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[Music] hey everybody it is a thrill to participate in money fest by money 2020 this year i want to thank sanjib khalida for arranging this opportunity it really is an honor to be among so many innovators disruptors motivators and visionaries you have a rockstar lineup and i'm glad i can be a small part of the program today as acting controller the currency i lead 3 500 dedicated women and men who oversee the federal banking system that means we're the primary regulator for banks and thrifts that conduct about 70 percent of all banking activity in the united states the banks range in size from small community banks that meet the needs of local neighborhoods to the largest and most complex financial companies in the world these banks hold 13 trillion dollars in assets that's trillion with the t and they have more than 52 trillion dollars under their fiduciary and custodial control most american families and businesses have one or more relationships with a bank we regulate so when jennifer garner asks what's in your wallet the real answer is the occ now the occ was created by abraham lincoln 157 years ago to ensure that our country had a system of banks that support the commerce and finance of an expanding nation in a safe sound and fair manner that work includes examining the condition of these banks and taking supervisory and enforcement action when necessary to correct course it also means providing a comprehensive regulatory framework that enables them to adapt to the changing needs of their communities after all these banks are the nation's financial infrastructure and we cannot have a 21st century economy running on a 19th century system today i want to talk about two unstoppable forces that are reshaping the financial industry and about the occ's work to ensure the federal banking system can successfully adapt and leverage these changes to improve financial access for everyone and promote economic growth and opportunities the first force remaking banking today is the notion of unbundling now over the last 50 years banks have become the department stores or supermarkets of financial services the department store business model worked pretty well for the 150 years of retail commerce ever since john wanamaker brought that concept to philadelphia from paris department stores gave consumers of the day convenience it reduced the burdens of transportation and most of all it saved time that concept made sears jcpenney and macy's household names but something has changed where do you shop today to get the latest electronic gadget or the freshest dress off the runway more and more consumers are turning to boutiques and specialty stores because technology has made it easier to shop at the source rather than having to go to the department store it's also because consumers find the experience more enjoyable big box stores and discount stores still have their place obviously but i ask you where are sears and jcpenney today and that same transition is at work in banking and finance less than a generation ago our parents came to their banks to deposit checks and they stayed for the loans and the life insurance but today banking services are becoming unbundled because consumers have more power and more control over their fiscal lives do its no small part to some of the participants in this program and those of you listening boutiques and financial services companies that specialize in certain aspects of our economic lives deliver as much value and a better experience than department stores did a generation ago and by bringing a laser focus to distinct problems within the delivery of financial products and services fintech companies are providing value that some incumbents cannot as a result we as consumers are making choices about our money based on quality convenience and even social ethics we're actually shopping for financial services in a way that our parents and their parents could not and that change is coming rapidly let me prove it to you prior to the financial crisis in 2008 national banks conducted the vast majority of consumer lending and virtually all payment activity in the united states but by 2018 bank's share of personal loans fell to 28 while fintech's share of that market rose to 38 and fintech unicorns like square paypal and stripe have similarly captured a large and growing segment of the payments business that national banks previously dominated now let's look at how traditional banks have performed compared with their unbundled fintech counterparts those specialized challenger companies that are operating discrete sectors of the banking system the return on indexes of banks of all sizes community banks mid-size and large banks have been negative at one of one in three years and virtually flat at five years meanwhile the investment returns of companies focused on individual aspects of banking like payments companies payroll companies capital markets providers core technologies information services and software as a service those are up big at three and five years 50 80 and up to 160 percent now admittedly these last 12 months have not been good for anyone but consumers are voting with their feet and investors are voting with their money they're both telling us that the change to unbundled business models is to some extent inevitable as the borg would say on star trek resistance is futile and i'm here to say that change may be good because the transformation is giving us more choice to assemble a portfolio of products and services that meet our unique lifestyles and that can evolve more easily as our life needs change what we have to do however is to have a federal banking system that supports that and doesn't resist it now the second change i mentioned earlier is the decentralization of finance or defy powered by blockchains and other distributed ledger technologies the rocket fuel for which is crypto now this is no small change it could be tectonic in scale blockchain technology is to the financial system what the internet was to libraries and post offices regulators and incumbent service providers all of them need to get ahead of this or be relegated to economic history the change is real it may have taken a little bit more time than we thought but it's now here and it's large about 60 million americans own some form of cryptocurrency and more than a quarter of institutional investors hold crypto assets in their portfolio total market cap of crypto last time i checked is between 350 and 400 billion dollars as a financial regulator whether i like this or not i can't ignore the increasingly important aspect of crypto in the world of financial services this means banking and i say banking because blockchain fundamentally is a banking technology it records transactions it enables the exchange of value in the same ways that bank clerks and wells fargo stage coaches once did in the 1860s except blockchain enables this activity to incur to occur instantaneously with backups throughout the network and network participants constantly validating and checking the exchange of information now defy has tangible benefits for consumers too and may be one of our best weapons against inequality one benefit to consumers and businesses alike comes from enabling real-time payments imagine a world where overdraft fees disappear because instead of delays and payments money is moved between customer and vendor at light speed consider the primary use case for payday lending which involves delays in receiving and cashing paychecks real-time payments dramatically reduce the need for these services which are consumed most often by minority and underserved customers it is an absolute travesty that our country is a decade behind the united kingdom and mexico with regard to real-time payments it is disappointing that we're optimistically promised a system in 2024. let me say again 2024 for faster payments in the united states i don't want to wait four years for that and i'm sure neither do you i'm not sure our international competitiveness can wait now blockchain also can make mundane tedious processes much more efficient