00:01.650 --> 00:04.268
Ed Perlmutter: Everyone, the
subcommittee on consumer

00:04.337 --> 00:08.266
protection and financial
institutions will come to order.

00:08.335 --> 00:12.607
Without objection, the chair is
authorized to declare a recess

00:12.676 --> 00:17.018
of the subcommittee at any time.
And without objection, members

00:17.087 --> 00:21.360
of the full committee, not on
this subcommittee are authorized

00:21.429 --> 00:25.219
to participate in today's
hearing. As a reminder, I ask

00:25.288 --> 00:29.423
all members to keep themselves
muted when they are not being

00:29.492 --> 00:33.145
recognized to minimize
disturbances while members are

00:33.214 --> 00:36.867
asking questions of our
witnesses. The staff had been

00:36.935 --> 00:41.002
instructed not to mute members
except where a member is not

00:41.070 --> 00:45.137
being recognized and there is
inadvertent background noise.

00:45.206 --> 00:49.272
Members are reminded that all
house rules relating to order

00:49.341 --> 00:53.338
and decorum apply to this remote
hearing. Members are also

00:53.407 --> 00:57.059
reminded that they may
participate in only one remote

00:57.128 --> 01:00.643
proceeding at a time, Mr. Luke
De Meyer. If you are

01:00.712 --> 01:04.778
participating today, please keep
your camera on. And if you

01:04.847 --> 01:08.913
choose to attend a different
remote proceeding, please turn

01:08.982 --> 01:13.117
your camera off. If members wish
to be recognized during the

01:13.186 --> 01:16.977
hearing, please identify
yourself by name to facilitate

01:17.046 --> 01:21.250
recognition. We're in a very
busy time, but we have a subject

01:21.318 --> 01:25.522
that I think is particularly
important and really goes to the

01:25.591 --> 01:29.520
heart of our subcommittees
business. Today's title of our

01:29.589 --> 01:33.379
hearing is banking, innovation,
or regulation, evasion,

01:33.448 --> 01:37.445
exploring modern trends in
financial institution charters.

01:37.514 --> 01:42.270
I now recognize myself for four
minutes to give an opening statement.

01:42.270 --> 01:46.350
In 1863, President Lincoln
signed the national currency Act

01:46.380 --> 01:50.730
into law taking the first step
in establishing the national

01:50.730 --> 01:54.240
banking system. One of the
primary goals of the national

01:54.240 --> 01:57.810
currency Act and the subsequent
National Bank Act was the

01:57.810 --> 02:01.140
standardization of currency to
protect consumers against

02:01.170 --> 02:05.130
uncertainty in the valuation of
banknotes, rampid,

02:05.130 --> 02:09.720
counterfeiting and fraud and his
1864 address to Congress,

02:09.720 --> 02:13.440
President Lincoln said that the
government and the people will

02:13.440 --> 02:17.070
derive great benefit from this
change in the banking systems of

02:17.070 --> 02:20.970
the country can hardly be
questioned, the national system

02:20.970 --> 02:24.690
will create a reliable and
permanent influence in support

02:24.690 --> 02:27.810
of the National Credit and
protect people against losses

02:27.810 --> 02:32.160
and the use of paper money. At
the heart of our banking system

02:32.160 --> 02:35.910
is a promise of consumer
protection and benefit to the

02:35.910 --> 02:39.210
people President Lincoln knew
our national banking system

02:39.450 --> 02:44.910
needed to be reliable, stable,
honest, consistent across all

02:44.910 --> 02:49.890
states, and effective. Over the
last 150 years, the banking

02:49.890 --> 02:53.490
system has changed a great deal.
But its core mission to serve

02:53.490 --> 02:57.510
the people by taking deposits,
offering credit and facilitating

02:57.510 --> 03:01.950
transactions, and intermediating
transactions remains principally

03:01.950 --> 03:05.850
the same. In recent years, a
variety of non bank and fintech

03:05.850 --> 03:09.870
companies have sought to engage
in the business of banking or in

03:09.870 --> 03:13.620
activities very similar to
banking. Few of these companies

03:13.620 --> 03:16.860
have sought traditional banking
charters, either because they

03:16.860 --> 03:19.890
are weary of the additional
regulation and supervision that

03:19.890 --> 03:23.400
comes with being a bank or
because the structure of their

03:23.400 --> 03:26.850
business does not fit squarely
within a traditional charter.

03:27.390 --> 03:30.210
Many of the unconventional
charters do not come with the

03:30.210 --> 03:34.260
same level of regulation, and
supervision traditional charters

03:34.260 --> 03:38.400
require. Despite the innovations
of the last 10 years, many of

03:38.400 --> 03:41.640
the questions we will be
discussing today are not new.

03:42.240 --> 03:45.390
Industrial loan companies have
been around since 1910. And the

03:45.390 --> 03:49.230
debate over the separation of
banking and commerce predates

03:49.230 --> 03:53.160
even the National Currency Act.
In recent years, the Office of

03:53.160 --> 03:56.490
the Comptroller of currency has
granted FinTech companies

03:56.490 --> 04:00.600
banking charters, but the debate
about what constitute the what

04:00.600 --> 04:04.080
constitutes the business of
banking, and what makes banks

04:04.080 --> 04:08.820
special is a much older
conversation. We do not want to

04:08.820 --> 04:12.750
slow innovation, but it is the
Congress's duty to ensure change

04:12.750 --> 04:17.250
comes at the benefit and not the
detriment of the people. As the

04:17.250 --> 04:21.390
economy continues to reopen from
the pandemic, it is important

04:21.390 --> 04:25.530
our financial system remains
stable and strong, and consumers

04:25.530 --> 04:29.880
are treated fairly and honestly,
most banks and credit unions

04:29.880 --> 04:33.480
have been a source of strength
in the pandemic in part because

04:33.480 --> 04:37.080
of the stringent capital,
liquidity and other regulatory

04:37.080 --> 04:41.190
requirements we place on these
financial institutions. I look

04:41.190 --> 04:44.400
forward to the discussion. I
want to compliment the panel on

04:44.400 --> 04:48.120
their very thorough written
testimony and I'll be interested

04:48.120 --> 04:51.960
to see how all of you can stick
within five minutes based on

04:51.960 --> 04:55.380
your written materials. But this
is we're going to be dealing

04:55.380 --> 04:59.430
with financial stability risks
consumer protection issues,

04:59.550 --> 05:03.540
market fairness questions and
the potential benefits of non

05:03.540 --> 05:06.570
traditional banking charters.
Additionally, I would like to

05:06.570 --> 05:10.110
ask both the committee members
and the witnesses today to

05:10.110 --> 05:13.800
consider how we can encourage
innovation alongside strong

05:13.800 --> 05:18.120
consumer protections, diversity
and inclusion in our banking

05:18.120 --> 05:22.200
system. With that, I'll yield
back. And I'd like to now

05:22.200 --> 05:26.010
recognize Mr. Luke De Meyer, for
four minutes for his opening

05:26.010 --> 05:26.520
statement.

05:29.800 --> 05:31.630
Luke De Meyer: Thank you, Mr.
Chairman, for having this

05:31.630 --> 05:34.720
hearing on this important topic.
And thank you to our witnesses

05:34.720 --> 05:38.440
today. And I look forward to
your testimony. And many of you

05:38.440 --> 05:40.780
know, before coming to Congress,
I was in the banking business,

05:40.780 --> 05:43.870
both as a banker and as a
regulator for many, many years.

05:44.260 --> 05:46.570
While it may surprise some of
you know, I was not around

05:46.570 --> 05:49.060
during the Great Depression, I
have seen a lot of changes

05:49.060 --> 05:51.340
within the banking industry
during my 40 years of a

05:51.340 --> 05:54.400
regulator and banker. Mr.
Chairman, you don't need to be

05:54.400 --> 05:57.910
laughing at that you're not much
younger than I am. I remember

05:57.910 --> 06:01.570
the savings and loan crisis of
the 80s. I remember when people

06:01.570 --> 06:03.700
thought that innovation of
credit and debit card was

06:03.760 --> 06:07.090
optimized completely, would it
really eliminate checks. Also

06:07.090 --> 06:10.030
remember that when the community
Reinvestment Act was signed into

06:10.030 --> 06:12.700
law, like there was this
hearing, I remember the crash of

06:13.090 --> 06:16.360
'08. Throughout the years,
banking has been fluid that has

06:16.360 --> 06:19.840
changed with the times adapted
to become more capitalized,

06:19.870 --> 06:22.930
adapted to serve the communities
in which they operate and serve

06:22.930 --> 06:26.980
more Americans are having us
here today because the banking

06:26.980 --> 06:30.130
system is changing once again.
In the last decade, we have seen

06:30.130 --> 06:33.640
a rise in financial technology
or fintech companies that truly

06:33.640 --> 06:36.760
push innovation and banking of
the banking industry from mobile

06:36.760 --> 06:40.810
payments to algorithmic lending,
and much more. As these entities

06:40.810 --> 06:43.330
have grown significantly in the
last decade and become more

06:43.330 --> 06:46.210
permenant in our banking system,
they have begun to seek out

06:46.210 --> 06:48.310
charting options that are
consistent with the growth of

06:48.310 --> 06:51.550
their companies, the OCC has
been extremely active in this

06:51.550 --> 06:54.580
space and sought to provide a
chartering option for fintechs

06:54.730 --> 06:56.950
through a special purpose
National Bank Charter for

06:56.950 --> 07:00.100
fintechs. However, that decision
has been tied up in the courts

07:00.100 --> 07:03.310
in recent years. The OCC has
also discussed the idea of a

07:03.310 --> 07:06.250
National Charter for payment
companies and separately, has

07:06.250 --> 07:09.100
approved anchorage for a
National Trust charter made up

07:09.100 --> 07:13.420
the first digital asset bank, we
should examine the pros and cons

07:13.420 --> 07:17.170
of the OCC's actions. But we
should also examine the role of

07:17.170 --> 07:20.140
state banking regulators and
regulation charting of fintechs.

07:20.500 --> 07:23.530
It is the current state
regulatory regime and is the

07:23.530 --> 07:26.740
current state regulatory regime
adequate and is it necessary for

07:26.740 --> 07:29.920
the program to get involved.
Another pathway explored by

07:29.920 --> 07:32.590
numerous entities to interpret
the banking system is the

07:32.590 --> 07:37.240
industrial loan company IOC
charter but IOC's are regulated

07:37.240 --> 07:40.000
on a federal level by the FDIC
and supervised by state

07:40.000 --> 07:43.870
regulators. The parent company
is not considered a bank holding

07:43.870 --> 07:46.720
company or the bank holding
company act. This is a critical

07:46.720 --> 07:49.390
difference between bank holding
companies that are supervised by

07:49.390 --> 07:52.180
the Federal Reserve and are
restricted by law to activities

07:52.180 --> 07:55.180
closely related to banking. The
separation of banking and

07:55.180 --> 07:58.750
Commerce has been a key staple
of our dual banking system, and

07:58.750 --> 08:02.110
the rise of the ILC approvals
and applications this does raise

08:02.110 --> 08:05.830
questions of banking and
commerce separation, safety and

08:05.830 --> 08:09.250
soundness, and privacy.
Questions which I look forward

08:09.250 --> 08:12.880
to asking today. However, before
Congress acts rationally, to

08:12.880 --> 08:15.460
eliminate any charting options,
it was critical to look at the

08:15.460 --> 08:19.420
entire ecosystem of chartering
in the banking industry. For

08:19.420 --> 08:23.260
example, since 2010, there have
been only 43 to double banks.

08:23.800 --> 08:26.380
That same period of time, the
number of FDIC insured

08:26.380 --> 08:30.460
depositories has decreased by
roughly 2000 institutions.

