OCC Warns of State Laws Targeting National Bank Activities

The Office of the Comptroller of the Currency (OCC) cautioned that it might have to push back on states passing laws intended to supervise national bank activities for political reasons.

In a speech addressing key long-term trends reshaping banking, Michael Hsu, acting comptroller of the currency, said recent developments in banking laws at the state and local levels have caused a “worrisome trend of fragmentation”  to emerge.

He said:  “Increasingly banks are being asked by states to pick a side in service of performative politics rather than deliberative policy.”

However, the OCC will strive to counteract this trend to prevent local overreach from fracturing the US banking system, aiming instead to promote unity within a fragmented banking landscape.

Hsu said the OCC intended to “fortify and vigorously defend”  federal preemption over state laws that are deemed to interfere with national bank operations and regulation.

The OCC also said it would enhance oversight of the increasingly complex relationship between banks and nonbanks, such as fintechs.

This evolving relationship is creating greater interdependencies between the two entities and blurring the lines between banking and commerce.

For examples, consumers and businesses are increasingly turning to fintechs for services such as payments, lending, and deposits. Fintech firms, in collaboration with banks, facilitate the delivery of these services. Meanwhile, banks themselves depend on various nonbank service providers, such as core processors, to manage a wide array of operations and functions.

As a result, traditional direct banking relationships are being replaced with long-intermediated chains of discrete services. While this shift may offer certain benefits and efficiencies, it can also create and distribute risk in unclear ways.

As the public expects banks and regulators to address issues throughout these chains, the OCC highlighted the need to enhance oversight in this area as a top priority.

Hsu said: “As the recent bankruptcy of Synapse has shown, the line between where a bank ends and where a nonbank begins is increasingly hard for consumers, regulators, and market participants to discern. This makes it challenging to know who is responsible for what—a challenge that is playing out tragically for the millions of consumers and end users caught up in the Synapse bankruptcy.”