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The New York City community bank, a division of Metropolitan Bank Holding, announced in its 2023 annual report that it will exit all banking-as-a-service relationships in early 2024 and It was announced that the procedure is scheduled to be completed. This year's course. This annual report was filed on February 28th. This news follows the bank's announcement that it will exit the consumer BaaS relationship in early 2024.
“The decision to terminate these financial services partnerships will reduce our exposure to enhanced and evolving regulatory standards in connection with these activities,” the report said. “This decision reflects our strategic assessment of recent developments in the payments and non-bank financial services industry, the regulations applicable to this area of our business, and the business case for our further involvement at this time. ”
It's a decision that other banks in the space will have to consider as regulators impose penalties.
This is also not the first time MCB has changed course on a high-risk business. By 2023, banks with $7.1 billion in assets will
“We are completely surprised by the withdrawal, given the increased regulatory scrutiny of new activity, although not specifically mentioned,” Nick Cucciarare, director of research at Hovde Group, said in an analyst note. That's not the case,” he said.
The 10-K states that banks will lose $781 million in deposits earned through these relationships, or 13.6% of total deposits, and will have to replace them with other means, sources of funding with higher interest rates. He pointed out that there is.
However, “the company expects the financial impact of this exit to be minimal,” the report said.
Mark Fitzgibbon, head of research in Piper Sandler's financial strategy group, believes the decision is controversial.
“The good news about exiting the business is that it reduces any regulatory challenges surrounding this space and simplifies the story,” he said in a research note. “The bad news is that it was one of the key differentiators of MCB's story and contributed to its growth expectations.”
In October, MCB agreed to pay $30 million to the Federal Reserve and the New York State Department of Financial Services.
“This was a business that up until a few quarters ago people were praising you for getting into it,” Fitzgibbon said in an earlier interview. “Since then, they have paid large fines to the government and been slapped on the wrist for this business. They thought they could, but they didn’t solve the problem.”
Polo Rocha contributed to this report.
