymmetry raises difficult questions about competitive neutrality, consumer welfare, and regulatory coherence. If policymakers conclude that integrated financial ecosystems pose unacceptable risks, then many contemporary business models would appear difficult to justify. If, instead, those risks can be managed through supervision, capital requirements, activity restrictions, affiliate-transaction rules, and other safeguards, then the rationale for maintaining broad structural prohibitions becomes increasingly difficult to sustain.

The emergence of banking-as-a-service, embedded finance, platform ecosystems, and fintech partnerships therefore suggests that the central policy question has changed. The issue is no longer whether banking and commerce should interact. They already do. The question is how best to govern that interaction in a manner that promotes competition, innovation, consumer welfare, and financial stability while addressing the specific risks that integration may create.

IV.   Why Structural Separation No Longer Fits Modern Finance

Many of the original rationales for separating banking and commerce reflected legitimate historical concerns rooted in the economic and institutional realities of the 19th and early 20th centuries. Policymakers faced a fragmented banking system marked by localized monopolies, limited competition, high government-created entry barriers, weak prudential oversight, recurring financial panics, and widespread distrust of concentrated economic power. In that environment, combining control over credit with commercial enterprises raised real risks. Banks that dominated local markets could direct credit toward affiliates, suppress competitors, distort capital allocation, and extend the influence of powerful industrial or financial interests across regional economies. Structural separation therefore emerged not merely as a technical banking rule, but as part of a broader political and economic effort to preserve decentralized markets, protect democratic governance, and limit excessive concentrations of private power.

Banking regulation serves four core purposes: financial stability, protection of the Federal Deposit Insurance Fund, consumer protection, and competition.[114] As discussed above, the historical separation of banking and commerce was justified as necessary to promote financial stability, protect the deposit-insurance fund, and prevent banks from using legal privileges to gain competitive advantages over rivals. But modern regulatory sophistication—enabled in part by emerging technology—points toward allowing greater opportunities for banks to engage in commercial activities, and vice versa, without sacrificing stability. Indeed, greater integration may enhance stability in some circumstances.

Earlier regulatory frameworks operated in an era with comparatively limited supervisory tools and less sophisticated approaches to risk management. Policymakers lacked many of the mechanisms now available to monitor and constrain financial institutions, including consolidated supervision, risk-based capital standards, stress testing, liquidity requirements, affiliate-transaction restrictions, advanced data analytics, and near real-time supervisory reporting. Structural restrictions therefore functioned, in part, as a proxy for supervisory capacity.

Rather than promote competition through rigorous supervision, regulators protected incumbents from competition to preserve stability. Although that approach arguably sustained stability for a significant period, it came at a high cost: higher prices, limited services, exclusion of many Americans from the financial system, and an anticompetitive environment conducive to invidious discrimination.[115] In short, by prioritizing stability through limits on competition, the system served bankers more than consumers or the broader American economy. When regulators lacked the ability to continuously monitor complex financial activity, prohibiting certain forms of integration altogether offered a simpler, more administrable means of containing risk and limiting conflicts of interest.

Technological innovation, evolving competition policy, and changes in financial-market structure have altered many of the assumptions underlying those earlier restrictions. Interstate banking reduced the geographic isolation of local banking markets, while digital financial platforms expanded access to credit beyond traditional branch networks. Consumers and businesses increasingly obtain financial services from a wide range of providers, including fintech firms, payment platforms, private-credit markets, and embedded-finance ecosystems operating across state and national boundaries. As a result, institutional scale no longer necessarily correlates with the localized market dominance that originally concerned policymakers.

Modern competition policy has also moved well beyond the Brandeisian structural assumptions that shaped earlier thinking about banking and other markets. Earlier policymakers often viewed concentration itself as inherently harmful, even absent direct evidence of consumer harm or exclusionary conduct. Contemporary antitrust analysis, by contrast, places greater weight on measurable competitive effects, consumer welfare, prices, innovation, and barriers to entry. In some contexts, larger financial and technological platforms may increase competition by lowering transaction costs, expanding access to underserved markets, and introducing new products or distribution models that smaller institutions cannot efficiently provide.

These developments suggest that policymakers should not evaluate separation as a binary question of whether banking and commerce must remain entirely divided. Instead, they should reassess the historical rationales for separation individually in light of modern market structure, supervisory capabilities, technological integration, and global competition. Some concerns that originally justified structural separation remain relevant, particularly those involving systemic risk, conflicts of interest, and concentrated economic power. Others, however, may be mitigated through modern prudential regulation, diversified financial markets, and changes in how financial services are delivered. The following sections examine how contemporary economic and technological conditions affect several of the principal historical justifications for maintaining strict separation between banking and commerce.

