‘Banks are the infrastructure’: OCC leader on pandemic, recovery, CRA

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WASHINGTON — Brian Brooks was handed the leadership baton at the Office of the Comptroller of the Currency at a time when banks grapple with the economic fallout from the coronavirus pandemic, and the nation as a whole tries to deal with its racial divisions.

One of Brooks’s first actions as acting comptroller was sending a letter to mayors and governors warning them about the risks that “essentially indefinite” lockdowns — intended to combat the spread of the pandemic — could have on the economy and in turn national banks. The move drew a rebuke from House Financial Services Chairwoman Maxine Waters.

In an interview with American Banker, Brooks described how the national banking system as well as policies such as reforming the Community Reinvestment Act can be forces for good during such a tumultuous time.

“Banks are the infrastructure the rest of society is built on, and we need them to be strong and sound and do that work,” said Brooks, who has spent time as a banker as well as the top lawyer at Coinbase and Fannie Mae.

Brooks discussed some of his ambitious plans for the agency in the months ahead, including his intent to defend the OCC’s authority to issue bank charters for fintechs.

“At the OCC, our main job — and a job that only we have — is to charter banks. The OCC has, historically, been a statutorily authorized agency to say what a bank is for any given generation,” Brooks said. “We understand absolutely where we have to collaborate with the other agencies. But we also know there's a certain role that only we play, and that is determining what a bank is in any given generation.”

Brooks also reflected on the death of George Floyd, which has sparked nationwide protests over policing policies and racial inequities. The acting comptroller argued that the OCC’s now-finalized plan to reform the Community Reinvestment Act could be a critical component of expanding access to the banking system to people who have been historically denied it.

“There are different views of the Community Reinvestment Act,” Brooks said. “But I do think that people of goodwill can agree that if there's one thing that the George Floyd tragedy teaches us is that not enough people have had enough access to the system that have made others of us better off, and we have to unblock those opportunities.”

The following is from a conversation with Brooks that has been edited for length and clarity.

You’ve worn a lot of hats: banker, lawyer, entrepreneur, tech guy, crypto guy, now regulator. When you want to explain your professional career, how do you introduce yourself?

BRIAN BROOKS: I generally say that I'm a father and a musician. That usually gets the conversation going in a better direction. ... Look, what I would say is, what's the unifying theme of all of the resume lines that you talked about? And that is, the economy is not about banks. It’s not about tech. It's not about any one thing. The economy is about human choices and human lives. What I've seen is that the way we interact with each other has a lot to do with the way that we exchange value in our lives. And banks, historically, have been the infrastructure that allows us to make our choices; we earn money in our jobs, we deposit money in a bank account.

At the end of the day, it’s all about how we organize our lives, and finance is the infrastructure for that. One of the reasons I got interested in fintech and eventually in cryptocurrencies is because I started to believe that there were emerging technologies that were more inclusive and made it possible for more people to live fuller lives than some of the traditional approaches did. But at the end of the day, it’s all about the same thing: It's how do we organize our lives and how does finance allow us to do that?

Earlier this week, you sent a letter to state and local leaders, warning them about their “solemn responsibility” not to lock down economies indefinitely. But you didn’t mention the risks of rebooting before the virus is contained. Why did you send the letter?

The letter didn't say they had a solemn responsibility to open up their economies; it said they had a solemn responsibility to balance risks and benefits, and make judgments about when and how to reopen their economies. That's pretty close to a direct quote. My view is that ... it's important to know all of the risks that you're balancing, otherwise you get the balance wrong. And my point was that we are starting to see things in the banking system that are going to become very concerning in the next few months if they're not taken a little more seriously than they have been. To be specific, those risks are spiking delinquency rates in two areas that are most concentrated in the community banks that many Americans depend on, particularly Americans who live in the inner cities and in rural America where big banks don't have presence to organize their lives.

The point of the letter was to say, small-business loan delinquencies are spiking, and commercial real estate loan delinquencies are spiking precisely because of extended shutdown orders. And as we get more data about this disease and its risk, which I think is real but significantly lower than people feared at the beginning of these lockdowns, we need to balance those risks against other risks. I think that's just common sense.

The other risk you mentioned was about “face-covering-related robberies” — that the requirement to wear face masks inside banks shouldn’t be sustained for security reasons. Does that risk outweigh the public health benefits of wearing masks?

I appreciate the question. I’m not a public health expert. I’m not a doctor. I don’t have a view on how much disease transmission is reduced by mask wearing; I think there's a number of studies that say it's very small but nonzero. My point was — for a hundred years, common sense and most bank policies told us that all things being equal, we don’t want people wearing masks inside bank branches. I think we all know that intuitively. As I said in the letter, it was understandable and probably a good idea for banks to suspend those policies and to allow people to wear masks inside of bank branches while we assessed the risks to public health. But we know a lot more about the risk [to] public health now than we did two months ago. My point was, let's remember that there’s a reason that we historically have had policies against wearing masks inside banks. Just saying the phrase, I think, that resonates on a gut level. I think mayors and governors who have to balance all these risks need to think these things through.

How has the pandemic changed or reinforced the way you think about banking?

Historically, one of the roles that [community] banks played in our society was they were the banks that small local entrepreneurs went to to start businesses. In America, sort of the first rung on the ladder for a lot of immigrant entrepreneurs, for minorities who are trying to build their communities in areas that have been underinvested over the years — it's community banks that supply those lines of credit to get those businesses started. That's one reason why I worry so much about the extent of continued lockdown effects on those kinds of institutions.

