OCC Comptroller Argues in Favor of Bank Regulation to Slow Cryptocurrency Risk
On January 13, 2022, Acting Comptroller Michael J. Hsu of the Office of the Comptroller of the Currency (“OCC”) made remarks before the British American Business Transatlantic Finance Forum Executive Roundtable regarding the future of crypto-assets and regulation.
Hsu began his speech by acknowledging the rapid growth of the cryptocurrency market and the scope that it plays in our current economy. Notably, Hsu stated that it is seen as a “mainstream” enterprise to consumers, with 16 percent of U.S. adults saying they have “owned, traded, or used some form of cryptocurrency” and “hundreds of organizations” emerging to engage in or facilitate the industry. Additionally, Hsu highlighted the fact that “underbanked” and minority persons have had a very prevalent interest in and exchange with the market.
With crypto's rapid growth and engagement, Hsu has specific concerns regarding the lack of regulatory and legal uncertainty, as well as the bad actors seeking to take advantage of the market, including hackers. Hsu’s perspective is that the regulation of stablecoin—the “oxygen of the crypto ecosystem” and the “key link to the fiat currency world[]”—will act to “stabilize” the industry.
Although stabilization is imperative, Hsu acknowledged that the only thing preventing a run on the banks for the redemption of stablecoin—aside from regulation—is trust that the value is as represented and that the market will remain steady—similar to the circumstances which provoked the 2008 bank runs.
In light of these risks, Hsu proposed banking regulation in the form of:
Maintenance of reserve funds;
A coordinated and collaborative regulatory approach across the different agencies;
Permission to gain access to a central bank’s discount window to “meet short term liquidity needs” to ensure consumer confidence and prevent a bank run.
Comptroller Hsu is not the first regulatory agent to comment on and encourage the implementation of a cryptocurrency market regulatory scheme. Financial institutions should be aware of and review such comments and consider them in deciding whether to engage in the stablecoin market and, if so, how to maintain stability in their institution.