A.             Global Experience Undercuts the Case for Strict Separation

Most advanced economies permit significantly greater integration between banking and commerce than the United States.[116] Universal-banking systems in Europe and Asia allow financial institutions to maintain closer relationships with commercial enterprises while relying on prudential supervision and conduct regulation to manage associated risks. After reviewing the evidence comparing the traditional U.S. system with foreign universal-banking systems, George Benston concluded that universal banking produced significant benefits for consumers and the economy, with few offsetting costs.[117] Overall, he found that allowing banks to diversify their operations reduced, rather than increased, financial-system risk. U.S. experience confirmed that finding: Bank failures during the Great Depression were not caused or worsened by securities activities. Indeed, commercial banks with securities departments or affiliates had significantly lower failure rates than more-specialized banks.

By holding both equity and debt in firms, universal banks may also monitor firm management more effectively. For example, an equity stake may allow a bank to obtain a board seat and gain better insight into a firm’s operations. Universal banks may also be better positioned to resolve conflicts between debt and equity holders during a workout. Moreover, despite the dramatic claims about fascism during the passage of the Bank Holding Company Act, Benston found no evidence that universal banks were more likely than other interests to exert undue political influence, engage in anticompetitive conduct, or otherwise harm consumers. The experience of other countries therefore suggests that greater integration of commerce and finance can produce more efficient and stable economic systems than the traditional U.S. model.

In today’s global economy, capital is mobile and the costs of inefficient regulation are high. That reality has helped drive pressure on U.S. regulators. To be sure, the large number of smaller banks in the United States may limit how much policymakers can infer from foreign experience with universal banking. Commercial enterprises have historically been riskier and more volatile than banks, and smaller banks may be less able than larger, centralized institutions to absorb individual business shocks or broader market-wide disruptions. On the other hand, the failure of smaller banks will generally have more modest effects on overall financial stability and the deposit-insurance fund. And, as Benston notes, while offering services outside the traditional business of banking could increase risk, it could also create diversification opportunities that reduce risk.

Modern prudential regulation is also significantly more sophisticated than earlier regulatory regimes. Congress and the executive branch can further modernize prudential oversight by investing in infrastructure that supports risk-based supervision, including more frequent data collection through application programming interface (API) calls and artificial-intelligence tools that can flag risks not captured by rules-based regulation or ordinary compliance-management systems. Policymakers could also maintain principles-based limits on industry, sector, or overall commercial exposure to blunt the effects of volatility while permitting greater integration.

B.             Safety and Soundness

Another traditional rationale for separation was to protect insured depository institutions from commercial risk. Policymakers feared that combining banking and commerce would expose the public safety net to volatile commercial activities. But capital requirements, liquidity rules, stress testing, affiliate-transaction restrictions, and supervisory oversight now give regulators tools to manage many forms of integrated risk without relying on an inefficient prophylactic rule.

Indeed, excessive structural limits may create their own vulnerabilities by reducing diversification opportunities. Restricting banks to a narrow set of highly correlated financial activities may increase, rather than reduce, systemic fragility—especially as nonbank finance and decentralized finance continue to reshape the financial system in ways that may further disadvantage traditional banks. By contrast, allowing banks to hold broader interests could diversify their operations and provide useful information about firms and industries, helping banks avoid bad loans and manage risk more effectively.

Regulators could also mitigate risk by requiring nonbank activities to be conducted through a separate subsidiary. That structure would help prevent commercial risks from spreading to the insured depository institution and protect the deposit-insurance fund from losses tied to affiliated commercial enterprises. The GENIUS Act offers a useful analogy by requiring stablecoin operations to be conducted through a separate subsidiary.

C.             Credit-Allocation Concerns Are Now Conduct Problems

Historically, policymakers feared that banks controlling commercial enterprises could use government privileges and market power to deny credit to competitors or favor affiliated firms. In highly localized banking markets with limited competition, those concerns were legitimate, if sometimes overstated.[118]

Today, financial markets are far more competitive and diversified. Few commercial enterprises depend on only one or two local banks for financing. Consumers and businesses can often obtain credit from multiple sources, including banks, fintech lenders, private-credit firms, and capital markets. Modern antitrust law also focuses increasingly on conduct rather than structure alone,[119] while prudential supervision gives regulators tools to prevent improper subsidization or discriminatory treatment.

In the current competitive environment, only a handful of very large financial institutions raise even a theoretical possibility of improperly leveraging market power. The vast majority of smaller institutions raise no similar concern. Likewise, the idea that commercial firms could exercise meaningful market power over finance is far less plausible in a market with extensive online options and competition from established bank branches.

Rather than prohibit integration categorically, policymakers could achieve better outcomes by targeting specific anticompetitive conduct, including self-preferencing, discriminatory pricing, and exclusionary platform practices.