and dramatically cheaper for instance right now there are companies originating mortgages entirely on the blockchain and are reducing costs by one or two percentage points on every loan reducing origination costs can decrease the amount of cash on hand necessary to close and that makes home ownership more affordable because down payments and closing costs are the biggest obstacle preventing more minorities and low and moderate income people from owning their piece of the american dream by the way the wealth gap being solved by these projects the wealth gap between white and african american families is approximately 150 thousand dollars per family which is almost entirely explained by the average cost of a single-family home now what may surprise some people is how much of this defy and crypto revolution is already occurring inside the federal banking system the large custody banks state street goldman sachs jp morgan for example hold billions of dollars in deposits backing crypto assets such as stable coins banks are exploring their own blockchains to power payments and back office operations internally visa is exploring support for stable coins affirmatively and aggressively stable coins obviously being cryptocurrencies that are backed by an asset such as a fiat currency and are designed to have a stable value and some fintech companies outside of the space have now decided they actually want to be banks or to buy banks or to partner with banks and why because as willie sutton said that's where the money is and all of this activity has been occurring with a dearth of regulatory clarity there's some federal and international guidance pertaining to any money laundering but generally crypto activity in the united states is entirely regulated by the states meaning that companies that are not banks engaged in providing cryptocurrency and financial services powered by distributed ledger technology have to navigate a maze of 50 licensing and regulatory regimes as the former chief legal officer of prominent fintech engaged in crypto assets i assure you that environment is costly inefficient and difficult for innovation so these two forces were talking about unbundling and decentralization can't be ignored by federal regulators so let me shift gears for a moment and share some of the things that we're doing at the occ to make sure that the federal banking system is ready for this evolution and that as many people benefit from these changes as possible first our agency recognizes that companies engaged in banking through new and innovative means should have the option and ability to apply for national charters so they can deliver those products and services on a nationwide scale subject to one comprehensive regulatory framework in the same way that incumbent banks operate today it also means supporting bank business models that focus on certain aspects of banking as long as they take deposits or lend money or pay checks as the law and our 20 year old regulation require it doesn't mean lighter regulations for these companies what it means is that these bank activities would face the same rigorous supervision as similar activities conducted by incumbent banks today the uniform application of supervision levels the playing field it doesn't distort it and that may sound revolutionary but only because our memories are short the idea that only companies that take deposits are banks is novel by historical standards the earliest chartered bank founded in genoa italy in 1407 it didn't take deposits the famous vessel bank of amsterdam chartered in 1609 which revolutionized the clearing of international trade payments didn't take deposits actually didn't make loans during this first century of operation and our own federal banking system founded in 1863 was first and foremost a means to support payments finance and commerce to unify a nation deposits came later so fast forward to the 20th century and credit card banks fund themselves primarily through securitization of receivables not deposits uninsured trust banks facilitate billions of dollars in payments and manage trillions of dollars in custodial assets but don't take deposits and the argument by those who say that now in this country only companies that take deposits can be banks also makes no logical sense when you look at banking as an activity rather than as a building take payments for instance payments are universally recognized to be a banking activity yet over the last decade a significant portion of that activity has migrated from banks we regulate to shadow banks that we don't the nature of that activity doesn't change what makes those companies that focus on that aspect of banking instead of deposits any less a bank why shouldn't that activity be subject to federal oversight and be regulated in the same way that activity is when a bank conducts it that makes no sense to me and more importantly it can be dangerous now ten years ago i could have confidently answered the question about whether whether banks were conducting payment activities in a safe sound fair manner that is my agency's responsibility if we fail at that mission we're rightly criticized and held accountable but as activity like this migrates out of our field of vision our ability to affect the quality of the activity shrinks and that's why i advocate for our agency's authority and ability to charter companies engaged in narrow aspects of banking so that more of that activity can continue within the banking system rather than outside of it the same is true with defy and crypto we can either adjust our regulatory perspective and ensure that activity can occur safely and fairly within the federal banking system or it's going to take place it'll just take place outside the banks we will not stop continental drift by ignoring it there are a couple of specific activities that the occ has taken to help banks engage in crypto in safe and sound ways the first involves clarifying banks authority to provide custody services for customers crypto assets for more than 100 years banks have been the safest place for customers to store all of their most valuable assets cash jewelry art fine wine crypto assets and the tokens that enable them are no different in july we issued a letter making it clear that banks and thrifts may extend their custody services to include crypto assets a little bit later in september of this year we issued a second letter clarifying the authority of national banks and federal savings associations to engage in certain activities related to stable coins the letter concludes that occ-regulated entities may hold funds on deposit that serve as reserve for certain kinds of stable coins the letter applies only to stable coins that are backed on a one-to-one basis by a single fiat currency and that are held by a trusted third party in cryptocurrency wallets sometimes called hosted wallets that letter also clarified that national banks and thrifts may use distributed ledger technology to facilitate payment services including by use of stablecoin associated with hosted wallets to transmit payment information none of these things should be controversial in the least but changes in banking are always subject to a fight because of the wide array of stakeholders and the volume of dollars at stake just as it was controversial when banks first offered variable annuities or travelers checks the changes associated with unbundling and decentralization are going to be attacked by those with an interest in defending the status quo that's okay but we can't let that deter the necessary progress we must make so that banking can adapt to meet the needs of the consumers businesses and communities that it serves as with all new activities banks should ensure that they understand and appropriately manage the risks associated with these activities and conduct them in a safe sound and fair manner under applicable banking law at the occ we're here to ensure just that thanks again for having me and for giving me this opportunity to share my perspective on the future of banking i'm very excited to answer a few questions during the time we have left [Music] you