The federal banking system provides 70 percent of banking services in the United States. It is a dynamic system that must evolve to meet the needs of the economy. The Office of the Comptroller of the Currency ensures it operates in a safe, sound, and fair manner. That mission relies on how the new administration of Joe Biden handles these five issues.
First, manage the fallout of the coronavirus. For almost a year, we have struggled with the pandemic, placing a strong economy in suspended animation. The government has provided relief to consumers and small businesses, and has also supported banks in serving their customers and sustaining economic activity. But there remain adverse effects that must be managed. Those loans that can be restructured to reperform should be, while those that cannot be restructured should be resolved.
Second, protect interstate banking and the supremacy of federal law. Our experiment with the Articles of Confederation placing state sovereignty over national unity failed spectacularly. Yet state authorities are trying to increase their regulatory power, limit interstate banking, and restrain the federal banks and national market. States have sued to block innovative firms from becoming federal banks because they think the states should regulate these firms instead of one regulator. This undermines 200 years of the supremacy of federal law. It has also resulted in price controls and restricts access for the people the states purport to protect.
The Office of the Comptroller of the Currency has worked to restore the certainty that bank loan terms valid when made remain valid after sale to investors. Under leaders from both parties, the agency has defended its power to grant charters to banks that take deposits, paychecks, or lend money. But the forces dividing financial regulation must be resisted lest the economy and the millions who rely on it suffer. Comptrollers of both parties have led these efforts, and the next one should follow suit.
Third, prepare banks and supervisors for decentralization. In the 1990s, we learned decentralized networks are more resilient than centralized institutions. It is why we use email more than stamps today. Blockchain, cryptocurrency, and decentralized finance are doing to banks what email did to the post office. Our job is to rethink the role of banks. Because of their investment in technology, banks will be key nodes that validate transactions on decentralized ledgers, and will transmit and receive tokens across blockchains like they process digital payments today.
Banks will also provide advice, custody, and structured products. Banks could also reprise their 19th century role of issuing Treasury notes and issue digital coins backed by dollars. Cryptocurrency and decentralized finance present several benefits, like increasing financial access, giving people greater control over their financial lives, and accelerating global payments. If the United States focuses on the risks and not the benefits, we will fall behind as the global financial system is rewired.
Fourth, ensure fair access to financial services. We are now close to a world where markets will only supply the goods and ideas approved by those in power. In a country, freedom can be restricted by laws enacted by those elected, and markets supply what is demanded. It is what allows race car drivers and environmentalists or meat lovers and vegetarians to coexist. But if banks can be forced to shut legal business or people out of the market, we lose freedom and democracy. The next comptroller must work to support fair access to our financial system for all.
Finally, do not combine politics and innovation. House Financial Services Chairwoman Maxine Waters proposes reversing innovation that occurred in the last four years. She seeks to eliminate the power of the comptroller to grant bank charters to the payment and technology firms. She wants to retract the ability for banks to hold cryptocurrency assets and to rescind guidance that banks can support digital coins. She also wants to overturn the rule for when valid loans are made. This would reduce access.
The common theme here is that the policies were adopted by nominees of President Trump. This political whiplash must stop. Financial markets are changing. Our global competitors are innovating. We can either decide to win the race, or look back on this as the moment we gave up.
Brian Brooks has served as the former acting comptroller of the currency.