D.            Structural Regulation Has Reached Its Limits

The persistence of embedded finance and platform-based intermediation demonstrates the limits of structural regulation in modern markets. The economic incentives for integration remain powerful. When legal restrictions prohibit integration within firms, market participants often recreate functionally similar arrangements through partnerships, contracts, or technological intermediaries.

That workaround dynamic suggests structural separation may no longer effectively constrain integration. Instead, it may simply displace integration into indirect, less transparent arrangements that create different forms of systemic risk. Behavior-based rules and supervisory guidance can better calibrate the permissible level of integration while still serving policymakers’ core objectives.

V. Toward Risk-Based Rules for Integrated Finance

The erosion of structural separation suggests that modern financial regulation should focus less on categorical institutional boundaries and more on the conduct and risks that integrated financial ecosystems create. The point is not to abandon the traditional goals of banking regulation—financial stability, protection of the deposit-insurance fund, consumer protection, and competition—but to pursue them through rules better suited to modern markets.

A.             Regulate Risky Conduct, Not Corporate Form

Rather than prohibit integration outright or draw arbitrary lines around permissible ownership percentages, policymakers should target the specific conduct that threatens competition, consumer welfare, or systemic stability. That includes rules against anticompetitive self-preferencing, transparency requirements, interoperability standards, and limits on discriminatory pricing practices.

An activity-based approach would better reflect how modern finance actually operates. Financial services increasingly move through platforms, partnerships, embedded-finance arrangements, and contractual networks that do not always fit neatly within legacy institutional categories. Rules that follow the activity—and the risk—would be more durable than rules that depend on formal corporate boundaries.

B.             Modernize Bank-Commerce Rules

More broadly, Congress should consider whether the binary separation embodied in the Bank Holding Company Act of 1956 remains the most effective framework for managing bank-commerce risks. Rather than prohibit all commercial activity by banking organizations—and absent a broader transition to a purely activity-based regulatory model—Congress could amend Section 4(k) to permit de minimis commercial activities subject to quantitative limits, enhanced disclosure requirements, and ongoing supervisory oversight.[120]

Recent legislative proposals governing digital assets offer a useful model. They permit limited nonfinancial activities connected to digital-asset operations while preserving core prudential safeguards. A similar approach to bank-commerce integration would maintain the principle of separation while creating narrowly tailored flexibility for innovation, customer convenience, and operational efficiency.

If Congress adopted such a framework, Sections 23A and 23B of the Federal Reserve Act and their implementing regulations under Regulation W should serve as the primary prudential safeguards governing interactions between insured depository institutions and commercial affiliates.[121] Policymakers could modernize Regulation W by expanding the scope of covered transactions, applying arm’s-length requirements to functionally equivalent platform-finance arrangements, establishing tailored exposure criteria or limits for commercial affiliates, and creating safeguards for data sharing and preferential treatment.

Together, these reforms would allow limited commercial integration while preserving the longstanding objective of insulating insured banks from conflicts of interest, excessive risk concentrations, and inappropriate transfers of the federal safety-net subsidy to commercial enterprises.

C.             Make Interoperability the Antidote to Lock-In

Modern platform ecosystems increasingly rely on network effects and closed-loop systems that can limit competition and consumer choice. Regulatory policy should therefore encourage interoperability, data portability, and consumer mobility to prevent digital ecosystems from creating modern forms of economic lock-in.[122]

Interoperability can serve as a nonstructural remedy for competition problems that once might have prompted structural limits. Rather than prohibit integration categorically, policymakers can require integrated platforms to preserve meaningful exit options, reduce switching costs, and prevent dominant firms from using closed systems to entrench their position.

D.            Govern Data Use, Not Data Ownership

The integration of commerce and finance creates unprecedented opportunities for data aggregation and behavioral profiling. Firms operating across multiple economic domains may use financial and commercial data together to shape prices, target offers, or infer consumer preferences.

That development creates substantial opportunities for consumer benefit, but also new risks of consumer harm. Policymakers should therefore develop governance frameworks that encourage efficient and productive uses of consumer data while addressing misuse. An effective framework should focus less on abstract questions of who “owns” data and more on how firms use consumer information, when those uses are permissible, and what safeguards should apply.[123] Much as “anti-truck” or wage-payment laws prevented employers from locking workers into closed economic arrangements, modern data-governance rules can prevent platforms from using information control to lock consumers into financial ecosystems.

As agentic artificial-intelligence tools become common in consumer finance, policymakers should also monitor whether fiduciary or fiduciary-like standards are needed, and how those standards should be defined, tested, and enforced. As more advanced technologies—including quantum computing—reach consumer financial markets, debates over digital public infrastructure will become increasingly relevant.[124]

E.              Match Supervision to Scale and Risk

Any modern framework must recognize the diversity of institutions operating within the financial system. Community banks, regional banks, fintech firms, and global systemically important institutions pose fundamentally different levels and types of risk.

