Small enough to fail

Ethan Clay already runs Oh Yeah! ice cream and coffee shop on Highland Avenue in the Shadyside suburb of Pittsburgh. After racking up overdraft fees, Clay conceived of Whalebone Cafe Bank as a community alternative to banking.

In, Shadyside ice cream bank wants to handle your cold, hard cash, the Post-Gazette licks their lips:

Mr. Clay, who sees his bank as a way to offer local residents low-cost banking services, doesn’t have many depositors yet. … A sign on the front door urges customers to “Skip the Banks” and deposit money with Whalebone, which touts “5%+ Oh Yeah interest” per month on simple savings accounts, “beat the fee” loans and check-cashing services.

Like many small-time entrepreneurs Clay seems to have overreached, running afoul of state bank regulators. Although advertising Whalebone as a bank, Clay has tried to justify it as a quasi-bank, or gift card operation, that shouldn’t be subject to normal bank regulations. But while regulators cheerfully granted leeway to highly-leveraged, too-big-to-fail megabanks, they are not about to let a small scoop operation like Whalebone handle much smaller sums without FDIC insurance and a charter.

Mr. Novak of the state banking department said he wasn’t permitted to comment on regulatory discussions.

“I’ve seen their Facebook page. They are advertising themselves as taking deposits, and they need a charter for that,” he said. “We’re not in the Wild West any more.

Actually we are. But Clay is not one of the town bosses.

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