08:30.670 --> 08:33.820
That's almost four banks per
week. In addition, the

08:33.820 --> 08:37.060
innovation of FinTech companies,
has largely increased access to

08:37.060 --> 08:40.870
credit and lowered the number of
unbanked and underbanked people

08:40.870 --> 08:45.430
in our society, the number of
bank fintech partnership, the

08:45.430 --> 08:49.540
current CD, the current bank,
bank, fintech partnership model

08:49.540 --> 08:52.570
has proven extremely successful
not only providing more services

08:52.570 --> 08:55.630
and access to businesses,
consumers, but also has

08:55.630 --> 08:58.780
significant consumer protections
and oversight to the regulation

08:58.810 --> 09:01.870
and supervision of banks.
Congress should examine all

09:01.870 --> 09:04.210
these issues when taking action
affecting the charter of

09:04.210 --> 09:07.030
institutions. I've always said
that if you want to be a bank,

09:07.300 --> 09:09.910
you need to be regulated like a
bank, we believe this can be

09:09.910 --> 09:12.070
accomplished by providing a
regulatory and chartering

09:12.070 --> 09:14.800
framework that allows fintech
companies to continue to thrive

09:14.800 --> 09:17.410
in the banking industry while
protecting the city of banks, as

09:17.410 --> 09:20.920
the bedrock of our financial
system. So be it on the court

09:20.920 --> 09:23.680
raising these questions in our
in our witnesses of our

09:23.680 --> 09:26.710
witnesses today. Is that, Mr.
Chairman, I yield back. Thank

09:26.710 --> 09:27.670
you so much for your.

09:29.370 --> 09:31.530
Ed Perlmutter: Thank the
gentleman. The Chair now

09:31.530 --> 09:34.980
recognizes the chairwoman of the
full committee, the gentlewoman

09:34.980 --> 09:38.130
from California for the balance
of our five minutes, which I

09:38.130 --> 09:41.250
think is about a minute and 23
seconds.

09:41.630 --> 09:44.720
Maxine Waters: Thank you very
much, Chairman Perlmutter for

09:44.720 --> 09:48.410
holding this very important
hearing. The pandemic has

09:48.410 --> 09:52.790
accelerated the way people use
technology to bank obtain a loan

09:52.910 --> 09:57.200
and make payments at the same
time state regulators, community

09:57.200 --> 10:00.770
banks, credit unions, and
consumer advocates have raised

10:00.770 --> 10:06.410
the alarm about how new entities
including big tech firms are

10:06.410 --> 10:09.320
receiving unconventional
charters and offering bank

10:09.320 --> 10:14.060
products and services while
evading regulations. Most banks,

10:14.150 --> 10:18.770
including community banks comply
with additionally, the OCC has

10:18.800 --> 10:23.210
overstepped its authority,
pretending that laws signed by

10:23.270 --> 10:26.720
Abraham Lincoln, were intended
to create charters for fintech

10:26.840 --> 10:29.960
or cryptocurrency. I look
forward to hearing from our

10:29.960 --> 10:34.220
panel on how Congress can
promote responsible innovation.

10:34.640 --> 10:37.640
That does not lead to a
regulatory race to the bottom

10:37.910 --> 10:41.870
where consumers get hurt. And
the safety and soundness of our

10:41.870 --> 10:45.500
financial system is once again
in peril, I yield back the

10:45.500 --> 10:47.570
balance of my time. And thank
you very much.

10:49.160 --> 10:51.680
Roger Williams: Thank you
Gentlelady yields back. Now I'd

10:51.680 --> 10:54.980
like to recognize the ranking
member of the full committee,

10:55.160 --> 10:59.810
Mr. McHenry from North Carolina
for the balance of his five

10:59.810 --> 11:00.410
minutes.

11:01.800 --> 11:04.050
Patrick McHenry: Thank you.
Thank you, Mr. Chairman. And,

11:04.650 --> 11:08.190
Mr. Brooks, I want to personally
thank you for your leadership in

11:08.220 --> 11:11.520
the OCC and for testifying
today. I wish you best in your

11:11.550 --> 11:15.450
future endeavors. It's clear
that my colleagues on the other

11:15.450 --> 11:17.700
side of the aisle want to relive
old debates here in the

11:17.700 --> 11:22.500
committee. And this is certainly
an old debate. In framing this

11:22.500 --> 11:25.830
discussion, I'll have to go back
to my talking points, my notes

11:25.830 --> 11:31.170
from 2005, 2006, and 2007. You
know, I've used this quote

11:31.170 --> 11:34.500
before, but to quote Tally Rand
and speaking about the bourbon

11:34.500 --> 11:38.760
dynasty, they have learned
nothing and forgotten nothing.

11:39.330 --> 11:44.130
It's all the same here. Yet
consumers and businesses have

11:44.130 --> 11:46.710
preferences and continue to
evolve. The private sector is

11:46.710 --> 11:51.060
innovating new ways to meet the
needs of all of our consumers.

11:51.060 --> 11:54.090
And we should be encouraging our
regulators to seek regulatory

11:54.090 --> 11:57.000
requirements that fit these
advancements, not hinder them,

11:57.180 --> 12:01.260
Republican sport, promoting an
up to date regulatory framework

12:01.350 --> 12:04.260
that sets clear rules of the
road for all participants. We

12:04.260 --> 12:07.620
want and will continue to work
for the most inclusive financial

12:07.620 --> 12:09.720
system possible, and I yield
back.

12:11.010 --> 12:13.560
Roger Williams: Gentleman yields
back. And that's the first time

12:13.560 --> 12:17.580
I've heard about tally Rand in
11 or 12 years. So thank you

12:17.700 --> 12:24.720
very much, Mr. McHenry. I'm now
pleased to welcome each of our

12:24.720 --> 12:29.370
witnesses and want to introduce
the panel and I will let you all

12:29.370 --> 12:33.060
know that there are three
Coloradans on this panel, which

12:33.060 --> 12:36.840
makes it a particularly
outstanding group to testify

12:36.840 --> 12:41.970
before the committee. First, we
have Raul Carrillo who is the

12:41.970 --> 12:46.050
Deputy Director of the LPE
project and Associate Research

12:46.050 --> 12:50.850
Scholar at Yale Law School. Mr.
Carrillo work focuses on the

12:50.850 --> 12:55.830
legal foundations of Money,
Banking and Finance, as a legal

12:55.830 --> 13:00.810
technology and mode of
governance. Prior to joining the

13:00.810 --> 13:04.980
LPE project, Mr. Carrillo was
Policy Counsel at the Demand

13:04.980 --> 13:08.700
Progress Education Fund and a
fellow at the Americans for

13:08.700 --> 13:14.580
Financial Reform Education Fund.
Second, we have missed Professor

13:14.580 --> 13:19.560
Eric Gerding, who is a law
professor and Wolf scholar at

13:19.560 --> 13:23.040
the University of Colorado Law
School. Professor Gerding's

13:23.070 --> 13:27.150
research interests include
banking law, the regulation of

13:27.150 --> 13:30.810
financial products and
institutions, payment systems,

13:30.810 --> 13:33.780
and corporate governance. And he
has written extensively on the

13:33.780 --> 13:37.320
interaction between asset price
bubbles and financial

13:37.320 --> 13:40.500
regulation. Professor Girding
previously taught at the

13:40.500 --> 13:44.130
University of New Mexico School
of Law, and he has practiced law

13:44.160 --> 13:48.630
in New York and Washington. Our
third panelist is Kristen

13:48.630 --> 13:54.390
Johnson, who is the Asia Briggs
Candler professor of law at

13:54.390 --> 13:58.320
Emory University School of Law.
Miss Johnson's recent work

13:58.590 --> 14:02.550
includes a focus on emergent
technologies, such as

14:02.550 --> 14:05.610
distributed digital ledger
technologies and enable the

14:05.610 --> 14:09.720
creation of digital assets and
intermediaries. Prior to her

14:09.720 --> 14:13.290
work at Emory University School
of Law, Miss Johnson served as

14:13.290 --> 14:17.580
the McGlinchey Stafford
Professor of Law and Associate

14:17.580 --> 14:22.050
Dean for the faculty research at
Tulane University Law School.

14:22.470 --> 14:26.880
Our fourth panelist is Carlos
Pacheco, who is the CEO of

14:26.880 --> 14:31.470
Premier members credit union in
Colorado testifying on behalf of

14:31.470 --> 14:34.680
the National Association of
federally insured credit unions

14:34.680 --> 14:39.480
Matthew, Mr. Pacheco has been
CEO of Premier Members Credit

14:39.480 --> 14:44.430
Unions since 2011. And he also
serves as the board director for

14:44.430 --> 14:47.760
the Denver Boulder Better
Business Bureau and the Cabinet

14:47.760 --> 14:52.230
campaign chair for the foothills
United Way. Finally, we have

14:52.230 --> 14:57.030
former Comptroller of the
Currency. Brian Brooks, native

14:57.030 --> 15:01.560
Coloradan from Pueblo, Colorado,
Mr. Brookes acting as Acting

15:01.560 --> 15:08.040
Comptroller from May 29 2020 to
January 14 2021, after serving

15:08.040 --> 15:11.910
as Senior Deputy Comptroller and
Chief Operating Officer at the

15:11.910 --> 15:16.050
OCC where he oversaw bank
supervision, systemic risk

15:16.080 --> 15:19.050
identification, support,
innovation and other issues.

15:19.470 --> 15:23.100
Prior to his work at the OCC,
Mr. Brooks served as Chief Legal

15:23.100 --> 15:27.510
Officer of Coinbase global a
crypto currency exchange.

15:28.890 --> 15:33.090
Witnesses are reminded your oral
test and I should say to the two

15:33.090 --> 15:37.650
panelists not from Colorado,
we'd be happy if you and honored

15:37.650 --> 15:41.100
if you chose to come to
Colorado, witnesses are reminded

15:41.100 --> 15:44.580
your oral testimony will be
limited to five minutes, you

15:44.580 --> 15:47.460
should be able to see a timer on
your screen that will indicate

15:47.460 --> 15:51.480
how much time you have left. And
a chime will go off at the end

15:51.480 --> 15:54.780
of your time, I would ask you to
be mindful of the timer and

15:54.780 --> 15:58.680
quickly wrap up your testimony.
If you hear the chime so we can

15:58.680 --> 16:01.980
be respectful of both witnesses
and the committee's committee

16:01.980 --> 16:05.490
members time. Without objection,
your written statements will be

16:05.490 --> 16:09.210
made part of the record. Once
the witness has finished their

16:09.210 --> 16:13.320
testimony, each member will have
five minutes to ask questions.

16:13.530 --> 16:17.490
So we'll begin with Mr. Carrillo
you are now recognized for five

16:17.490 --> 16:21.300
minutes to give an oral
presentation of your testimony.

16:23.910 --> 16:25.440
Raul Carrillo: Thank you
chairperson runner for the

16:25.440 --> 16:28.740
invitation. Thank you to chair
Waters to ranking member Luke De

16:28.740 --> 16:31.350
Meyer and Ranking Member
McCarthy and all members of the

16:31.350 --> 16:34.140
subcommittee. I offered my
testimony as an associate

16:34.140 --> 16:37.230
research scholar at the law
school. But most of my

16:37.230 --> 16:42.690
principles here were created or
developed by me as an attorney

16:42.690 --> 16:45.960
fighting and building on behalf
of low income and low income

16:45.960 --> 16:48.660
clients in New York City along
with a group called New Economy

16:48.660 --> 16:53.490
project. I echo my remarks to
the financial technology Task

16:53.490 --> 16:57.420
Force last September and
humbling requesting that

16:58.020 --> 17:01.920
everyone consider the deeper
impacts of fintech on democracy,

17:01.950 --> 17:05.280
there is now a need for serious
stewardship. The pandemic

17:05.280 --> 17:08.700
response and the actions by
regulators have cast into relief

17:08.700 --> 17:11.940
the fundamental ways in which
governments shape money and

17:11.940 --> 17:15.900
markets, there is no taking
politics out of tech, because

17:15.900 --> 17:19.380
there is no taking the law out
of tech or vice versa. Like

17:19.380 --> 17:22.530
physical tools, humans create
and use legal tools with certain

17:22.530 --> 17:26.340
ideas for their use in mind.
This morning, I had the luxury

17:26.340 --> 17:28.620
of presenting alongside
Professor Johnson, Professor

17:28.620 --> 17:32.250
Gerding. And I will thus defer
to them on many issues or

17:32.250 --> 17:35.430
otherwise points in my written
testimony. I would like to focus

17:35.430 --> 17:39.870
on one under emphasize dimension
of FinTech here today. And

17:39.870 --> 17:43.410
that's privacy and security. I
hope to stress that the mass

17:43.440 --> 17:47.580
perpetual, pre emptive and
predictive surveillance that is

17:47.580 --> 17:50.370
perpetuated by both the
government and private

17:50.370 --> 17:54.300
technology companies, often in
partnership, very much including