A principles-based framework should therefore rely on proportional regulation calibrated to an institution’s scale, complexity, and systemic significance. Uniform structural prohibitions across all firms risk overregulating smaller institutions, underregulating novel risk channels, and entrenching incumbents that can more easily absorb compliance costs.

F.              Preserve Innovation While Policing Abuse

Financial innovation has generated substantial consumer benefits, including lower transaction costs, expanded access to financial services, and greater convenience. Policymakers should avoid regulatory approaches that unnecessarily suppress innovation or entrench incumbent institutions.

The objective should not be to prevent integration entirely. It should be to ensure that integrated financial ecosystems operate within a framework that preserves competition, transparency, interoperability, consumer choice, and systemic stability.

VI.   Conclusion: Regulating Finance After Separation

The separation of banking and commerce emerged from a distinct historical environment marked by fragmented banking markets, industrial consolidation, limited competition, and deep political distrust of concentrated economic power. In that context, structural separation responded to legitimate concerns about financial stability, market power, and democratic governance.

Technological innovation and evolving market structures have since altered the assumptions underlying those restrictions. Interstate banking increased competition among financial institutions. Embedded finance blurred the distinction between financial and commercial activity. Platform ecosystems now integrate payments, lending, commerce, and data within unified digital environments.

Today, the boundary between banking and commerce has already eroded in functional terms, even where formal legal restrictions remain. Modern financial regulation therefore faces a choice: Policymakers can continue relying on 20th-century structural categories increasingly disconnected from economic reality, or they can adopt a more flexible, principles-based framework focused on conduct, competition, consumer welfare, and systemic risk.

The central challenge is no longer simply preventing banks from entering commerce. It is ensuring that firms exercising bank-like power through digital ecosystems operate under rules that preserve competition, transparency, consumer protection, and systemic stability. The future of banking regulation will depend less on maintaining rigid institutional boundaries than on governing integrated financial ecosystems in a technologically dynamic economy.

[1] Jonathan R. Macey, Geoffrey P. Miller, Richard S. Carnell & Julie Andersen Hill, Banking Law and Regulation (6th ed. 2021); see also Bd. of Governors of the Fed. Reserve Sys., The Federal Safety Net: Banking Reform and Financial Modernization (2003).

[2] Bernard Bailyn, The Ideological Origins of the American Revolution (1967); Gordon S. Wood, The Radicalism of the American Revolution (1993).

[3] McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819); President Andrew Jackson, Veto Message Regarding the Bank of the United States (July 10, 1832), reprinted in 2 Messages and Papers of the Presidents 576 (James D. Richardson ed., 1897) [hereinafter Jackson Veto Message].

[4] Fed. Reserve Bank of Kan. City, Perspectives on 150 Years of Dual Banking (2012).

[5] Fed. Deposit Ins. Corp., 2020 FDIC Community Banking Study (2020).

[6] U.S. Gov’t Accountability Off., GAO-09-216, Financial Regulation: A Framework for Crafting and Assessing Proposals to Modernize the Outdated U.S. Financial Regulatory System (2009); see also U.S. Gov’t Accountability Off., GAO-16-175, Financial Regulation: Complex and Fragmented Structure Could Be Streamlined to Improve Effectiveness (2016).

[7] Cong. Rsch. Serv., R44918, Who Regulates Whom? An Overview of the U.S. Financial Regulatory Framework (2023).

[8] Mark A. Carlson & David C. Wheelock, Branch Banking, Bank Competition, and Financial Stability, 100 Fed. Rsrv. Bank St. Louis Rev. 191 (2018).

[9] Writing in 1977, Arnold Heggestad and John Mingo concluded that nearly every U.S. banking market exhibited “effective monopoly” conditions that raised consumer prices, despite the presence of thousands of banks nationwide. Arnold A. Heggestad & John J. Mingo, The Competitive Condition of U.S. Banking Markets and the Impact of Structural Reform, 32 J. Fin. 649 (1977).

[10] U.S. House of Representatives, Report of the Committee Appointed Pursuant to House Resolutions 429 and 504 to Investigate the Concentration of Control of Money and Credit, H.R. Rep. No. 1593, 62d Cong., 3d Sess. (1913).

[11] Off. of the Comptroller of the Currency, U.S. Dep’t of the Treasury, Financial Technology, https://www.occ.gov/topics/supervision-and-examination/financial-technology/index-financial-technology.html.

[12] Alejandro DePetris, Asheet Iqbal, Chandler Moulton & Marie-Claude Nadeau, What the Embedded-Finance and Banking-as-a-Service Trends Mean for Financial Services, McKinsey & Co. (Mar. 1, 2021).

[13] 12 U.S.C. § 1813(c)(2).

[14] Exec. Order No. 14,405, Integrating Financial Technology Innovation Into Regulatory Frameworks, 91 Fed. Reg. 30,475 (May 22, 2026).

