On September 7, 2022, Acting Comptroller of the Currency Michael J. Hsu was invited to speak at the TCH + BPI Annual Conference where he talked about the importance of safeguarding trust in banking. According to Hsu, the OCC’s key priorities, including guarding against complacency, addressing inequality, adapting to digitalization, and managing climate-related risk, reflect what he sees as the key long-term threats to trust in banking. In his remarks, Hsu provided an update on each key priority.
The following are the key points from Hsu’s speech:
OCC will maintain a “careful and cautious” approach to cryptocurrency. In November 2021, the OCC issued Interpretive Letter 1179, which establishes guardrails by clarifying that national banks and FSAs should not engage in certain crypto activities unless they demonstrate that the activities can be performed in a safe, sound, and fair manner.
The growth of the fintech industry, of banking-as-a-service (BaaS), and of big tech forays into payments and lending is changing banking, and its risk profile, in profound ways. Hence, the OCC is developing a more sophisticated understanding of bank-fintech arrangements to mitigate the emerging risks of rapid digitalization in the financial industry.
The OCC believes that there is an urgent need for action to manage physical and transition risks associated with climate change. Hsu provided key developments to this initiative including issuing for comment the Principles for Climate-Related Financial Risk Management for Large Banks, meetings with community banks, conducting scenario analyses for larger banks, and appointing a new Chief Climate Risk Officer.
The OCC has been very active in taking steps to address inequality. The agency has partnered with other federal banking agencies to modernize the Community Reinvestment Act (CRA), focused on encouraging banks to reform their overdraft programs, and initiating projects, such as the Project REACh, to support the removal of structural barriers to financial inclusion.
Hsu also emphasized the need to guard against complacency. He explained that maintaining strong risk management discipline is critical and that bank boards and senior managers need to ensure that they are also covering the basics, Hsu also added that the OCC is working with the other federal banking agencies and the DOJ to review the Bank Merger Act guidelines.
Hsu concluded his speech by reiterating the need to maintain high fidelity to the concept of safety and soundness, champion fairness, and to be agile and credible to effectively safeguard trust in banking. These steps are directed through the OCC’s 2023-2027 Strategic Plan, which we wrote about.
Hsu’s Remarks at the TCH + BPI Annual Conference can be found here.
