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

Author(s):
Todd J. Zywicki
Posted:
07-2026
Law & Economics #:
26-13

ABSTRACT:

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.