[15] Steve Cocheo, Will the GENIUS Act Revolutionize Banking and Payments? Absolutely. Here’s How, The Fin. Brand (Aug. 12, 2025), https://thefinancialbrand.com/news/payments-trends/new-stablecoin-law-changes-financial-landscape-and-gives-u-s-a-jump-on-europe-191585.

[16] Dan Awrey, The Puzzle of Financial Regulation, in The Oxford Handbook of Financial Regulation 23 (Niamh Moloney, Eilís Ferran & Jennifer Payne eds., 2019).

[17] Arthur E. Wilmarth Jr., Taming the Megabanks: Why We Need a New Glass-Steagall Act (2020).

[18] Bernard Shull, The Separation of Banking and Commerce: Origin, Development, and Implications for Antitrust, 28 Antitrust Bull. 255 (1983).

[19] Jamie Grischkan, Banking and the Antimonopoly Tradition: The Long Road to the Bank Holding Company Act, in Antimonopoly and American Democracy 204, 205 (Daniel A. Crane & William J. Novak eds., 2024).

[20] See Jackson Veto Message, supra note 3.

[21] Andrew Jackson, Veto Message Regarding the Bank of the United States (July 10, 1832), reprinted in The American Presidency Project (Gerhard Peters & John T. Woolley eds., 2023), https://www.presidency.ucsb.edu/node/200893.

[22] During the 19th century, states adopted general incorporation statutes for most corporations, replacing the traditional requirement that legislatures grant special charters. See Henry N. Butler, Nineteenth-Century Jurisdictional Competition in the Granting of Corporate Privileges, 14 J. Legal Stud. 129 (1985). Banks generally remained an exception. National banks are also unusual because they are chartered entirely under federal law and lack a state of incorporation.

[23] Charles W. Calomiris & Stephen H. Haber, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit (2014).

[24] Eugene N. White, The Regulation and Reform of the American Banking System, 1900–1929 (1983).

[25] Price v. Fishback, Did Coal Miners “Owe Their Souls to the Company Store”? Theory and Evidence from the Early 1900s, 46 J. Econ. Hist. 1011 (1986).

[26] National Bank Act, ch. 106, 13 Stat. 99 (1864) (codified as amended at 12 U.S.C. §§ 21–216d).

[27] Jane E. Knodell, The Second Bank of the United States: ‘Central’ Banker in an Era of Nation Building, 1816–1836 (2017).

[28] Fed. Reserve Bank of Phila., The National Banking Acts, Fed. Reserve Hist. (2024).

[29] Off. of the Comptroller of the Currency, U.S. Dep’t of the Treasury, History of the OCC & the National Banking System, https://www.occ.gov/about/who-we-are/history/index-history.html.

[30] Internal Revenue Act of 1866, ch. 184, § 9, 14 Stat. 98, 146. The Supreme Court upheld the tax in Veazie Bank v. Fenno, 75 U.S. (8 Wall.) 533 (1869).

[31] Jamie Grischkan, Regulating Bank Mergers: Past and Present, 2024 U. Ill. L. Rev. 557, 563 (quoting Morris Ketchum, The National Banking Law—Opinion of the New Comptroller, N.Y. Times (May 21, 1863)).

[32] Id. at 564; see also id. (“The American banking system thus fostered local bank monopolies in order to prevent the domination of financial resources by massive bank conglomerates.”).

[33] Id. at 565.

[34] Todd J. Zywicki, Looking Forward by Looking Backward: The Future of Consumer Finance and Financial Protection, 19 J.L. Econ. & Pol’y 223 (2024).

[35] Louis D. Brandeis, Other People’s Money and How the Bankers Use It 5–6 (1914). Brandeis argued that investment banks had expanded beyond their traditional role of issuing stocks, bonds, and notes to exercise control over railroad and industrial management, insurance companies, consumer banking, and commercial banks and trusts.

[36] Fed. Reserve Bank of St. Louis, The Panic of 1907, Fed. Reserve Hist., https://www.federalreservehistory.org/essays/panic-of-1907.

[37] Jon R. Moen & Ellis W. Tallman, The Bank Panic of 1907: The Role of Trust Companies, 52 J. Econ. Hist. 611 (1992).

[38] Money Trust Investigation: Investigation of Financial and Monetary Conditions in the United States Under House Resolutions Nos. 429 and 504 Before a Subcomm. of the H. Comm. on Banking and Currency, 62d Cong., 3d Sess. (1913).

[39] Thomas K. McCraw, Prophets of Regulation (1984).

[40] Stanley M. Gorinson, Depository Institution Regulatory Reform in the 1980s: The Issue of Geographic Restrictions, 28 Antitrust Bull. 227, 238 (1983).

