WASHINGTON — Comptroller of the Currency Joseph Otting said in a press conference Wednesday morning that there is a place in the banking world for some kind of fintech charter, though the exact parameters of such a charter are still unclear and have to be worked out.
“I’m not sure what it looks like, and how it's funded, but I do think there’s a space there that a technology solution can solve,” Otting said when asked whether he sees a future for the Office of the Comptroller of the Currency's nascent fintech charter. “Then the question is, what is the requirement on the fintech to get that charter.”
Otting explained that the retreat of banks from lending — particularly small-dollar loans — has created a vacuum that fintechs have stepped into, and that part of the regulatory response to the rise of fintech firms is to improve banks’ ability to compete in that arena.
“The question is, in some regards, why is this not JPMorgan [or] U.S. Bank being a fintech?” Otting said. “I would argue specifically on a lot of the small-ticket lending, where a lot of fintech organizations are focused … it’s that they are coming into a space that they see unfulfilled, and they’re prepared to fill that need, because there’s a large volume. So the question is, why is that space vacated and ... [have] we as a regulatory body forced banks out of that space? So there’s a need to get it back in the banking system.
“I would hope that the banks would embrace that and come back in with their fintech models,” Otting said. “But I would tell you, I am also open to other entities coming in and providing those services if they’re not being provided by the banking industry.”
As the new comptroller, Otting inherits the agency's fintech policy initiative spearheaded by former Comptroller Thomas Curry, but it has been unclear whether the OCC will actually move forward in accepting fintech charter applications. State regulators have filed two separate lawsuits to challenge the OCC fintech plan, but a judge in one of the cases dismissed it and based the ruling on the fact that the agency had not actually granted the charter yet to any company.
Otting also said that he intends to prepare a discussion document for the Federal Reserve and Federal Deposit Insurance Corp. to review as a starting point for revisions to the Community Reinvestment Act within 60 days, and expects a public discussion draft to follow shortly thereafter.
Otting said that among his priorities in revising the CRA are simplifying the program, including updating the CRA assessment areas to reflect changes in the role of bank branches and to revise the rating system to make the process more effective in expanding loans to low- and moderate-income communities.
“It’s too easy to get a 'satisfactory' and too difficult to get an excellent” rating, Otting said. “If your question is, through this process, should we look at a recalibration, I think we should.”
He added that the challenge with CRA revisions is that all parties involved — including regulators, communities and banks — dislike the current regime for different reasons, even though each share the same goals.
“They all dislike it for different reasons, and we’ve got to kind of figure out the reason, but I believe we can simplify the CRA process and actually make it more effective,” Otting said. “Because I would tell you as a banker, I was supportive to the communities in which we operated.”
Otting’s comments are the most expansive he has made since being sworn in as comptroller last month. He took questions from reporters for more than an hour on a range of topics, including bank supervision, bank culture, bitcoin and enforcement.
He said that he views his approach to regulation not as one based on blindly rolling back regulations, but rather to simplify and solve problems that have arisen since the Dodd-Frank Act was passed more than seven years ago.
With respect to capital levels, Otting said that he thought that the most “acute” need for reform is for smaller banks and that regulators may embrace “something like a leverage ratio” for small banks, similar to what was envisioned by House Financial Services Committee Chairman Jeb Hensarling, R-Texas, in his financial reform bill. That bill would give banks an off-ramp from several regulatory and capital requirements if they met a 10% leverage ratio.
For bigger banks, he said, the existing capital structure has been effective and has achieved its objective of shoring up the banking system after the crisis and making large institutions more secure and resilient.
“Big banks have people, they have capital, they have technology, expertise — unlike the smaller banks,” Otting said. “If you really want to have small banks in America, then we have to look at that … and see what can we do to build up those institutions.”
But the capital regime can be more efficient than it is, he said, particularly with respect to the smaller banks. Otting said he intends to turn to large-bank capital sometime in the next nine to 12 months.
“The capital structure that we have today is complicated,” Otting said. “Has it been effective? Yes. Has it brought more and retained more capital in the banking industry? I think the answer to that is yes. I would propose very few modifications to the big banks' capital structure and measurement and monitoring.”
Otting said that he believed that the recent surge in the price of bitcoin — and any potential loss of value in the future — did not present a risk to the broader financial system or a supervisory task for the OCC because banks by and large have avoided investing in the cryptocurrency.
“It’s a phenomenon,” he said. “When I got here we asked — it’s a topical thing — we asked, kind of an informal poll about the banks, if they’ve taken a position in bitcoin, and the banks haven’t. Maybe they have traces of it in some investment, but mostly the banks have stayed away from the currency.”