Moving Fast, Breaking Things, Redefining Banking
In just a few days, Acting Comptroller Brooks laid out a path not just to tech-based banking,
but also to expansive bank-based finance. The final construct will redefine U.S. finance as it’s been known since at least 2010.
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As Karen Petrou’s memo last Friday explained, U.S. financial standards have long been redesigned not by law, but by rule. Doubtless recognizing this, Acting Comptroller Brooks has in just 2 weeks in office taken three actions and promised a fourth to fundamentally restructure the role federally-chartered depositories play in U.S. finance.
- First, a little-noticed proposal shakes the foundations of the technological, financial, payment, and even commercial activities in which national banks and federal savings associations(FSAs) could engage. While it doesn’t go anywhere near as far as the OCC contemplates (see below), this proposal is a concrete roadmap for empowered charters not just for national banks, but also and even more importantly for FSAs. Indeed, many questions in the proposal suggest that the OCC could go still farther in its final rule. The OCC is likely also to implement proposed changes that make it easier to ditch a parent holding company. Combined with COVID’s impact across the sector, the flow of finance outside regulated banks that characterized the last decade would begin to reverse.
- Indeed, the flow could be a technology watershed. The OCC has also released a set of questions on digital finance. The agency is wide open to changes that would, among other things, let federal charters make far greater use of AI, deploy digital ledger technology with fewer constraints, offer digital currencies with or – the OCC’s likely preference – without the Fed, and provide a raft of non-traditional services now largely outside the reach of national banks and FSAs. The OCC has a special purpose charter for fintech that has failed to make much of a structural difference; actions following this release could do far more far faster.
- In part, this is because Mr. Brooks has also established a still stronger base for federal interest-rate preemption, finalizing without substantive change the earlier, controversial codification of the valid-when-made doctrine. Next up, OCC action on the still more consequential true-lender test. This seems sure to be as sweeping as all Mr. Brooks’ other actions, combining to recraft the federal charter.
Of course, Mr. Brooks is not omnipotent. Some of the actions noted above have been challenged in the courts, and new ones could well join them. However, unless or until a confirmed Comptroller disagrees, this acting one is making a major difference likely to last.
To read Karen Petrou’s latest speech, click here
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Karen Petrou’s latest column can be found here
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