[41] Stock Exchange Practices: Hearings Before the S. Comm. on Banking and Currency Pursuant to S. Res. 84, 73d Cong., 1st & 2d Sess. (1933–1934).

[42] Randall S. Kroszner & Raghuram G. Rajan, Is the Glass-Steagall Act Justified? A Study of the U.S. Experience with Universal Banking Before 1933, 84 Am. Econ. Rev. 810 (1994).

[43] George J. Benston, The Separation of Commercial and Investment Banking: The Glass-Steagall Act Revisited and Reconsidered (1990).

[44] Banking Act of 1933, Pub. L. No. 73-66, 48 Stat. 162.

[45] Fed. Deposit Ins. Corp., The First Fifty Years: A History of the FDIC, 1933–1983 (1984).

[46] This competitive advantage is even greater for banks considered “too big to fail,” which benefit from an implicit government subsidy. See Int’l Monetary Fund, IMF Survey: Big Banks Benefit From Government Subsidy (Mar. 31, 2014), https://www.imf.org/en/news/articles/2015/09/28/04/53/sopol033114a.

[47] Prevailing economic theory held that permitting banks to pay interest on deposits would trigger “ruinous competition,” as banks competed for deposits by offering ever-higher rates. To cover those obligations, banks would allegedly need to pursue riskier, higher-yield investments, threatening financial stability. Banks that declined to participate would lose deposits to competitors. Regulation Q therefore capped the interest banks could pay on deposit accounts. Unable to compete on yield, banks famously attracted customers with giveaways such as free toasters and other household appliances.

[48] Ann Fleming, Anti-Competition Regulation, 93 Bus. Hist. Rev. 701, 713–14 (2019).

[49] Todd J. Zywicki, Restoring the Rule of Law in Finance, Heritage Found. First Principles No. 92 (June 2023); see also Eugene N. White, Lessons from the History of Bank Examination and Supervision in the United States, 1863–2008, in Financial Market Regulation in the Wake of Financial Crises: The Historical Experience 25 (Alfredo Gigliobianco & Gianni Toniolo eds., 2009).

[50] Prasad Krishnamurthy, George Stigler on His Head: The Consequences of Restrictions on Competition in (Bank) Regulation, 35 Yale J. on Regul. 823, 837 (2018).

[51] President Franklin D. Roosevelt, Message to Congress on Curbing Monopolies (Apr. 29, 1938).

[52] Id.

[53] Id.

[54] Sponsors of the legislation also invoked the threat of fascism, arguing that close, interlocking relationships among large corporations, banks, and government could undermine democratic governance. See Grischkan, Banking and the Antimonopoly Tradition, supra note 19, at 205.

[55] Grischkan, Regulating Bank Mergers, supra note 31, at 569–77.

[56] Thomas E. Wilson, Separation Between Banking and Commerce Under the Bank Holding Company Act—A Statutory Objective Under Attack, 33 Cath. U. L. Rev. 163, 166 (1983).

[57] Saule T. Omarova & Margaret E. Tahyar, That Which We Call a Bank: Revisiting the History of Bank Holding Company Regulation in the United States, 31 Rev. Banking & Fin. L. 113 (2011–2012).

[58] Mehrsa Baradaran, Reconsidering the Separation of Banking and Commerce, 80 Geo. Wash. L. Rev. 385 (2012); see also George J. Benston, Universal Banking, 8 J. Econ. Persps. 121 (1994).

[59] S. Rep. No. 89-1179, at 7 (1966).

[60] Zywicki, Looking Forward by Looking Backward, supra note 34.

[61] Gorinson, supra note 40, at 236.

[62] Gorinson, supra note 40, at 237.

[63] Todd J. Zywicki, The Law and Political Economy Project: A Critical Analysis, 20 J.L., Econ. & Pol’y 1 (2025).

[64] Id.

[65] Fed. Deposit Ins. Corp., History of the Eighties: Lessons for the Future, Vol. 1—An Examination of the Banking Crises of the 1980s and Early 1990s (1997); see also Fed. Reserve Bank of St. Louis, Depository Institutions Deregulation and Monetary Control Act of 1980, Fed. Reserve Hist., https://www.federalreservehistory.org/essays/monetary-control-act-of-1980.

[66] Shull, supra note 18, at 275.

[67] Saule T. Omarova & Graham Steele, Banking and Antitrust, 133 Yale L. J. 1162 (2024).

[68] Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself (1978).

[69] Craig M. Newmark, Price-Concentration Studies: There You Go Again (Feb. 14, 2004), https://ssrn.com/abstract=503522.

[70] George J. Stigler, The Theory of Economic Regulation, 2 Bell J. Econ. & Mgmt. Sci. 3 (1971).

[71] Jith Jayaratne & Philip E. Strahan, Entry Restrictions, Industry Evolution, and Dynamic Efficiency: Evidence from Commercial Banking, 41 J.L. & Econ. 239 (1998), https://doi.org/10.1086/467390.