17:54.330 --> 17:57.390
FinTech companies should be of
deep concern for everyone

17:57.420 --> 18:00.630
regardless of party affiliation,
civil rights and civil

18:00.630 --> 18:03.600
liberties, including our
fundamental freedoms under the

18:03.600 --> 18:06.660
Fourth Amendment. The First
Amendment and the general love

18:06.660 --> 18:09.240
warrants the parliament and the
commoners want against the

18:09.240 --> 18:13.140
tyranny of King George. Certain
invasive product products and

18:13.140 --> 18:15.570
partnerships should not be
allowed in our system,

18:15.750 --> 18:18.450
regardless of whether they are
considered to be arbitrage or

18:18.450 --> 18:21.960
not my regulators. Treating
innovation as an unqualified

18:21.960 --> 18:25.770
good does not lead us to
equitable, sustainable whopper

18:25.770 --> 18:29.940
of innovation that allows us to
truly prosper together. As

18:29.940 --> 18:32.640
Vanderbilt law professor Morgan
Rickson stressed and President

18:32.640 --> 18:36.450
Lincoln might agree, money is
infrastructure. As scholars like

18:36.450 --> 18:39.180
Christine design, and live Nan
stress, money is also part of

18:39.180 --> 18:42.630
our constitutional order, and
regulation flows from Congress's

18:42.630 --> 18:45.750
authority over the public purse.
On the corporate side

18:45.750 --> 18:48.150
surveillance has now become the
business model of FinTech and

18:48.150 --> 18:50.820
many other companies. Congress
should shift the burden of

18:50.820 --> 18:54.180
privacy protection away from
consumers by establishing a

18:54.180 --> 18:56.850
short list of permissible
purposes for data collection,

18:56.940 --> 18:59.970
and banning all others. This is
envisioned by Senator Browns

18:59.970 --> 19:03.420
DATA Act of 2020. This is
especially important because the

19:03.420 --> 19:06.240
government currently deputized
as financial institutions as

19:06.240 --> 19:10.710
anti money laundering cops on
the beat. In 1992. Congress

19:10.710 --> 19:13.140
required the filing of
suspicious activity reports

19:13.170 --> 19:17.190
SARS, relevant to any possible
violation of the law. This has

19:17.190 --> 19:21.540
incentivized and burden firms
who must act as cops on the beat

19:21.690 --> 19:24.540
and send data often
automatically to government

19:24.540 --> 19:27.900
fusion centers at these fusion
centers, which serve as data

19:27.900 --> 19:30.720
platforms for local and federal
law enforcement. Peter TEALS

19:30.720 --> 19:34.350
Palantir aggregates information
and shares it more widely with

19:34.350 --> 19:37.650
law enforcement around the
world. Unfortunately, there's a

19:37.650 --> 19:40.950
hole in Fourth Amendment
doctrine. The court has claimed

19:41.160 --> 19:43.560
that we cannot have an
expectation of privacy in

19:43.560 --> 19:46.290
anything shared with the
business. This means as the

19:46.290 --> 19:50.700
crypto community will tell you
that there is no privacy and

19:50.700 --> 19:54.510
finance our infrastructure has
no place for privacy within it.

19:54.840 --> 19:57.990
This impinges not only on our
Fourth Amendment rights, but on

19:57.990 --> 20:01.500
our First Amendment values of
freedom of sociation and freedom

20:01.500 --> 20:04.860
of speech, especially for
certain vulnerable communities.

20:05.130 --> 20:09.060
In this context, it is deeply
troubling to me that FinTech

20:09.060 --> 20:12.360
promotes financial inclusion via
increasingly invasive biometric

20:12.360 --> 20:16.320
data. Moreover, an app or bank
account is not the answer to

20:16.320 --> 20:19.440
every problem. As Berkeley Law
Professor Abby Atkinson has

20:19.440 --> 20:22.500
recently stressed in concert
with community advocates. Credit

20:22.500 --> 20:25.650
is not a structural cure for
poverty. It has downsides.

20:25.710 --> 20:28.680
People need better wages and
better benefits. Just as

20:28.680 --> 20:32.160
importantly, we should not
consign everyday folks including

20:32.160 --> 20:35.280
necessarily ourselves to
unnecessary and dangerous

20:35.280 --> 20:38.970
invasion of their privacy, our
privacy in order to participate

20:38.970 --> 20:42.030
in the payment system. We
deserve to be one in the crowd.

20:42.420 --> 20:45.780
SARS have not made us safer.
True money laundering often

20:45.780 --> 20:49.740
occurs without notice the most
untoward exam. Excuse me, the

20:49.740 --> 20:53.880
most notorious example is hspcs
actions in laundering money for

20:53.880 --> 20:58.470
the Sinaloa cartel in Mexico.
Between 2010 and 20 1218

20:58.470 --> 21:01.140
financial institutions have
received deferred prosecution

21:01.140 --> 21:04.260
agreements, at least four of
them have broken the same AML

21:04.260 --> 21:07.980
law again, and simply received
another fine. Buzzfeed News and

21:07.980 --> 21:10.470
the International Consortium of
Investigative Journalists

21:10.650 --> 21:14.520
recently released 1000s of
FinCEN files, showing that the

21:14.520 --> 21:17.790
system does not work by its own
logic and again, does not make

21:17.790 --> 21:22.140
us safer. I see the evolution of
digital cash as a middle ground

21:22.140 --> 21:25.740
between proof privacy technology
like crypto, and folks who want

21:25.740 --> 21:30.210
the banking system to spy on all
of us. I joined Rick's Minh and

21:30.330 --> 21:33.750
John Crawford and Mr grata, Ron
Bob pocket Thalia marovo, and

21:33.750 --> 21:37.170
many others in advocating for
public bank accounts at the

21:37.170 --> 21:40.080
federal level. And I also joined
the activist is fighting for

21:40.080 --> 21:42.810
this on the state and local
level. Just as importantly,

21:42.810 --> 21:46.380
though, we need cash wallets
that replicate the true privacy,

21:46.920 --> 21:50.010
that a closed container for a
cash is created the lead

21:50.010 --> 21:53.190
technologist on this and the
best work is coming from Roland

21:53.190 --> 21:55.470
Gray, who was privacy lead at
the International

21:55.470 --> 21:58.620
Telecommunications Union. Mr.
Kareo very important for future

21:58.620 --> 21:59.670
security. Thank you.

22:00.930 --> 22:03.960
Roger Williams: Gentleman's time
has expired. Thank you, sir.

22:04.290 --> 22:07.680
Professor Gerding you are now
recognized for five minutes to

22:07.680 --> 22:11.010
give an oral presentation of
your testimony.

22:12.020 --> 22:14.480
Erik Gerding: Thank you,
Chairman Perlmutter. Thank you

22:14.480 --> 22:18.650
ranking member De Meyer chair
Waters and Ranking Member

22:18.650 --> 22:22.010
McHenry and members of the
committee for inviting me to

22:22.010 --> 22:26.330
testify today. My name is Eric
Gerding. I'm a law professor at

22:26.330 --> 22:30.230
the University of Colorado where
my research focuses on Banking

22:30.230 --> 22:35.000
and Securities laws. I will
focus my testimony today on

22:35.000 --> 22:41.120
three things. First, the FDIC
section to reopen applications

22:41.120 --> 22:44.600
for deposit insurance for
industrial loan companies.

22:45.230 --> 22:50.120
Second, the OCC radical new
fintech charter. And the third

22:50.120 --> 22:54.110
and more broadly, why Banking
Law separates banking from

22:54.110 --> 23:00.350
commerce and commercial firms
from banking. That last issue

23:00.350 --> 23:05.810
came to a head in 2005. When
Walmart applied to the FDIC for

23:05.810 --> 23:10.010
deposit insurance for a new ILC
that Walmart was seeking to

23:10.010 --> 23:15.530
charter, Walmart's application
set off a political and legal

23:15.530 --> 23:21.890
fight. This Firestorm is now
threatening to re erupt now that

23:21.890 --> 23:28.040
the FDIC and OCC are reopening
Pandora's box for charters that

23:28.040 --> 23:32.330
will confer the powers and
privileges of banks on non

23:32.330 --> 23:37.070
banks. It's important that this
committee look not just at

23:37.070 --> 23:41.180
initial Apple attempts for
charters because it is hard to

23:41.180 --> 23:47.090
see how the FDIC or OCC would
come up with legally defensible

23:47.120 --> 23:52.910
distinctions that would keep out
bigger companies, Amazon, Apple,

23:52.940 --> 23:58.310
Google, Walmart from one or both
of these non bank bank charges.

24:00.860 --> 24:05.480
But why do we separate banking
from commerce? What is the harm

24:05.480 --> 24:08.990
and then gowing banks with the
powers and privileges of

24:08.990 --> 24:14.270
banking? The concerns are not
just progressive, but also

24:14.270 --> 24:18.710
deeply conservative concerns. We
should worry about commercial

24:18.710 --> 24:22.790
firms using bank charters to
undercut rivals without

24:22.790 --> 24:27.140
charters. We should worry about
conglomerates and retail and

24:27.140 --> 24:31.070
tech using the powers and
privileges of banks to entrench

24:31.070 --> 24:36.290
market dominant positions. We
should worry about small retail

24:36.320 --> 24:40.580
small retailers and small tech
startup tech firms not being

24:40.580 --> 24:43.670
able to compete with well
resourced and politically

24:43.670 --> 24:48.020
connected firms that have the
powers of a government charter

24:48.020 --> 24:52.610
behind them. We should worry
equally about banking

24:52.610 --> 24:58.130
conglomerates competing unfairly
in non bank markets. We should

24:58.130 --> 25:02.270
also worry about whether small
banks and credit unions can face

25:02.270 --> 25:07.430
distorted competition. most
troubling, we should worry about

25:07.430 --> 25:10.580
a banking system that could
quickly devolve into being

25:10.580 --> 25:15.050
dominated by the three bids, big
Wall Street, big tech and big

25:15.050 --> 25:19.700
retail. We shouldn't short worry
about the core reasons that we

25:19.700 --> 25:23.720
separate commerce and banking to
prevent concentrations of

25:23.720 --> 25:28.940
economic and political power to
prevent distortions in

25:28.940 --> 25:32.750
commercial markets that allow
unfair government subsidized

25:32.750 --> 25:36.920
competition, and to prevent
distortions in Banking Markets

25:36.920 --> 25:40.580
that clearly Banking Markets
destabilize and without the

25:40.580 --> 25:45.590
smallest community banks and
credit unions, non bank charters

25:45.590 --> 25:48.650
Converse undermine one of the
core missions that are purported

25:48.650 --> 25:51.920
to serve offering greater access
to financial services for

25:51.920 --> 25:55.430
underserved communities. There
are better ways to serve that

25:55.430 --> 25:55.850
goal.

25:58.380 --> 26:02.640
I turn quickly to the FDIC
chartered because one thing I

26:02.640 --> 26:07.530
want to the committee to
understand is that it's

26:07.530 --> 26:12.150
important that IOCs are not
subject to consolidated super

26:12.420 --> 26:15.990
supervision by the Federal
Reserve's consolidated

26:15.990 --> 26:19.920
supervision is the cornerstone
that allows bank regulators to

26:19.920 --> 26:23.250
ensure that large financial
conglomerates or large

26:23.250 --> 26:28.050
commercial conglomerates are not
playing games with subsidies

26:28.860 --> 26:32.700
that come with deposit insurance
are the other powers and

26:32.700 --> 26:36.960
privileges of banking.
Consolidated supervision is a

26:36.960 --> 26:41.010
world away from the ordinary
supervision that the FDIC and

26:41.010 --> 26:48.270
OCC apply to individual firms
and institutions. That critical

26:48.270 --> 26:52.680
distinction is something that
the committee must remember, I

26:52.680 --> 26:57.000
would urge the committee to
reverse a power grab by the OCC

26:57.630 --> 27:03.570
and foreclose and preclude the
OCC from issuing any new

27:03.600 --> 27:07.980
charters to institutions that do
not accept deposits. I would

27:07.980 --> 27:12.780
also urge the committee to close
the IOC loophole and pursue

27:12.780 --> 27:17.850
other options for for greater
access to banking by underserved

27:17.850 --> 27:18.600
communities.

