SQ Block Inc

By Peter Rudegeair 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 19, 2020).

Federal and state banking regulators approved an application from financial-tech company Square Inc. to start its own bank in Utah.

The bank, Square Financial Services, Inc., is expected to launch in 2021 and will be supervised by the Federal Deposit Insurance Corp. and the Utah Department of Financial Institutions, the company said on Wednesday. Square Financial Services will offer small-business loans to merchants that use Square devices to process their payments.

Square's banking effort started over 2 1/2 years ago and was marked by opposition from some bank lobbyists and community groups, who objected to Square's decision to pursue a charter for a so-called industrial loan company.

Industrial-loan companies enjoy many of the same privileges as traditional banks -- but can be part of corporations that do things other than banking, making them exempt from oversight by the Federal Reserve. In 2007, a wave of similar opposition prompted Walmart Inc. to abandon its effort to form an industrial-loan company.

In order to secure regulators' approval, Square Financial Services had to agree to a number of conditions, including maintaining "significantly higher" levels of capital than other banks and consenting to have its parent company, Square, examined by the FDIC.

Even with those concessions, Square didn't secure the unanimous consent of regulators. FDIC board member Martin Gruenberg voted against Square's application, arguing that Square had not been profitable historically and couldn't serve as a source of financial strength to its bank.

"Square has yet to demonstrate its viability during a downturn in the economic cycle. In fact, it has failed to demonstrate its viability during the upside of an economic cycle," Mr. Gruenberg said in a statement.

Nelnet Inc., a Nebraska-based servicer of student loans, also received approval to start an industrial-loan company this week.

Write to Peter Rudegeair at Peter.Rudegeair@wsj.com

(END) Dow Jones Newswires

March 19, 2020 02:47 ET (06:47 GMT)

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