FinTech Scenario planning around a reintroduction of Glass-Steagall


We don’t do politics on Daily Fintech. However we don’t live under a rock, so we noticed that two outsiders – Bernie Sanders and Donald Trump won in New Hampshire. Both support a reintroduction of Glass-Steagall. Sanders is quite explicit, while Trump’s support is more indirect via his support for Carl Icahn who supports the reintroduction of Glass-Steagall). John McCain, an earlier contender on the Republican side, also supports a reintroduction of Glass-Steagall. In short, this has bipartisan support.

A common strategic tool is scenario planning. You plan based on what if scenarios. You can ignore totally extreme scenarios (such as a meteorite destroying earth) and you cannot by definition plan for a Black Swan event. However the odds are now high enough that Glass-Steagall will be reintroduced to make it a scenario worth planning for.

Unlike Dodd Frank, Glass-Steagall is simple and was on the statute books for a long time. It is binary. That also makes it a suitable case for scenario planning.

Our starting point for scenario planning is Cui Bono (who wins) and Cui Amisit (who loses). The winners have primarily upside opportunity and the losers have primarily downside risk. Once you know which category you are in you can create appropriate strategies.

Cui Bono

– Fintech ventures serving small to medium Retail/Consumer Banks. The smaller banks will now compete on a level cost of capital playing field with the big Banks. Plenty of new Fintech ventures will be happy to help them compete with technology.

– Fintech ventures serving consumers directly. They will have a level cost of capital playing field.

– Investment Bankers who earn fees from the breakup of the Universal Banks and then the bolt on acquisitions done by the constituent parts.

– Big Consumer banks who do not have an Investment Banking business; Consumer Bank can also mean Wealth Management and Business Banking. They do not have the distraction of having to go through a break up. Some Banks have clearly already made the decision to exit Investment Banking and can focus on the core job of serving customers better.

Cui Amisit

– Universal Banks that lose the subsidization from lower cost of capital.

The Great Convergence

Our thesis is that this will accelerate the Great Convergence between Banks and Fintechs. At the end of this Convergence, we won’t be able to tell the difference between:

  • A Fintech upstart that matured, became regulated and added some people into the service delivery process (because that is what customers wanted).


  • An incumbent Financial Institution that automated enough of the service delivery process to be cost competitive with Fintech upstarts and learned to deliver digital first.

Where America leads….Glass-Steagall is obviously American legislation. However it is likely that other countries will follow this lead (if they are not already there).

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech. Bernard Lunn is a Fintech thought-leader.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.