27:22.289 --> 27:24.389
Roger Williams: Thank you,
Professor and the chime didn't

27:24.389 --> 27:28.469
go off. So when you hit it right
on five minutes, and obviously,

27:28.859 --> 27:31.649
the testimony of all our
panelists, they're dealing with

27:31.649 --> 27:34.019
the purpose of the banking
system, the history of the

27:34.019 --> 27:37.229
banking system, and the future
of the banking system. So this

27:37.229 --> 27:41.849
is a very comprehensive and
complex subject that we all have

27:41.849 --> 27:46.199
and I would recommend to the
committee that they really look

27:46.229 --> 27:49.709
deeply into the materials that
have been provided. Professor

27:49.709 --> 27:53.219
Johnson, you are now recognized
for five minutes to give your

27:53.249 --> 27:56.309
oral presentation of your
testimony.

27:56.309 --> 27:58.520
Kristin Johnson: Thank you so
much. Good morning Chair Waters,

27:58.520 --> 28:01.940
Chair Perlmutter, Ranking Member
Luke De Meyer and the members of

28:01.940 --> 28:04.550
the committee and subcommittee.
Thank you for inviting me to

28:04.550 --> 28:08.240
this hearing, examining making
innovation and regulatory

28:08.240 --> 28:11.510
evasion trends and financial
institution charters. As the

28:11.510 --> 28:15.140
Chair mentioned, I'm the ASA
Griggs Candler, Professor of Law

28:15.140 --> 28:17.750
at Emory University Law School
where I teach courses on

28:17.750 --> 28:20.630
corporations securities law,
emerging technologies and

28:20.630 --> 28:24.230
financial markets, including the
mouthful distributed digital

28:24.230 --> 28:27.050
ledger technologies, which we
commonly described as blockchain

28:27.050 --> 28:30.770
technologies, as well as the
assemblage of technologies

28:30.770 --> 28:35.420
commonly described as artificial
intelligence. I previously

28:35.420 --> 28:37.580
served as the McGlinchey,
staffer Professor of Law and

28:37.580 --> 28:40.190
associate dean of faculty
research at Tulane. That was

28:40.190 --> 28:43.010
also noted but I also served as
director of the program on

28:43.010 --> 28:45.470
financial markets stability in
the center for law in the

28:45.470 --> 28:50.090
economy. And if I may, I'm a
reformed capital markets and

28:50.090 --> 28:53.030
Mergers Acquisitions lawyer and
served as in house counsel and

28:53.030 --> 28:56.300
an analyst at two of the largest
investment banks and global

28:56.300 --> 28:59.450
financial markets. My research
promotes transparent, inclusive,

28:59.450 --> 29:03.680
responsible innovation and
intimate and focuses on the core

29:03.680 --> 29:06.740
values that intimate financial
markets regulation, promoting

29:06.740 --> 29:10.130
consumer protection, maintaining
fair and orderly markets and

29:10.130 --> 29:13.070
ensuring the safety and
soundness of financial markets.

29:13.340 --> 29:16.010
Over the last decade, a growing
number of digital startups have

29:16.010 --> 29:18.920
launched bids to lower business
away from the financial services

29:18.920 --> 29:23.360
industry. increasingly large
technology platforms engage,

29:23.600 --> 29:26.150
essentially engage in engaged in
essentially commercial

29:26.150 --> 29:30.050
activities as well as social
media platforms, right, seek

29:30.110 --> 29:33.770
opportunities to conduct bank
like activities. Amazon, Google,

29:33.800 --> 29:36.830
Facebook, among others have
launched a dizzying array of

29:36.830 --> 29:41.030
consumer credit and financial
services, to echo Mr. Gatto and

29:41.030 --> 29:44.990
also my colleague, Professor
girding these firms comprise a

29:44.990 --> 29:47.780
small subset of a burgeoning
spectrum of businesses

29:47.780 --> 29:51.350
integrating complex technologies
and financial services armed

29:51.350 --> 29:55.430
with vast quantities of data and
sophisticated algorithmic that

29:55.430 --> 29:58.040
would be supervised and
unsupervised machine elearning

29:58.040 --> 30:02.210
platforms, these are algorithms
right inspired. Also by the

30:02.210 --> 30:05.750
creation of potential blockchain
based technologies. These

30:05.780 --> 30:08.990
fintechech firms have revived
long standing debates regarding

30:09.020 --> 30:12.770
the architectural design,
regulatory framework and role of

30:12.770 --> 30:16.730
the financial services industry.
This important hearing explores

30:16.730 --> 30:19.070
the nature of relationships
among banking and non banking

30:19.070 --> 30:23.510
financial institutions, as well
as the promise and peril or

30:23.510 --> 30:26.570
perils of extending Special
Purpose non bank charters to non

30:26.570 --> 30:29.630
depository FinTech firms that do
not engage in certain

30:29.630 --> 30:32.390
activities, quintessentially
understood as core banking

30:32.390 --> 30:36.170
functions, as well as commercial
firms seeking to obtain licenses

30:36.170 --> 30:39.290
to operate as industrial banks.
As this committee discussed

30:39.290 --> 30:41.990
previously, in a hearing in the
fall, we're colleagues Raul

30:41.990 --> 30:45.650
Castillo Mr. Rocha studio here
and Professor art will mark

30:45.650 --> 30:49.730
testified the National Bank act
clearly limits the scope of the

30:49.730 --> 30:52.820
OCC has authority to issue
FinTech charters to deposit non

30:52.820 --> 30:55.880
depository institutions. To
quote others who have written

30:55.880 --> 30:58.610
extensively in research the
history of banking regulation,

30:59.360 --> 31:02.930
and the canons of statutory
interpretation. Non depository

31:02.960 --> 31:07.010
National Bank is an oxymoron,
I'm happy to say more citing

31:07.010 --> 31:10.250
National Bank Act, in particular
section 24. The feminists that

31:10.250 --> 31:13.280
OCC has authority to extend
charters, but I believe much of

31:13.280 --> 31:15.920
that is covered in the in the
written testimony provided by

31:15.920 --> 31:20.090
witnesses today. Coupled with
the movement by the OCC to

31:20.090 --> 31:24.770
expand charters, the industrial
loan companies, chartering

31:24.860 --> 31:29.600
question has emerged as this as
an essential issue in today's

31:29.630 --> 31:32.450
hearing, as well as
conversations and debates.

31:32.690 --> 31:35.450
Finally, this hearing, as the
Chair has noted, covers a scope

31:35.450 --> 31:38.870
of financial technology firms
and capture states that are

31:38.870 --> 31:43.070
issuing or distributing licenses
for blockchain based financial

31:43.070 --> 31:47.840
institutions or institutions
costing financial assets known

31:47.840 --> 31:52.280
as crypto assets. Also so bank
licenses to those entities Well,

31:52.550 --> 31:55.340
in my remaining time, I want to
point out just the following

31:55.730 --> 31:59.870
issue that is tremendously of
concern. These it these entities

31:59.870 --> 32:03.050
are operating with the promise
of inclusion. But this promise

32:03.050 --> 32:06.110
is often inaccurate, misleading,
and in some instances, a

32:06.110 --> 32:09.290
misrepresentation, where the
promise of exclusion and

32:09.290 --> 32:12.500
inclusion attaches to vulnerable
unbanked and underbanked

32:12.500 --> 32:16.550
populations. Consumers who are
in many instances families in

32:16.550 --> 32:19.580
fragile financial circumstances,
it is critical for us to

32:19.580 --> 32:23.540
carefully examine the truth is
behind the promises that have

32:23.540 --> 32:26.840
been made and installed
guardrails that would ensure any

32:26.840 --> 32:30.140
entity operating in the banking
space is subject to sufficient

32:30.140 --> 32:33.500
regulatory oversight for
families with fragile financial

32:33.500 --> 32:36.710
circumstances as role pointed
out or Mr. Carrillo pointed out

32:36.740 --> 32:39.920
credit may serve as a lifeline
enabling consumers to meet short

32:39.920 --> 32:43.190
term debt obligations and to pay
for education, transportation,

32:43.190 --> 32:47.150
housing, medicine, childcare,
and even food. Without access to

32:47.150 --> 32:49.850
credit on fair reasonable terms.
It can be extraordinarily

32:49.850 --> 32:52.970
expensive to be poor. I'd also
point out the surveillance

32:52.970 --> 32:56.390
questions and highlight that
COVID-19 has amplified these

32:56.390 --> 32:59.840
concerns. In the remaining time,
I just encourage the committee

33:00.410 --> 33:03.170
to support the limitation on
baking charters and IOC

33:03.170 --> 33:04.070
licenses.

33:09.240 --> 33:13.140
Roger Williams: Thank you,
Professor. Now we will have Mr.

33:13.140 --> 33:16.260
Pacheco speak you are now
recognized for five minutes to

33:16.260 --> 33:19.830
give your oral presentation of
your testimony.

33:19.920 --> 33:22.560
Carlos Pacheco: Thank you. Good
morning, Chairman Perlmutter and

33:22.560 --> 33:25.020
Ranking Member Luke De Meyer and
members of the subcommittee. My

33:25.020 --> 33:28.050
name is Carlos Pacheco, I am the
CEO of Premier members credit

33:28.050 --> 33:30.900
union, headquartered in Boulder,
Colorado. I'm pleased to be

33:30.900 --> 33:34.230
joining you today on behalf of
nap Q. To share our views on the

33:34.230 --> 33:37.200
trends and financial institution
charters. The nation's

33:37.200 --> 33:40.080
approximately 5000 federally
insured credit unions serve a

33:40.080 --> 33:42.120
different purpose and have a
fundamentally different

33:42.120 --> 33:45.630
structure than other types of
financial institutions. As not

33:45.630 --> 33:48.450
for profits existing solely to
provide financial services to

33:48.450 --> 33:51.360
our members. We are pleased to
be on the frontlines working

33:51.360 --> 33:53.730
with our members to help them
survive economic uncertainty

33:53.730 --> 33:57.120
from the pandemic. The growth of
financial technology in recent

33:57.120 --> 33:59.670
years offers new opportunities
for the delivery of financial

33:59.670 --> 34:03.090
services, the use of fintech can
have a positive effect on the

34:03.090 --> 34:05.790
credit union membership. Many
credit unions embrace

34:05.790 --> 34:08.130
innovations in technology in
order to improve member

34:08.130 --> 34:11.100
relationships. And that key
believes that this is important

34:11.100 --> 34:14.430
for regulators like the NCUA to
ensure that credit unions have

34:14.430 --> 34:17.640
the proper authority in this
space under their charters.

34:18.030 --> 34:21.030
However, the growth of FinTech
also presents threats and

34:21.030 --> 34:24.090
challenges as new entities
emerge in an environment that

34:24.090 --> 34:27.990
can be under regulated or under
supervised. As such when

34:27.990 --> 34:30.690
fintechs compete with regulated
financial institutions, they

34:30.690 --> 34:34.200
must do so on a level playing
field. While many fintechs are

34:34.200 --> 34:36.450
still subject to various
consumer protection and other

34:36.450 --> 34:40.290
laws. They are not examined nor
face the same oversight as other

34:40.290 --> 34:43.290
players in the financial
services marketplace, creating

34:43.290 --> 34:46.590
cracks in the system that could
pose risks to both the consumer

34:46.620 --> 34:49.890
and the financial system. For
example, under regulation of

34:49.890 --> 34:52.680
fintech companies can place a
greater burden on credit unions

34:52.860 --> 34:56.430
efforts to protect deposit
accounts. As a primary financial

34:56.430 --> 34:58.830
institution for our members. We
are often the preferred party

34:58.830 --> 35:01.470
for resolving it issues
involving unauthorized

35:01.470 --> 35:05.370
transactions, even when they
occur on other platforms. While

35:05.370 --> 35:08.010
credit union consumer complaint
processes are overseen by

35:08.010 --> 35:10.890
regulators, there is no
comparable oversight for FinTech

35:10.890 --> 35:14.190
companies that facilitate
payment transactions, even in

35:14.190 --> 35:16.740
instances where they share
responsibility for resolving

35:16.740 --> 35:20.790
errors under Reggy. A minimally
staffed call center may be all

35:20.790 --> 35:23.640
it takes to steer financial
FinTech users to the credit

35:23.640 --> 35:26.250
union, if there's a problem, and
that alone can create

35:26.250 --> 35:29.670
competitive imbalance. There's
been a recent trend in which

35:29.670 --> 35:32.040
FinTech companies are enjoying
liberalisation of banking

35:32.040 --> 35:35.640
charter rules to either acquire
or become banks. Recent

35:35.640 --> 35:38.550
developments with both the OCC
has new chartering options and

35:38.550 --> 35:41.370
the FDIC is Chartering and
approval of deposit insurance

35:41.640 --> 35:45.270
for a new wave of industrial
loan companies also present

35:45.270 --> 35:48.600
problems. In each case, a non
bank company can potentially

35:48.600 --> 35:51.960
evade regulation under the bank
holding company act, either

35:51.960 --> 35:55.650
because of a statutory loophole
unique to IOCs or because the

35:55.650 --> 35:58.410
entity is seeking a limited
purpose charter and will not

35:58.410 --> 36:02.910
accept deposits. Lack of be HCA
coverage raises concerns

36:02.910 --> 36:05.850
regarding the quality and extent
of supervision for these

36:05.850 --> 36:09.450
specialized banking entities. In
certain cases, specialized

36:09.450 --> 36:12.690
limited purpose bank charters
may allow a FinTech to operate

36:12.690 --> 36:15.660
with national banking
privileges, but without the same

36:15.660 --> 36:18.810
Prudential safeguards that apply
to traditional banks and credit

36:18.810 --> 36:21.720
unions. While some may
characterize these chartering

36:21.720 --> 36:24.840
initiatives as innovative, they
invite the potential for under

36:24.840 --> 36:27.840
regulation of novel risks and
could create an uneven playing

36:27.840 --> 36:31.530
field. Depending on the scale or
risk of activities which might

36:31.530 --> 36:34.050
involve facilitating
cryptocurrency transactions.