It's also worrisome when you start to see cascading effects in the macroeconomy, making it essential that banks be strong and available to deliver rescue packages. [The CARES Act] ... was the most important rescue package that's been delivered to mitigate some of the economic distress. It was the banking system that delivered those benefits. ... That tells me that banks are the infrastructure the rest of society is built on, and we need them to be strong and sound and do that work.

Banks need to continue to provide liquidity and credit to people who are risk takers who are starting businesses who are growing value for their communities. And that view has never wavered. ... We need banks to be there not only to sustain existing businesses, but to allow people as they rebuild their communities to take risks, start businesses and have the confidence to move forward.

As we speak, the U.S. is in the midst of significant social unrest over the death of George Floyd at the hands of police. Does this moment change, for you, how the OCC should implement Community Reinvestment Act reforms?

I just don’t have the words to say how I feel about having to see yet another black man, unarmed, on the ground, killed in this country. I just don't even know how to express that, to be quite honest. There are different views of the Community Reinvestment Act. But I do think that people of goodwill can agree that if there's one thing that the George Floyd tragedy teaches us is that not enough people have had enough access to the system that have made others of us better off, and we have to unblock those opportunities. I realize that there are a lot of people who have criticized CRA reform, but I'll tell you what I really believe, personally and deeply, is that when we tell banks that we expect them to invest not only where their branches are, but also in those communities where they pulled their branches out, that’s got to be a good thing that honors the legacy of George Floyd. ... The very places that banks have pulled branches out of in the past few decades are the poorest, most heavily minority and most underinvested. The main part of CRA reform was to incentivize them to invest in those areas.

The OCC finalized its CRA rule with the economy still feeling the weight of the pandemic, and before we know what the recovery will look like. How did the agency determine that it was the right time?

I’d like to live in a world where income inequality is reduced, and wealth inequality is reduced, and I believe that more credit to more people is part of the solution for that. What I know about CRA reform is that, certainly, unquestionably, it is going to deliver credit to places that it wasn't delivered to before. I say that because previously, we only gave credit for stuff done around bank branches. And now we're going to give credit to CRA deserts, which typically are the poorest communities. So for sure, there will be more credit available in those kinds of places. ... Even without knowing exactly how society is going to organize itself a year from now or five years from now, I've got to think and I believe in my bones that more credit leads to less poverty.

Former Comptroller Joseph Otting was at times described as a “lone wolf.” Will your tenure be remembered the same way?

Well, let me begin by saying I’ve known Joseph Otting for a long time, and I know him to be one of the kindest, most generous, most other-oriented people I know. When, because of the COVID crisis, other federal agencies canceled their summer internships for underserved high school students in the District of Columbia, Joseph said, 'We’re going to run that program because it’s going to change kids’ lives.' ... What I think his fellow regulators would say is, he was actually far from a maverick or lone wolf. He was deeply collaborative. He worked very closely with the other banking agencies in formulating CRA. He took many, many comments from the FDIC right up until we finalized the rule. I mean, literally right up until a couple of days before we did that, and then we released the rule. I don't think he thinks the act of releasing the rule was a maverick thing to do at all.

I think I’ll be highly collaborative with all of [the agencies]. One thing about me is that I know my limitations and I know my weaknesses, and I love taking feedback. I'm not afraid of any of those things. But having said that, I hope I’ll have the courage to do what’s right, even if others won’t. The OCC was set up as an independent agency for a reason, which is we are national regulators. We have to take accountability, but we also have to be decisive in that role.

Are there any other areas of policy besides CRA reform — particularly within the fintech space — where it makes sense for the OCC to go alone again?

At the OCC, our main job — and a job that only we have — is to charter banks. The OCC has, historically, been a statutorily authorized agency to say what a bank is for any given generation. ... In every generation, that determination can be controversial. I look back in history to the 1970s and 1980s, when there was a lot of controversy about the OCC's views of bank powers. ... I think the debate over the fintech charter today will be seen in the same light 30 years from now. People will say, obviously a payments company can be a bank, because what a bank is is a company that helps people intermediate their financial lives.

We don’t necessarily need another agency to tell us that, because we’re the only agency charged with chartering banks. Now, there are aspects where our bank charters intersect with other agencies. If one of our banks wants to take deposits, the FDIC, which insures those, will have a critical voice on that, and of course we have to collaborate with them. If a payments company that wants a bank charter wants access to the Federal Reserve's payment rails, we'll need to work with the Federal Reserve to make sure that that's available. We understand absolutely where we have to collaborate with the other agencies. But we also know there's a certain role that only we play, and that is determining what a bank is in any given generation.

In March, you said at a virtual conference that it may be time to think about a federal charter or licensing system for cryptocurrency firms doing payments. Why?

I don't think that point is unique to crypto companies. ... There are companies, for example like PayPal, Stripe or Square ... that are regulated on a state-by-state basis as money transmitters. Companies that are currently doing national or even global businesse are relying on those licensing platforms. ... What I saw at Coinbase was we ran one of the biggest global businesses in our asset class. And yet, we had to separately make sure that on any given day, we were complying with the Iowa Department of Financial institutions’ expectations, and also the Nebraska Department of Financial Institutions’ expectations, and we had to pay them separately and be examined by them separately. It turns out, it's very complicated and very expensive to scale a national or global business on that basis. The point of a national charter for companies like that, again, not specific to crypto, that's licensed at the state level is when you're a certain size and scale, the friction of state-by-state regulations is kind of inconsistent with Hamilton's vision of what America's economy should be about.

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OCC Brian Brooks Fintech regulations Regulatory relief CRA Coronavirus Licenses and charters Cryptocurrencies Diversity and equality