Congressional action, ‘trip wires’ urged for lessening of line blurring between banking, commerce

Financial instability is a possible result of the blurring of lines between banking and commerce in payments and private equity and credit, the leader of the national bank regulator said in remarks Wednesday.

But the chances of instability can be lessened by congressional action on payments regulation, and adoption of a “trip-wire” approach for assessing systemic risk, the leader of the Office of the Comptroller of the Currency (OCC) said.

Speaking to a conference at Vanderbilt University in Nashville, Tenn., Acting Comptroller of the Currency Michael Hsu said the U.S. lacks a federal money transmitter licensing standard and authority. He said that absence has “likely contributed to the explorations by fintechs” for specialized “bank-lite” charters.

Hsu urged Congress to create a federal framework for payments regulation, as recommended by the Treasury Department’s September 2022 report “The Future of Money and Payments.”

“Doing so would provide a clearer path for innovation and growth in payments with less risk of blurring and to financial stability,” Hsu said.

Regarding financial stability generally, Hsu advocated for a “trip-wire” approach.

“Under this approach, the FSOC (Financial Stability Oversight Council) would establish a set of metrics and thresholds, which if exceeded would trigger the assessment of systemic risk,” Hsu said. “The trip wires could complement other modes of analysis and would not have to be the exclusive means of prompting an assessment.

Under this approach, Hsu said the FSOC would publish the trip wires and seek public comment on their appropriateness and calibration before finalizing them. He said the proposal and finalization would be transparent to the public.

“Notably, the only consequence of crossing a trip wire would be to move from the identification phase to the assessment phase of the analytic framework,” Hsu asserted. “Each assessment would then be conducted on its own merits, irrespective of the trip wire, which would inform the need for an FSOC response (if any), ranging from interagency coordination and information-sharing to initiating the process to consider a designation.”

He said that, by design, the trip wires would be several steps removed from any formal action by the FSOC. The sole purpose and consequence of the trip wires would be to prompt an assessment, he added.

Acting Comptroller Discusses Banking and Commerce