WASHINGTON – Acting Currency Controller Michael Hsu is building a reputation as a skeptic of emerging commodities like cryptocurrency.
He suggests it’s not because he’s opposed to digital-centric solutions. On the contrary, he says, regulators are quickly trying to take stock of once-esoteric products that are quickly becoming mainstream.
“This is now for consumers,” Hsu said this week in an interview with former American Banker editor Rob Blackwell, now director of content for IntraFi Network. “We have ordinary people who are in this product, who see hope in this product, and this space is unregulated.”
Hsu, who took over as head of the Office of the Comptroller of the Currency on May 10, has taken a more cautious approach to crypto and fintech compared to his predecessors at the agency.
Under his leadership, the OCC, the Federal Reserve and the Federal Deposit Insurance Corp. set up an interagency sprint team to review digital assets, with the goal of providing a common oversight framework.
Hsu, who was interviewed for the Banking with Interest podcast which airs Thursday, also expressed concern about the proportion of unbanked and underbanked people who own digital assets. He cited research from Morning Consult which found that 37% of underbanked adults own crypto assets, compared to just 10% of fully banked adults.
“There’s a part of me that understands why these populations are getting into crypto, because I think there is a distrust of finance,” he said. “There is a distrust of banking and times are tough, so I think there is hope that is provided by crypto. But that hope at the moment is very nascent. It is quite underdeveloped.
Forming a more developed regulatory approach and clearing up banks with their own crypto questions are among the goals of the interagency sprint team. Hsu said the effort was aimed at helping define digital assets and the potential risks they could pose to both consumers and financial stability.
However, he suggested that the three agencies might not all come to the same conclusions.
“We may end up disagreeing on the actual political results because we’re each independent agencies, but at least we’re talking [and] we don’t get confused with the way we talk about it, ”he said. “. There are like 10 different definitions of virtual assets. It is not very constructive.
Hsu also suggested that the OCC might consider buying now / paying later products, which the Consumer Financial Protection Bureau has also recently weighed in, as traditional payment providers increasingly offer the option to consumers.
“When it’s at its best, I think it’s a good product, but the percentage of people who don’t meet the initial payment terms is very high,” Hsu said. “This is not a sign of responsible product, so these are things we all need to think about.”
The OCC is also reviewing bank overdraft policies, which Hsu says can “help perpetuate inequality.”
“It’s expensive to be poor, and I think the overdrafts are an example of that,” he said.
But he also noted that there is “healthy innovation” in the discovery space to solve the problem.
PNC Financial Services Group unveiled a digital low cash mode service in April that aims to help customers avoid overdraft fees, and Huntington Bancshares in June launched an emergency spending line of credit for the same purpose. .
“Almost mathematically, it’s less revenue for the banks. I think it’s okay, ”Hsu said. “If this is what it takes to make a healthier product, then this is what it takes.”
Blackwell also urged Hsu on the agency’s review of initiatives led by former OCC executives to provide fintech companies with specialized charter options. These efforts have drawn criticism from some corners, including state regulators who have challenged the agency’s special-use fintech charter in court. To date, no company has been granted such a charter.
“We must level the playing field [and] we need to contain the shadow banking system. I firmly believe in both of these things. Charter decisions must be part of this strategy, ”said Hsu. “What is the strategy to achieve these two things? Chartering is clearly part of it, but it is not a solution in itself.
“When we have completed the review and I make decisions on it, it will be with these two objectives in mind,” he continued. “Basically, the sub-points of these objectives [are] avoid regulatory arbitrage in down races.
The 2008 financial crisis is at the forefront of Hsu’s mind when considering how to approach things like the fintech charter, he said.
“I think the global financial crisis can be attributed in part to a very inconsistent and porous perimeter,” he said.
Before the crisis – and like today, with emerging technologies like crypto – there were “a lot of institutions outside the banking regulatory perimeter doing things that banks were also doing” but operating to different standards, said Hsu.
“You had that kind of patchwork system, which allowed a lot of these vulnerabilities to grow to just unmanageable sizes,” he said. “I think there is a risk that it exists today, and the best antidote I can think of is that we, the agencies, attack them together.”