36:34.440 --> 36:37.260
Lack of consolidated supervision
by the Federal Reserve could

36:37.260 --> 36:40.950
create additional financial
stability risks. To address

36:40.950 --> 36:43.590
these concerns nephew support
steps such as imposing a

36:43.590 --> 36:48.150
moratorium on new IOC charter
approvals by the FDIC and

36:48.150 --> 36:51.960
closing the bank holding company
act loophole for existing IOC s.

36:52.590 --> 36:55.170
It is also important that
existing charters such as those

36:55.170 --> 36:58.320
for credit unions are kept up to
date to meet member needs.

36:59.040 --> 37:01.770
Congress should also ensure that
the data security and privacy

37:01.770 --> 37:04.890
requirements for financial
institutions and the gramm leach

37:04.890 --> 37:08.370
Bliley Act, including
supervision for compliance apply

37:08.370 --> 37:11.670
to all who are handling consumer
financial transactions.

37:12.180 --> 37:14.940
Regulators also have an
important role to play. For

37:14.940 --> 37:18.660
example, the CFPB should use its
larger participants authority to

37:18.660 --> 37:21.480
regulate and supervise
technology firms and fintech

37:21.480 --> 37:24.660
companies that enter into the
financial services marketplace.

37:25.320 --> 37:28.050
New chartering ideas should also
be subject to the notice and

37:28.050 --> 37:31.620
comment rulemaking process.
Congress should also consider

37:31.620 --> 37:35.610
creating an FF IEC Subcommittee
on emerging technology to

37:35.610 --> 37:39.180
monitor the risks posed by by
fin tech companies and develop a

37:39.180 --> 37:41.820
joint approach for facilitating
innovation and identifying

37:41.820 --> 37:45.990
regulatory gaps between new and
existing charter options. And

37:45.990 --> 37:48.090
conclusions. Credit unions look
forward to continuing to

37:48.090 --> 37:50.940
experience growth in the
technology space as a way for us

37:50.940 --> 37:53.940
to better serve our members.
However, as technology companies

37:53.940 --> 37:56.430
expand and new charters emerge
to compete in the financial

37:56.430 --> 37:59.490
services marketplace, it's
important that they compete on a

37:59.490 --> 38:02.490
level playing field of
regulation and supervision.

38:03.150 --> 38:05.460
Finally, it is important that
Congress ensures laws are

38:05.460 --> 38:08.310
modernized to allow credit
unions to keep up and compete

38:08.310 --> 38:11.550
with technological advances. I
thank you for the opportunity to

38:11.550 --> 38:13.710
appear before you today and I
welcome any questions you may

38:13.710 --> 38:14.070
have.

38:16.110 --> 38:19.110
Roger Williams: Thank you, Mr.
Pacheco. Is it snowing in

38:19.110 --> 38:21.210
Colorado? I should ask you that,
but

38:22.170 --> 38:24.150
Carlos Pacheco: Not this hour,
but maybe next hour.

38:25.230 --> 38:29.880
Roger Williams: Thank you, Mr.
Brooks. You are now recognized

38:29.880 --> 38:32.490
for five minutes for your oral
testimony.

38:33.840 --> 38:36.840
Brian Brooks: Well, Chairwoman
Waters Ranking Member McHenry,

38:37.020 --> 38:40.920
my fellow Colorado and Chairman,
Chairman Perlmutter and Ranking

38:40.920 --> 38:42.750
Member Luke De Meyer, thank you
so much for having me and for

38:42.750 --> 38:45.570
the opportunity to speak today.
I will say at the outset, I am

38:45.570 --> 38:48.990
the only representative of
southern Colorado here so we can

38:48.990 --> 38:52.290
have that conversation
afterwards. Let me just say

38:52.320 --> 38:54.360
we're fortunate to live in a
moment of extraordinary

38:54.360 --> 38:57.240
innovation that I believe can
actually expand access to

38:57.240 --> 39:00.450
credit, provide consumers
greater economic opportunity,

39:00.720 --> 39:04.290
and provide a more Justin robust
economy. As policymakers and

39:04.290 --> 39:06.720
participants in this evolution
of the financial services

39:06.720 --> 39:09.360
industry, we have a
responsibility to encourage

39:09.390 --> 39:12.660
responsible innovation, while
maintaining necessary safeguards

39:12.660 --> 39:15.270
to ensure that our system
operates in the safest, soundest

39:15.300 --> 39:18.570
and fairest way possible. Now
while my testimony goes into

39:18.570 --> 39:21.060
greater detail regarding what is
driving the changes in our

39:21.060 --> 39:23.250
financial system, and the
implications for chartering

39:23.250 --> 39:25.650
innovative financial companies,
I want to highlight a few

39:25.650 --> 39:29.130
thoughts in these remarks.
First, the rise of non bank

39:29.130 --> 39:32.370
financial services providers and
in particular fintechs is the

39:32.370 --> 39:35.400
result of market forces that
include the dramatic reduction

39:35.400 --> 39:38.580
of banks and branches, as has
been noted, already felt most in

39:38.580 --> 39:41.610
rural and urban, low and
moderate income communities. And

39:41.610 --> 39:44.490
at the same time as
consolidation, regulatory forces

39:44.490 --> 39:47.400
made certain consumer lending
less attractive for traditional

39:47.400 --> 39:49.620
banks, and that business
migrated toward non bank

39:49.620 --> 39:52.800
providers such as payday
lenders. It's against that

39:52.800 --> 39:55.710
backdrop that we think that
innovative technology emerged

39:55.740 --> 39:58.590
allowing FinTech companies to
develop solutions that provide

39:58.590 --> 40:01.680
consumers better alter relative
to traditional banks on the one

40:01.680 --> 40:04.890
hand, and strip mall financier
is like payday lenders on the

40:04.890 --> 40:07.710
other. The new products provided
more convenience, greater

40:07.710 --> 40:10.170
accessibility, and often were
tailored more closely to

40:10.170 --> 40:13.560
consumers personal needs and
situations. fintechs also emerge

40:13.560 --> 40:16.620
to provide back office solutions
such as payments processing that

40:16.620 --> 40:20.280
operate more efficiently than
comparable systems in legacy

40:20.370 --> 40:23.730
banks. As a result, many
products, services and

40:23.730 --> 40:26.640
activities that were once
exclusive to banks now occur

40:26.640 --> 40:29.670
outside of the banking system,
where once that activity was

40:29.670 --> 40:32.100
watched closely by bank
regulators today, much of it

40:32.100 --> 40:35.640
goes on outside their view. The
questions that this hearing asks

40:35.670 --> 40:38.550
are whether those companies
which undeniably are providing

40:38.550 --> 40:41.520
banking products and services
that historically were provided

40:41.520 --> 40:44.340
by banks should have an equal
means to compete with incumbent

40:44.340 --> 40:47.520
banks as chartered institutions,
and whether providing a path for

40:47.520 --> 40:50.130
the service providers to become
banks can be done in a safe,

40:50.130 --> 40:53.910
sound and fair manner. Based on
my experience and analysis, it's

40:53.910 --> 40:57.540
both necessary and advantageous
to support a dual banking system

40:57.540 --> 41:00.150
of state and federal banks in
which companies with novel and

41:00.150 --> 41:03.930
unique business models powered
by ever improving technology can

41:03.930 --> 41:06.510
compete with incumbents on a
level playing field. By

41:06.510 --> 41:09.360
providing a path and allowing
choice for innovators to become

41:09.360 --> 41:12.180
part of the chartered banking
system. The system avoid

41:12.180 --> 41:15.960
stagnation evolves to better
meet consumer preferences and to

41:15.990 --> 41:19.470
address business and community
needs. That view previously

41:19.470 --> 41:22.380
enjoyed bipartisan champions
because it's a safe and sound

41:22.380 --> 41:24.840
and thoughtful position that
puts the good of the nation

41:24.840 --> 41:27.540
first and recognizes the failure
to encourage responsible

41:27.540 --> 41:30.450
innovation and to welcome new
participants into the banking

41:30.450 --> 41:34.290
system stifles the system making
it both anachronistic and

41:34.290 --> 41:37.560
concentrated in the hands of
legacy large institutions, which

41:37.560 --> 41:40.710
have been criticized on a
bipartisan basis as well. After

41:40.710 --> 41:43.320
all, fintechs have not emerged
because the status quo has

41:43.320 --> 41:46.530
satisfactorily met all the needs
of the economy or all the needs

41:46.530 --> 41:49.890
of consumers. I am optimistic
about the progress being made to

41:49.890 --> 41:52.830
overcome bias and irrational
fears toward innovative ways of

41:52.830 --> 41:55.740
meeting consumers financial
needs, including progress made

41:56.100 --> 41:58.800
in transforming cryptocurrencies
and blockchain applications.

41:59.010 --> 42:01.710
From exotic concepts to more
mainstream financial and

42:01.710 --> 42:04.950
economic tools. I am proud to
have been involved in chartering

42:04.950 --> 42:08.160
the first true FinTech company,
Faro bank, and who have helped

42:08.160 --> 42:10.620
clarify National Bank
regulations as they relate to

42:10.620 --> 42:13.830
digital assets and stable coins.
These actions have expanded

42:13.830 --> 42:16.380
services to consumers. They've
allowed existing banks to

42:16.380 --> 42:18.960
explore how emerging
technologies can be incorporated

42:18.960 --> 42:21.330
into their strategies of serving
their customers. And they've

42:21.330 --> 42:23.460
helped provide a meaningful
counterweight to the

42:23.460 --> 42:26.100
concentrated power of the
largest banks in our system,

42:26.460 --> 42:29.760
still more rigorous and needs to
be done on other important

42:29.760 --> 42:32.130
issues, particularly the
appropriate measure of a

42:32.130 --> 42:35.250
sustainably profitable fintechs
contribution and obligation to

42:35.250 --> 42:38.340
its community. Whether it
becomes a chartered bank or not.

42:38.910 --> 42:41.430
Well, depositories, for example,
are subject to the Community

42:41.430 --> 42:43.650
Reinvestment Act. And it's
important civil rights

42:43.980 --> 42:47.670
provisions. Congress did not
apply the CRA to non depository

42:47.670 --> 42:50.700
financial services providers.
Policymakers thinking about

42:50.700 --> 42:53.070
chartering these non
depositories should explore

42:53.070 --> 42:56.010
alternatives to the CRA to
consider other advantages that

42:56.010 --> 42:58.590
federally chartered or state
licensed non depository

42:58.590 --> 43:01.980
financial companies enjoy and
what obligation that may entail

43:01.980 --> 43:04.470
to meet the important economic
justice and civil rights a

43:04.470 --> 43:08.100
spirit of the CRA, recognizing
that the economic inequities of

43:08.100 --> 43:10.230
the nation require the removal
of barriers in addition to

43:10.230 --> 43:14.100
reinvestment I found in Project
reach at the OCC in July 2020 to

43:14.100 --> 43:17.160
explore ways that technology
innovators, banks and civil

43:17.160 --> 43:20.070
rights leaders can work together
to solve the structural issues

43:20.070 --> 43:23.280
behind race disparities,
including the fact that large

43:23.280 --> 43:25.980
numbers of minorities lack
usable credit scores and have

43:25.980 --> 43:28.890
more difficulty than others in
saving for a house down payment.

