WASHINGTON — The Office of the Comptroller of the Currency plans to announce in July whether it will proceed with granting national bank charters to fintech firms, the head of the agency said Thursday.

In comments accompanying the release of the OCC’s semiannual risk report, Comptroller Joseph Otting said “the honest answer is we haven’t decided” whether to use the agency’s authority to issue fintech charters, an idea that was first explored by former Comptroller Thomas Curry.

Otting said the agency is still in an “internal review process” on a fintech charter and "we expect some time in July to release our decision on that.” But he noted that interest in a charter among fintech firms has dwindled since the agency first proposed the idea.

Joseph Otting
“Washington has and is taking important steps to help banks better serve the consumers, businesses and communities that they rely upon," said Comptroller of the Currency Joseph Otting. Bloomberg News

“It’s important to point out how perhaps that market has changed. If you were sitting around here two years ago having a conversation, most of the fintechs thought that they wanted to be banks,” he said in a conference call with reporters. Since then, he added, when the process of becoming a bank has become clearer, some potential applicants have headed for the door. Instead, they seem more focused on partnering with banks, he said.

“They began to learn about national banking versus state banking and operating across state lines and then they come talk to us, and we explained the issue … of capital, liquidity and serving your community and similar CRA kind of thing,” Otting said. “A lot of them, I kiddingly say, leave skid marks leaving the building. They had no idea what it was like to be a national bank or often even a state bank.”

There are “exceptions,” he said, “but I think that number has dramatically reduced based upon their saying we’ll be a vendor to the industry.”

In presenting the OCC report, which identifies emerging risks in the banking industry, Otting focused not just on potential trouble signs but also on recent and continuing efforts to ease banks' regulatory burden. The report was released on the same day he attended a White House ceremony where President Trump signed the Senate bill rolling back some provisions of the Dodd-Frank Act.

“Washington has and is taking important steps to help banks better serve the consumers, businesses and communities that they rely upon. There is a lot of dialogue among the … [agencies] about we can do that without adding risk to the system,” Otting said.

“We continue to look to opportunities to reduce burdens so that banks can help create jobs and promote economic opportunity while ensuring … our number one goal, which is a safe and sound U.S. banking system.”

But the report did warn of some "complacency" in loan underwriting, and said "rising interest rates pose risks warrant monitoring." Not only do rising rates affect banks' deposit costs, but "multiple rate increases could negatively affect credit affordability, performance, and asset valuations and influence refinancing risk, underwriting behavior, and credit terms," the OCC said in its semiannual risk perspective.

"Uncertainty exists around the sensitivity of deposits to rising interest rates," the report said. "Historically high levels of non-maturity deposits acquired during a very low interest rate environment, competition for insured retail deposits, and advances in technology are factors that may result in deposit behavior that deviates from historical norms."

Otting said credit quality is not a concern at the moment but could get banks into trouble if they are not careful.

“Credit risk is the area that can destroy a financial institution,” he said. “While asset and credit quality are high, we continue to see incremental easing in credit underwriting. However, I would say, spending time with regional banks and national banks and community banks, I think the lessons learned of ’07 and ’08 and ’09 are freshly in bankers’ eyes. I have more concerns about risk outside the banking industry.”

He also noted that the agency does not expect to make changes to the leveraged lending guidance, and said that staff from the OCC, Federal Deposit Insurance Corp. and Federal Reserve Board met with the Financial Crimes Enforcement Network on ways to ease anti-money-laundering requirements.

“We’re waiting for Fincen to respond to those so we can work through those,” he said. “A lot of these activities are within the power of Fincen to change. A big one of those is that we would like to see more risk-based examination procedures.”

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