[72] Omarova & Tahyar, supra note 57, at 138–57.

[73] Id. at 158–88.

[74] Todd J. Zywicki, The Economics of Credit Cards, 3 Chapman L. Rev. 79 (2000); see also Margaret L. Olney, Buy Now, Pay Later: Advertising, Credit, and Consumer Durables in the 1920s (1991).

[75] Robert Mandelbaum, The Credit Card Industry: A History (1990).

[76] Eric Berg, Sears Earnings Drop 58.5% As Stores Lose $37.4 Million, N.Y. Times (Apr. 25, 1990).

[77] U.S. Gen. Accounting Off., GAO/GGD-88-37, Bank Powers: Issues Related to Reopening the Bank Holding Company Act (1988).

[78] Starbucks Corp., Annual Report (Form 10-K) 61 (Nov. 14, 2025), https://www.sec.gov/Archives/edgar/data/829224/000082922425000114/sbux-20250928.htm.

[79] Paul Calem, Tangled Up in Technicalities—An Historical Perspective on the Current ILC Debate, Bank Pol’y Inst. (Mar. 11, 2021), https://bpi.com/tangled-up-in-technicalities-an-historical-perspective-on-the-current-ilc-debate.

[80] Fed. Deposit Ins. Corp., Financial Institution Employee’s Guide to Deposit Insurance 77 (Apr. 1, 2024), https://www.fdic.gov/financial-institution-employees-guide-deposit-insurance/view-full-employees-guide-pdf.pdf.

[81] Peter J. Wallison, Why Are We Still Separating Banking and Commerce?, Am. Banker (July 27, 2017); Baradaran, supra note 58 (“The fears that the BHCA addressed could have been alleviated by adequate supervision instead of a complete ban on commercial ownership of banks.”); see also Arthur E. Wilmarth Jr., Wal-Mart and the Separation of Banking and Commerce, 39 Conn. L. Rev. 1539 (2007).

[82] Orla McCaffrey, The 15 Biggest Sponsorship Deals Between Banks and U.S. Sports Venues, Am. Banker (Aug. 21, 2023).

[83] Consumer Fin. Prot. Bureau, Taskforce on Consumer Financial Law Report 365–67 (Vol. 1, 2021).

[84] Kenneth Spong & Eric Robbins, Industrial Loan Companies: A Growing Industry Sparks Debate, Fed. Reserve Bank of Kan. City Econ. Rev. 43 (4th Q. 2007).

[85] Todd Zywicki, BankThink: Postal Banking Isn’t the Fix for Financial Inclusion, Am. Banker (June 13, 2019); see also Jean Ann Fox & Patrick Woodall, Cashed Out: Consumers Pay Steep Premium to ‘Bank’ at Check Cashing Outlets (Consumer Fed’n of Am., Nov. 2006).

[86] Paul Tierno, Cong. Rsch. Serv., R47104, Big Tech in Financial Services (July 29, 2022), https://www.congress.gov/crs-product/R47104.

[87] The Evolution of Banks and Financial Intermediation, 18 Fed. Rsrv. Bank N.Y. Econ. Pol’y Rev. no. 2 (July 2012), https://www.newyorkfed.org/medialibrary/media/research/epr/2012/eprvol18n2.pdf [hereinafter New York Fed Intermediation Paper].

[88] See Wallison, supra note 81.

[89] Sebastian Doerr, Jon Frost, Leonardo Gambacorta & Vatsala Shreeti, Big Techs in Finance, BIS Working Paper No. 1129 (Oct. 2023), https://www.bis.org/publ/work1129.pdf.

[90] See Bork, supra note 68.

[91] Zywicki, The Law and Political Economy Project: A Critical Analysis, supra note 63.

[92] Sandra E. Black & Philip E. Strahan, The Division of Spoils: Rent-Sharing and Discrimination in a Regulated Industry, 91 Am. Econ. Rev. 814 (2001).

[93] Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, Pub. L. No. 103-328, 108 Stat. 2338 (codified as amended in scattered sections of 12 U.S.C.).

[94] Bill Medley, Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, Fed. Rsrv. Hist. (Nov. 22, 2013), https://www.federalreservehistory.org/essays/riegle-neal-act-of-1994.

[95] Randall S. Kroszner & Philip E. Strahan, What Drives Deregulation? Economics and Politics of the Relaxation of Bank Branching Restrictions, 114 Q.J. Econ. 1437 (1999).

[96] Bd. of Governors of the Fed. Reserve Sys., Perspectives from Main Street: Bank Branch Access in Rural Communities (2017); Consumer Fin. Prot. Bureau, Small-Dollar Lending and Financial Inclusion (2021); Fed. Deposit Ins. Corp., 2023 FDIC National Survey of Unbanked and Underbanked Households (2023).