43:29.100 --> 43:31.740
FinTech has something to say
about all of these things. And

43:31.740 --> 43:33.960
if we believe that an
unregulated FinTech poses

43:33.960 --> 43:36.660
challenges, we should welcome
them into the regulatory system.

43:36.900 --> 43:37.770
Thank you, Mr. Chairman.

43:39.330 --> 43:42.030
Roger Williams: Thank you, Mr.
Brooks. Thank you to all of our

43:42.090 --> 43:47.490
panelists. I now recognize
myself for my questions. I yield

43:47.490 --> 43:52.890
myself five minutes for my
questions. I guess, obviously,

43:52.890 --> 43:55.680
just looking at the written
materials that you all provided

43:55.740 --> 43:58.800
and coupled with your testimony,
I mean, we really are dealing

43:58.800 --> 44:02.670
with the length and breadth of
the financial services system,

44:02.670 --> 44:08.610
the banking system, its purpose,
its history, its future. And,

44:09.660 --> 44:12.750
you know, maybe that we need to
have a couple of follow on

44:13.950 --> 44:18.630
hearings after this because each
of us is going to come at this

44:18.630 --> 44:21.540
with our life experience. I'm
coming at it as a bankruptcy

44:21.540 --> 44:28.590
lawyer of 25 years, who saw a
lot of cycles where businesses

44:28.590 --> 44:33.330
failed and banks failed
Colorado, Texas, Mr. Williams,

44:33.330 --> 44:36.300
you know, we saw pretty much
every single Savings and Loan

44:36.300 --> 44:40.650
fail. But then we saw things
grow expand again and we saw

44:40.650 --> 44:46.320
another cycle and so I disagree
with Mr. McHenry. That jee wiz

44:46.320 --> 44:50.400
we're doing this all over again
is because the system grows and

44:50.400 --> 44:54.120
shrinks and gets excesses and
not and we've got to just

44:54.120 --> 44:57.510
determine how as a policy
matter, and I don't think this

44:57.510 --> 45:00.750
breaks along, you know, any
party wall And as to whether

45:00.750 --> 45:03.540
you're conservative about the
system or you're, you want to

45:03.540 --> 45:08.130
see it expand and take on some
additional risks. All of us need

45:08.130 --> 45:13.770
to chart to the path we want to
see our banking system. Follow

45:13.770 --> 45:17.100
over the next 1015 years. And I
think that's the purpose of

45:17.100 --> 45:21.150
today's hearing. And as we go
forward so, one of the big

45:21.150 --> 45:24.060
questions on industrial loan
companies is about the

45:24.060 --> 45:28.260
separation of banking and
commerce and in 2005 2006,

45:28.500 --> 45:33.000
Walmart and Home Depot
unsuccessfully pursued ILC

45:33.030 --> 45:36.360
charters, there was a great deal
of scrutiny from lawmakers and

45:36.360 --> 45:40.350
the public about large retail
corporations offering banking

45:40.350 --> 45:43.470
services, and what it could mean
for market fairness and

45:43.470 --> 45:48.000
financial stability. Last
December, the FDIC published a

45:48.000 --> 45:52.500
rule on IOCs clarifying the
parent company of the Industrial

45:52.500 --> 45:56.280
Bank must serve as a source of
strength for the Industrial

45:56.280 --> 46:01.740
Bank. Professor girding how well
suited is the FDIC or any other

46:01.740 --> 46:06.510
regulator to assess the strength
of a commercial company? And do

46:06.510 --> 46:10.380
you have concerns about the
continued blending of commerce

46:10.680 --> 46:11.520
and banking?

46:13.199 --> 46:15.539
Erik Gerding: Thank you, Chair
Perlmutter. I have grave

46:15.539 --> 46:21.089
concerns about the ability of
the FDIC to supervise IOCs and

46:21.089 --> 46:23.969
their parents. This goes back to
what I said at the end of my

46:23.969 --> 46:29.069
remarks. The FDIC does not have
the authority to conduct

46:29.069 --> 46:34.079
consolidated supervision over
not just the IOC and its parent

46:34.079 --> 46:38.759
but all other entities within
the corporate group. And that

46:38.759 --> 46:41.519
lack of consolidated
consolidated supervision

46:41.519 --> 46:46.289
advisory power does not allow
the FDIC to see potential games

46:46.289 --> 46:51.839
that conglomerates are playing
with FDIC subsidized financing.

46:52.649 --> 46:56.669
It also does not allow the FDIC
to see the buildup of risks

46:56.669 --> 47:01.019
within the conglomerate. And
this became a problem when in

47:01.019 --> 47:04.859
the financial crisis, when we
saw the parents of several IO

47:04.859 --> 47:10.499
C's require billions of dollars
of government assistance. It was

47:10.529 --> 47:15.209
Goldman Sachs, CIT, Merrill
Lynch, Morgan Stanley, GE

47:15.209 --> 47:21.149
Capital and key M A. C, all had
il C's. All of those parents did

47:21.149 --> 47:24.899
not serve as a source of
strength for ICs. And by

47:24.899 --> 47:27.809
contrast, actually requiring
billions of dollars of

47:27.809 --> 47:32.309
government intervention. So I
don't think that the source of

47:32.309 --> 47:37.859
strength argument gives us much
comfort.

47:38.850 --> 47:44.100
Roger Williams: Thank you.
Professor Johnson. Like to ask

47:44.100 --> 47:48.540
you a question. In 2019, the
state of Wyoming enacted a

47:48.540 --> 47:52.530
series of laws related to
cryptocurrency, including one

47:52.530 --> 47:56.610
authorizing the chartering of
special purpose depository

47:56.610 --> 48:01.290
institutions last year Wyoming
approved the first SEDI charters

48:01.290 --> 48:05.760
for Krakin bank and Avante bank
to cryptocurrency custodial

48:05.760 --> 48:10.110
firms planning to offer
services. It seems many

48:10.110 --> 48:13.890
cryptocurrency companies are
eager for a legal framework to

48:13.890 --> 48:16.860
operate. Do you believe bank
charters are the appropriate

48:16.860 --> 48:24.450
framework for these firms?
You're muted.

48:26.250 --> 48:28.380
Kristin Johnson: Thanks so much
for the question. Chair, I would

48:28.380 --> 48:31.830
echo Professor Gerdings,
comments and amplify those,

48:31.980 --> 48:34.530
right during the financial
crisis of 2008. We not only saw

48:34.530 --> 48:37.770
these challenges that were
endogenous with respect to

48:37.770 --> 48:40.920
regulated firms, but exogenous
challenges as well, that

48:40.920 --> 48:44.130
triggered systemic risks that
created losses across financial

48:44.130 --> 48:48.750
markets, I would encourage a
very careful evaluation of any

48:48.750 --> 48:51.510
extension of charters to
cryptocurrency based firms,

48:51.660 --> 48:54.960
because of the endogenous and
exogenous shocks that could

48:54.960 --> 48:58.320
create systemic risks and
destabilize financial markets.

48:58.949 --> 49:01.499
Roger Williams: Thank you,
Professor. My time has expired.

49:01.499 --> 49:04.799
I'd like to recognize the
gentleman from Missouri, the

49:04.799 --> 49:07.079
ranking member, Mr. Luke De
Meyer, for five minutes.

49:07.890 --> 49:10.290
Luke De Meyer: Thank you, Mr.
Chairman. And just as a comment,

49:10.680 --> 49:15.120
we're talking about today, the
headline of this hearing is

49:15.120 --> 49:18.330
banking, innovation, regulatory
evasion, exploring trends and

49:18.330 --> 49:21.120
financial institution charters,
and we have no representation

49:21.120 --> 49:24.390
from the banks here today. We've
got several bank think Ttank

49:24.420 --> 49:27.660
guys and professors and
whatever, but we have nobody

49:27.660 --> 49:29.820
representing any of the
associations or any of the banks

49:29.820 --> 49:34.920
themselves and kind of wondering
about that. But anyway, it's

49:34.920 --> 49:36.360
always nice to have somebody
from the real world.

49:36.360 --> 49:38.430
Roger Williams: If the gentleman
would yield for one second. I

49:38.430 --> 49:43.170
think they have to have more, a
couple more hearings on this.

49:43.620 --> 49:45.540
Luke De Meyer: Okay, that'd be
great. We look forward to having

49:45.540 --> 49:48.870
a real world expert on this as
well besides the theoretical

49:48.930 --> 49:54.960
part of this, but it's
interesting. Mr. Brooks, I want

49:54.960 --> 49:57.900
to start with you again,
appreciate your service to our

49:57.900 --> 50:01.290
country as a country. I think he
did a fantastic See job and look

50:01.290 --> 50:04.140
forward to continue working with
you. On the private sector side

50:04.140 --> 50:10.080
here. You're talking about, in
your testimony how the scope of

50:10.080 --> 50:12.600
a bank charter can adjust to
accommodate the safe and sound

50:12.600 --> 50:15.330
delivery, traditional banking
products and services, that

50:15.330 --> 50:20.130
companies that are not charter
as banks today. Do you think

50:20.130 --> 50:22.680
there's a way to provide a level
playing field for traditional

50:22.680 --> 50:25.560
depositories and non banks that
are providing the same services

50:25.560 --> 50:27.840
and products without requiring a
non banks to get the full

50:27.840 --> 50:31.050
National Bank Charter and follow
the rules and regulations?

50:31.919 --> 50:36.239
Brian Brooks: Well, so, so, let
me just say this. We're looking

50:36.239 --> 50:38.429
at Meijer, first of all, I'm
very much appreciated your

50:38.429 --> 50:41.609
engagement. During my time at
the OCC, we've had some of these

50:41.609 --> 50:44.399
conversations privately. And let
me just expand on that and

50:44.399 --> 50:48.959
answer to your question. I think
the answer is that we have seen

50:48.959 --> 50:52.559
on a fairly secular basis over
the last 10 years an unbundling

50:52.559 --> 50:55.589
of financial services that used
to be delivered together, and

50:55.589 --> 50:58.649
people want them deliver
differently today. So the

50:58.649 --> 51:02.399
question really isn't, do we
need to create some new

51:02.399 --> 51:05.669
framework? The question is, if
you have activities that have

51:05.699 --> 51:08.879
always been conducted by banks,
and are clearly permissible to

51:08.879 --> 51:12.719
banks, and are part of the core
of banking services, then the

51:12.719 --> 51:16.109
question is, why do they stop
being banks when they choose to

51:16.109 --> 51:18.989
only offer some financial
services? And so the way I think

51:18.989 --> 51:22.289
about the level playing field
question is, if Bank of America

51:22.289 --> 51:26.159
offers a payment processing
service, that is subject to a,

51:26.309 --> 51:30.119
an examination module that the
OCC has for payment processors,

51:30.479 --> 51:35.219
and if square is also providing
a payment processing service, it

51:35.219 --> 51:37.889
ought to be allowed to elect to
be subject to the very same

51:37.889 --> 51:41.369
supervision. I think the red
herring in the discussion often

51:41.369 --> 51:44.339
is the idea that somehow it's
not a level playing field

51:44.339 --> 51:48.689
because square wouldn't also be
subject to deposit regulation or

51:48.689 --> 51:51.329
any of a suite of other
regulations. But what I think of

51:51.329 --> 51:54.239
when I think of that issue is,
when I was a kid growing up in

51:54.239 --> 51:57.089
Pueblo, Colorado, I had my bank
account at a small thrift in

51:57.089 --> 52:00.299
Pueblo called American Federal
Savings, American federal things

52:00.329 --> 52:03.599
was a bank, they were regulated
by the OTs, but somehow they

52:03.599 --> 52:06.509
weren't subject to commodities
and derivatives regulation like

52:06.509 --> 52:09.689
JP Morgan was not because there
was an unlevel playing field,

52:09.719 --> 52:12.419
but because American Federal
Savings didn't offer commodities

52:12.419 --> 52:15.599
and derivatives, so for what
they did, they were subject to

52:15.599 --> 52:18.059
the very same rules and
regulations as the analogous

52:18.059 --> 52:20.969
services provided at JP Morgan.
But there were some things they

52:20.969 --> 52:23.819
elected not to provide, and they
weren't subject to those things.

