This article originally appeared (without the insideARM Perspective, which was added by insideARM, and not the position of the authors) as an alert on Clark Hill and is republished here with permission from the authors, Joann Needleman and Thomas Brooks.
The dual banking system in the United States has been criticized because it is cumbersome and often results in more than one financial regulator having oversight over a bank or thrift. The virtue of the dual banking system, however, is that it has fostered a healthy competition between federal and state regulators that has resulted in innovation in products and services to the benefit of businesses and consumers. While the Comptroller of the Currency is developing its special purpose national bank charter and several states have agreed to a common application for approval for a money services business, Arizona is the first state that has created a statutory framework to develop a Regulatory Sandbox Program (“Sandbox” or “Program”) to temporarily test innovative financial products or services on a limited basis without otherwise being licensed or authorized to act under its existing laws.
In recent years, states have been the innovators in approving new products and services for financial institutions. Paying interest on checking accounts was the result of the development of NOW accounts in New Hampshire. Making funds more readily available to consumers was the result of innovations approved for New York chartered banks. Regional compacts in the Northeast and Southeast predated interstate banking. Disclosure of credit card interest rates, annual fees, holding periods, and transaction charges all started in the states, and were later adopted by Congress at the federal level.
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