[97] Julia Maues, Banking Act of 1933 (Glass-Steagall), Fed. Rsrv. Hist. (Nov. 22, 2013), https://www.federalreservehistory.org/essays/glass-steagall-act.

[98] See New York Fed Intermediation Paper, supra note 87.

[99] Gramm-Leach-Bliley Act, Pub. L. No. 106-102, 113 Stat. 1338 (1999) (codified as amended in scattered sections of 12 and 15 U.S.C.).

[100] Guiding and Establishing National Innovation for U.S. Stablecoins Act, Pub. L. No. 119-27 (2025).

[101] Richard M. Alexander et al., What You Need to Know About the New Stablecoin Legislation: Analyzing the GENIUS Act, Arnold & Porter (July 21, 2025), https://www.arnoldporter.com/en/perspectives/advisories/2025/07/new-stablecoin-legislation-analyzing-the-genius-act.

[102] Calem, supra note 79.

[103] Michelle Clark Neely, Industrial Loan Companies Come Out of the Shadows, Reg’l Economist (July 1, 2007), https://www.stlouisfed.org/publications/regional-economist/july-2007/industrial-loan-companies-come-out-of-the-shadows.

[104] Industrial Loan Charters Take Center Stage as De Novo Banking Makes a Comeback, PYMNTS (Feb. 5, 2026), https://www.pymnts.com/news/banking/2026/industrial-loan-charters-take-center-stage-as-de-novo-banking-makes-a-comeback.

[105] See Wilmarth, supra note 81.

[106] James R. Barth & Yanfei Sun, Industrial Banks: Challenging the Traditional Separation of Commerce and Banking, 77 Q. Rev. Econ. & Fin. 220 (2018).

[107] Some purely financial institutions chartered as industrial loan companies have failed, but none that were commercially owned.

[108] Barth & Sun, supra note 106.

[109] Baradaran, supra note 58, at 387.

[110] Fed. Trade Comm’n, A Look Behind the Screens: Examining the Data Practices of Social Media and Video Streaming Services (2024).

[111] In traditional regulatory terms, the tradeoff between a categorical rule and a more flexible standard requires weighing the risks of Type I and Type II errors.

[112] Benston, The Separation of Commercial and Investment Banking, supra note 43, at 137.

[113] Tech Translated: Banking as a Service (BaaS), PwC (July 11, 2024), https://www.pwc.com/gx/en/issues/technology/baas-banking-as-a-service.html.

[114] See Todd Zywicki, Regulatory Tripwires: How Arbitrary Thresholds Distort Financial Markets, Int’l Ctr. for L. & Econ., White Paper 2026-05-14 (June 2026).

[115] See, e.g., Krishnamurthy, supra note 49; see also Nicholas Taleb, Antifragile: Things That Gain from Disorder (2012) (arguing that efforts to suppress volatility and competition can promote stability while also fostering mediocrity and complacency); Todd Zywicki, Making Financial Regulation Antifragile, Law & Liberty (Dec. 15, 2013), https://lawliberty.org/book-review/making-financial-regulation-antifragile.

[116] John Krainer, The Separation of Banking and Commerce, Fed. Reserve Bank S.F. Econ. Rev. 15 (2000).

[117] Benston, The Separation of Commercial and Investment Banking, supra note 43.

[118] See Stephen K. Halpert, The Separation of Banking and Commerce Reconsidered, 13 J. Corp. L. 481 (1988).

[119] Taskforce on Fed. Consumer Fin. L., Consumer Finance and Technology, in Consumer Fin. Prot. Bureau, Taskforce on Consumer Financial Law Report, supra note 83, ch. 8.

[120] Section 4(k) of the Bank Holding Company Act permits financial holding companies to engage in activities that are “financial in nature,” incidental to financial activities, or complementary to financial activities. 12 U.S.C. § 1843(k).

[121] Federal Reserve Act §§ 23A–23B, 12 U.S.C. §§ 371c, 371c-1; Transactions Between Member Banks and Their Affiliates (Regulation W), 12 C.F.R. pt. 223.

[122] See Todd Zywicki, Comment to Consumer Financial Protection Bureau on Advance Notice of Proposed Rulemaking on Personal Financial Data Rights Reconsideration (Mar. 4, 2026), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6343318.

[123] See Zywicki, BankThink: Postal Banking Isn’t the Fix for Financial Inclusion, supra note 85; see also Consumer Fin. Prot. Bureau, Taskforce on Consumer Financial Law Report, supra note 83, ch. 11.

[124] World Bank Grp., Digital Public Infrastructure and Development: A World Bank Group Approach (2025); see also U.N. Dev. Programme, Digital Public Infrastructure (DPI), https://www.undp.org/digital/digital-public-infrastructure.