52:24.089 --> 52:27.569
That's not an unlevel playing
field. And so my belief is that

52:27.569 --> 52:31.469
anything that is a banking
service, can be accommodated

52:31.469 --> 52:34.139
inside of one of the several
existing bank charters without

52:34.139 --> 52:36.959
the need for radical innovation.
To me, that's common sense.

52:37.710 --> 52:40.320
Luke De Meyer: Okay, let me let
me, don't Dr. Dr. Gerding made a

52:40.590 --> 52:45.450
comment here a minute ago with
regards to consolidation. Well,

52:45.750 --> 52:49.140
the separation of banks from
commerce said when I was running

52:49.140 --> 52:51.330
leaves, and in his testimony
says preventing consolidation of

52:51.330 --> 52:53.790
credit, concentration of
economic power and a

52:53.790 --> 52:56.910
concentration of political
power. And to me this is, this

52:56.910 --> 53:00.900
is why we eventually you'll have
this situation for 60 years and

53:00.900 --> 53:05.070
then we've slowly gotten away
from it. And to me, this is this

53:05.070 --> 53:09.870
is where you get the question of
on the ILCs do we do we want to

53:09.870 --> 53:15.750
allow another commercial entity
to own a banking entity,

53:16.410 --> 53:20.460
financial services entity and
let them creep into from the

53:20.460 --> 53:24.840
commercial side of this, the
banking sector? To address that,

53:24.840 --> 53:25.770
give me your thoughts on that.

53:26.159 --> 53:29.339
Brian Brooks: Yeah, so so so
this is the place where I I

53:29.339 --> 53:31.529
possibly you're asking me,
Representative Luke Meyer, or

53:31.529 --> 53:32.939
are you asking Professor
Gerding?

53:33.750 --> 53:37.170
Luke De Meyer: Mr. Brooks? Yeah.
Porter, Mr. gurning, because it

53:37.170 --> 53:41.160
really I think capsulize is the
concerns that some of the folks

53:41.160 --> 53:44.910
like myself have that for 60
years, we allowed. We kept the

53:44.910 --> 53:47.940
banking and commercial stuff
apart. And now we're allowing it

53:47.940 --> 53:50.280
to get mingled together. And
every day it gets mingled more

53:50.280 --> 53:53.280
and more. And I think the IOC
question is one that really

53:54.000 --> 53:56.820
solidifies this question. Do you
allow commercial folks to get

53:56.820 --> 53:57.900
into the banking or not?

53:58.050 --> 54:00.030
Brian Brooks: Yeah, so so so
what I've always said about that

54:00.030 --> 54:02.880
is, it's a very different
question to ask, should Walmart

54:02.880 --> 54:06.090
be able to get an IOC versus
should affirm or brex, which are

54:06.090 --> 54:09.090
lending companies be able to get
an IOC charter? I don't think

54:09.090 --> 54:11.850
the Walmart questions presented.
I'm personally comfortable with

54:11.850 --> 54:15.510
that. And I think babies are on
that stake.

54:15.510 --> 54:17.040
Luke De Meyer: Thank you very
much. I yield back. Mr.

54:17.040 --> 54:17.400
Chairman.

54:19.020 --> 54:21.450
Roger Williams: Thank you. The
gentleman's time has expired.

54:21.450 --> 54:24.120
And I say to Mr. Brooks, it's a
good thing. You don't have an

54:24.120 --> 54:26.970
accounted American federal,
because it's one of the many

54:26.970 --> 54:30.360
savings and loans that failed
back in the late 80s and early

54:30.360 --> 54:35.310
90s. Very true. So I would now
turn to the former chairman of

54:35.310 --> 54:40.860
our subcommittee, Mr. Meeks from
New York for five minutes.

54:42.030 --> 54:44.190
Gregory W. Meeks: I want to
thank you, Mr. Chairman, and

54:44.190 --> 54:48.210
recommend my look Amaya for
having this very important and

54:48.210 --> 54:52.230
critical hearing. This is
really, really just listening to

54:52.230 --> 54:55.860
the testimony of the witnesses
and some of the early questions

54:55.860 --> 55:01.770
both by you and Mr. Luke Amaya
is It's really important. And I

55:01.770 --> 55:06.120
understand also that there's a
debate as to whether the

55:06.120 --> 55:09.540
National Bank Act requires nasty
chartered institutions to take

55:09.540 --> 55:12.540
deposits, and or that's in the
course of the courts will decide

55:12.540 --> 55:17.820
that. But I go back and forth
myself, because one of the

55:17.820 --> 55:24.120
things that I know, is that
sometimes what we did 20 3040

55:24.150 --> 55:28.770
years ago, because of technology
or because of changes, you know,

55:28.770 --> 55:31.170
we've got to look at it again
and figure out how do we do

55:31.170 --> 55:36.540
certain things that push it
pushes us forward. And I get the

55:36.540 --> 55:39.780
questions and I want to make
sure that we still have

55:39.780 --> 55:45.330
regulatory authority so that
people don't run away with an

55:45.360 --> 55:50.190
and protected way with because
of technology. But I also want

55:50.190 --> 55:56.100
to make sure that access to
capital is available to to many

55:56.100 --> 55:59.160
small businesses, like the small
businesses in my community, I

55:59.160 --> 56:03.690
talked to many minority, small
minority businesses, etc. They

56:03.690 --> 56:06.720
tell me that the number one
issue they have is access to

56:06.720 --> 56:11.280
capital. So then, you know, I've
seen the banking industry

56:11.370 --> 56:15.210
consolidate over the last 20
years while technology is now

56:15.210 --> 56:18.660
allowing for new entrants in the
financial services area. And

56:18.660 --> 56:21.780
there are serious concerns that
the big tech companies could

56:21.780 --> 56:26.100
enter the financial system by
the IOC regime concerns that I

56:26.100 --> 56:31.050
definitely share among, but
banks and consumer groups alike.

56:31.440 --> 56:35.220
And then if the large non
financial companies can receive

56:36.300 --> 56:40.050
ILC charters, these companies
could potentially receive all of

56:40.050 --> 56:43.290
the banking privileges without
having to answer to the same

56:43.290 --> 56:46.110
prudential standards as
traditional banks, including,

56:46.110 --> 56:51.750
for example, MPIs and CDFIs. I
have also I also have, though,

56:51.750 --> 56:55.620
antitrust concerns when it comes
to the prospect of large nine

56:55.650 --> 57:00.360
non financial companies entering
the system through i LLC regime.

57:00.360 --> 57:04.620
So I guess, let me ask Mr. I
start with Mr. girding. And then

57:04.620 --> 57:08.850
maybe Mr. Pacheco can jump in
also, given that the FDIC is

57:08.850 --> 57:13.440
beginning to accept applications
for new IOCs for deposit

57:13.440 --> 57:17.760
insurance, can you speak to
whether and how such interest

57:17.940 --> 57:21.810
would have a competitive
advantage over, for example,

57:21.900 --> 57:23.910
credit unions or minority banks?

57:25.620 --> 57:27.900
Erik Gerding: Thanks have a
credit advantage in several

57:27.900 --> 57:33.810
ways. On the one hand, they
would get the benefits of FDIC

57:33.810 --> 57:37.620
deposit insurance which will
allow them a cheaper cost and

57:37.620 --> 57:42.780
financing, which they can then
spread to other parts of their

57:42.810 --> 57:48.780
corporate conglomerate. That
kind of game with FDIC insurance

57:48.780 --> 57:53.490
would allow them to undercut
commercial rivals, it would also

57:53.490 --> 57:58.620
allow them to enter into a
banking realm with all the

57:58.620 --> 58:03.540
powers and privileges of banking
than undercut credit and small

58:03.540 --> 58:07.740
credit unions and small
community banks. And again, they

58:07.740 --> 58:12.330
would not be subject as you, as
you fed representative Meeks to

58:12.330 --> 58:15.990
the same level of prudential
regulation, and that same all

58:15.990 --> 58:20.520
important consolidated
supervision that traditional

58:20.520 --> 58:21.900
banks are subjected to.

58:22.320 --> 58:25.320
Gregory W. Meeks: Thank you, Mr.
Brooks. Let me come to you, Mr.

58:25.320 --> 58:28.230
Pacheco. But let me go to Mr.
Brooks anyway, real quick to see

58:28.260 --> 58:30.450
how do you counter that with Mr.
Gerding just said.

58:31.170 --> 58:34.290
Brian Brooks: Well, the the
issue I see Congressman Meeks is

58:34.320 --> 58:38.220
the idea that I think all of us
here on the panel today are

58:38.220 --> 58:40.470
concerned about the level of
concentrated power that the

58:40.470 --> 58:44.070
biggest banks have. And so I'm a
believer that new entrants,

58:44.070 --> 58:46.560
whether they're fintechs, or
other kinds of companies, as

58:46.560 --> 58:48.540
long as they meet the statutory
requirements are a

58:48.540 --> 58:51.510
counterbalance to that. So
again, this is one of the points

58:51.510 --> 58:54.120
of project reach was to find
ways of bringing technology

58:54.120 --> 58:57.750
companies into the solution for
why isn't there more capital

58:57.750 --> 59:00.330
available in inner city
neighborhoods? And why have

59:00.330 --> 59:03.090
banks pulled more branches out
of inner city neighborhoods than

59:03.090 --> 59:06.630
out of rich suburbs, somebody's
got to fill that void. It hasn't

59:06.630 --> 59:09.570
been the big banks. So it needs
to be somebody. And to me, the

59:09.570 --> 59:12.420
safest way to do that is not to
allow fintechs to do it on a

59:12.420 --> 59:15.570
completely unsupervised and
unregulated basis is to bring

59:15.570 --> 59:19.560
them into the fold subject to
supervision, that sort of a

59:19.560 --> 59:20.610
common sense solution.

59:20.909 --> 59:22.739
Gregory W. Meeks: Let me get Mr.
Pacheco, jump in there Mr.

59:22.739 --> 59:23.279
Pacheco.

59:24.750 --> 59:26.310
Carlos Pacheco: I appreciate
that. Thank you for the

59:26.310 --> 59:30.240
question. Congressman, I would
say that I would agree with some

59:30.240 --> 59:33.660
of the testimony from Professor
Gerding and Mr. Brooks, by my

59:33.660 --> 59:36.720
one deviation from that is that
organizations like credit

59:36.720 --> 59:39.390
unions, like my size, a small
organization of just a billion

59:39.390 --> 59:42.540
and a half assets, is out there
going in those communities that

59:42.540 --> 59:44.880
might have been left behind by
other institutions who are out

59:44.880 --> 59:48.450
there building relationships in
places like Pueblo and other

59:48.450 --> 59:49.530
parts of Colorado.

59:51.330 --> 59:53.520
Gregory W. Meeks: I might have
time. Thank you, Mr. Chair.

59:54.570 --> 59:57.930
Ed Perlmutter: Thank you, Mr.
Meeks. Now the chair will

59:57.930 --> 01:00:01.260
recognize the gentleman from
Kentucky Mr. Barr for five

01:00:01.260 --> 01:00:01.650
minutes.

