Both the House and the Senate versions would permit banks to conduct in their own subsidiaries (so-called operating subsidiaries or “op subs”) only the same activities that they may already conduct in the bank and financial agency activities, which by their nature require minimal funding and create minimal risk. These limitations, it seems to me, are crucial for several reasons.
Banks have a lower cost of funds than other financial entities because of the safety net. As I discussed earlier, this federal safety net, and the subsidy that goes along with it, are provided by the Government in order to buy systemic stability.