01:00:02.520 --> 01:00:04.560
Andy Barr: Thank you, Mr.
Chairman. And as my friend did

01:00:04.560 --> 01:00:09.120
Mr. Meeks focused on urban
banking deserts let me ask you a

01:00:09.120 --> 01:00:13.230
few questions about rural
banking, deserts and in

01:00:13.230 --> 01:00:17.460
particular, the decline in de
novo charters. since the

01:00:17.460 --> 01:00:20.190
financial crisis de novo
formation has slowed

01:00:20.190 --> 01:00:24.960
significantly, there were 181
charters granted in 2007. But

01:00:24.960 --> 01:00:30.870
between 2010 and 2019, fewer
than 10 New banks on average

01:00:30.900 --> 01:00:34.230
opened per year, more than half
of the counties in the United

01:00:34.230 --> 01:00:37.800
States saw net declines in the
number of bank branches between

01:00:37.830 --> 01:00:42.150
2012 and 2017. These declines
and bank branches

01:00:42.150 --> 01:00:46.020
disproportionately hit rural
communities. The negative

01:00:46.020 --> 01:00:48.630
financial impacts on rural
counties of bank branch

01:00:48.630 --> 01:00:52.050
closures, closures are
perpetuated by continuing

01:00:52.050 --> 01:00:55.710
difficulties due to burdensome
regulations and other roadblocks

01:00:55.740 --> 01:00:59.010
of de novo Community Bank
formation. These trends lead

01:00:59.040 --> 01:01:01.950
residents of rural counties
without access to much needed

01:01:01.950 --> 01:01:05.640
financial services, and also
have negative downstream impacts

01:01:05.820 --> 01:01:09.120
on those communities. I'm trying
to remedy that by introducing

01:01:09.120 --> 01:01:12.750
today, the promoting access to
capital and underbanked

01:01:12.750 --> 01:01:16.140
Communities Act, which would
encourage formation of new banks

01:01:16.140 --> 01:01:19.680
in locations where bank branches
are scarce. It would give de

01:01:19.680 --> 01:01:23.280
novo banks more time to meet
capital requirements and ease

01:01:23.280 --> 01:01:25.980
other regulatory burdens on new
Community Financial

01:01:25.980 --> 01:01:30.240
Institutions. Mr. Brooks, I
share and Mr. Luke De Meyer. So

01:01:30.240 --> 01:01:33.930
praise of your service at the
OCC enjoyed working with you.

01:01:34.140 --> 01:01:38.430
Can you tell us what some of the
biggest roadblocks are today

01:01:38.430 --> 01:01:39.660
know about bank formation?

01:01:40.620 --> 01:01:43.170
Brian Brooks: Well, that Thank
you, Congressman Barr, I very

01:01:43.170 --> 01:01:45.540
much appreciated our
relationship and your mentorship

01:01:45.540 --> 01:01:48.330
and guidance. So thanks for the
opportunity. I would just begin

01:01:48.330 --> 01:01:51.990
by saying as in many things,
process in government is

01:01:51.990 --> 01:01:55.110
everything. And so when I first
arrived at the OCC and looked at

01:01:55.110 --> 01:01:59.010
the bank charter and prospects,
the process flow involved in

01:01:59.010 --> 01:02:01.860
doing that involved something
like 58 steps, I'm making that

01:02:01.860 --> 01:02:04.530
number up, there was a huge
number of steps where multiple

01:02:04.530 --> 01:02:07.590
committees had to review charter
applications more than one time.

01:02:08.100 --> 01:02:11.160
And that was just one of the
three agencies that charges

01:02:11.160 --> 01:02:14.400
banks. So I think part of the
problem is that we have to

01:02:14.400 --> 01:02:18.270
streamline the process by making
clear how one gets a de novo

01:02:18.270 --> 01:02:21.090
charter and making clear what
the timeline expectations are

01:02:21.090 --> 01:02:23.610
for getting those things
approved, even just inside of

01:02:23.610 --> 01:02:26.760
the Charter, the OCC. The second
thing I would say to this

01:02:26.760 --> 01:02:29.760
committee is we have an
incredibly complicated process

01:02:29.760 --> 01:02:33.720
where three different agencies
have full discretion over

01:02:33.720 --> 01:02:37.320
whether to approve or not banks,
because once you have a national

01:02:37.320 --> 01:02:40.410
bank charter approved at the
OCC, you still need deposit

01:02:40.410 --> 01:02:43.050
insurance approval. And
nowadays, the Federal Reserve is

01:02:43.050 --> 01:02:45.750
exercising extraordinary
oversight over whether something

01:02:45.750 --> 01:02:48.420
has been approved by those two
agencies should be allowed to

01:02:48.420 --> 01:02:51.690
become a Fed member. That's why
it took Varro bank nearly three

01:02:51.690 --> 01:02:56.370
years from initial approach to
charter plans. And we can't have

01:02:56.370 --> 01:02:59.790
the kind of system we have 80s
90s If we're going to take three

01:02:59.790 --> 01:03:04.020
years to counter every every new
bank. So I share your concern

01:03:04.050 --> 01:03:07.380
that finding ways to shortcut
that process not not in the

01:03:07.380 --> 01:03:10.230
sense of shortcutting important
substantive requirements. But

01:03:10.230 --> 01:03:12.930
shortcutting bureaucratic red
tape, which takes an enormous

01:03:12.930 --> 01:03:15.720
amount of time for good purpose
is really important. The other

01:03:15.720 --> 01:03:18.330
thing I would tell you is in
rural communities, you know,

01:03:18.360 --> 01:03:21.570
fintechs are the main source of
credit in certain respects. If

01:03:21.570 --> 01:03:23.880
you want to get a mortgage or
sales, Kentucky, you're not

01:03:23.880 --> 01:03:26.610
going to get it at a local
convention we're going to do is

01:03:26.610 --> 01:03:29.070
find it on lending tree. And
that's why it's more important

01:03:29.070 --> 01:03:31.950
that those companies be
encouraged and regulated so that

01:03:31.950 --> 01:03:34.260
they can deliver those services
more effectively in places banks

01:03:34.260 --> 01:03:35.250
don't have branches.

01:03:36.330 --> 01:03:39.870
Andy Barr: Well, that's good
feedback. I will note, a recent

01:03:39.870 --> 01:03:42.960
study from the FDIC that
citizens in rural communities

01:03:42.960 --> 01:03:46.020
are more likely than people in
urban or suburban areas to visit

01:03:46.020 --> 01:03:52.230
bank branches. Obviously, you
mentioned some online

01:03:52.260 --> 01:03:57.630
opportunities, of course, rural
broadband is a challenge for

01:03:57.660 --> 01:04:01.710
mobile banking. I've introduced
bills to combat both of these

01:04:01.710 --> 01:04:04.320
issues, but the problems have
been exacerbated by the

01:04:04.320 --> 01:04:07.650
pandemic, is there anything else
we can do to increase access to

01:04:07.650 --> 01:04:09.780
the banking system for rural
populations?

01:04:10.170 --> 01:04:13.200
Brian Brooks: What, so I would
say, Congressman, that

01:04:14.070 --> 01:04:17.160
consistent with the bill that
you're introducing today, we

01:04:17.160 --> 01:04:20.730
need to have a concept of kind
of like a CRA type of concept

01:04:20.760 --> 01:04:23.670
where if you are serving an
underbanked community, it needs

01:04:23.670 --> 01:04:26.820
to be a fast track to approval.
And I think you and I've talked

01:04:26.820 --> 01:04:29.100
before about the fact that there
is there are rural communities

01:04:29.100 --> 01:04:31.980
in Kentucky and Mississippi and
other parts of the south, where

01:04:31.980 --> 01:04:36.330
the nearest bank branch is 75
miles away. So the way you're

01:04:36.330 --> 01:04:39.000
going to allow those things as
local community leaders to form

01:04:39.000 --> 01:04:41.640
your branches is if there is a
fast track option and we should

01:04:41.640 --> 01:04:43.380
see that as community
reinvestments.

01:04:43.740 --> 01:04:46.920
Andy Barr: Real quick, real
quick, Mr. Brooks, and my final

01:04:47.160 --> 01:04:50.520
few seconds. Can you address
Professor Johnson's analysis

01:04:50.520 --> 01:04:53.340
that a non depository National
Bank is an oxymoron?

01:04:54.120 --> 01:04:55.860
Brian Brooks: Yeah, yeah look I
mean, I mean in the in the

01:04:55.860 --> 01:04:59.520
National Bank act, deposit
taking is a power of a bank, not

01:04:59.520 --> 01:05:02.250
a record My argument, it isn't a
requirement in the bank holding

01:05:02.250 --> 01:05:05.460
company act, but it is a tower,
not a requirement in the

01:05:05.460 --> 01:05:06.270
National Bank act.

01:05:07.290 --> 01:05:10.530
Andy Barr: My time has expired.
I appreciate the answers and I

01:05:10.530 --> 01:05:11.160
yield back.

01:05:12.780 --> 01:05:15.600
Roger Williams: Thank the
gentleman for his questions now

01:05:15.600 --> 01:05:19.590
like to turn to the gentleman
from California, Mr. Sherman.

01:05:21.659 --> 01:05:26.369
Brad Sherman: Thank you, like to
first talk about the industrial

01:05:26.369 --> 01:05:33.029
loan company loophole to what
has been in this country. Can I

01:05:33.029 --> 01:05:33.479
be heard?

01:05:36.960 --> 01:05:39.270
Roger Williams: You are you are
live and loud.

01:05:39.510 --> 01:05:47.160
Brad Sherman: Live and loud.
Thank you. First, I look at the

01:05:47.160 --> 01:05:51.450
industrial loan company loophole
to what has been a prohibition

01:05:51.450 --> 01:05:54.690
in this country of mixing
Industry and Commerce on the one

01:05:54.690 --> 01:05:59.070
hand and financial services on
another. Now a couple decades

01:05:59.070 --> 01:06:02.370
ago, we did allow different
types of financial services

01:06:02.370 --> 01:06:05.580
companies to be under one roof
and insurance company can also

01:06:05.580 --> 01:06:13.230
own a bank, or vice versa. But,
Mr. korero, last month, it was

01:06:13.230 --> 01:06:17.640
reported that Walmart had hired
a Goldman Sachs, head of

01:06:17.640 --> 01:06:21.780
consumer banking and announced a
partnership with red ID capital,

01:06:22.350 --> 01:06:26.100
trying to expand into financial
services, Walmart and other

01:06:26.670 --> 01:06:31.260
major retailers have, at various
times sought a state issued

01:06:31.320 --> 01:06:36.420
industrial loan company
charters. On just as the Trump

01:06:36.420 --> 01:06:39.810
administration was on its way
out the door and December of

01:06:39.810 --> 01:06:44.820
last year, FDIC adopted rules
that pave the way for non banks

01:06:44.820 --> 01:06:48.390
to own ILC charter banks. And
here's the key part without

01:06:48.390 --> 01:06:51.390
being subjected to the same
regulatory oversight

01:06:51.390 --> 01:06:54.540
requirements that are applied to
traditional bank holding

01:06:54.540 --> 01:06:58.230
companies. Do you see
inconsistencies in these

01:06:58.230 --> 01:07:03.300
regulatory requirements? And is
it a good idea for us to copy a

01:07:03.300 --> 01:07:07.770
system that has done tremendous
damage to Japan, of having

01:07:07.770 --> 01:07:10.590
groups of companies that are
both in industry and commerce on

01:07:10.590 --> 01:07:13.140
the one hand, in financial
services on the other?

01:07:14.909 --> 01:07:16.439
Raul Carrillo: Thank you for
your question. Congressman

01:07:16.439 --> 01:07:20.159
Sherman, I believe that the
Japanese example does provide

01:07:20.159 --> 01:07:26.069
some lessons. They call Rakuten,
Japan's Amazon and it has

01:07:26.069 --> 01:07:28.709
integrated into financial
services in a way that it will

01:07:28.949 --> 01:07:33.719
never be on twisted. At this
point. I do want to highlight

01:07:33.719 --> 01:07:37.649
one dimension regarding the ILC
issue that Professor grouping

01:07:37.649 --> 01:07:40.499
and Professor Johnson did not
hit on, although I believe they

01:07:40.499 --> 01:07:44.099
both point to it, at least in a
general way and their testimony

01:07:44.099 --> 01:07:46.769
as well. It's that a lot of
these companies that will come

01:07:46.769 --> 01:07:49.559
through this loophole will be
subject to different data

01:07:49.559 --> 01:07:52.469
collection requirements, they
will not be subject to

01:07:52.469 --> 01:07:55.949
regulation, why, or the
regulations of the BH ca in the

01:07:55.949 --> 01:07:58.589
same way, and then won't even
provide the limited privacy

01:07:58.589 --> 01:08:02.669
protections that current banks
do to their customers. So in

01:08:02.669 --> 01:08:06.119
many ways, this is replicating
the problems of the past, as

01:08:06.539 --> 01:08:10.079
member McHenry said, in the
sense that we are creating

01:08:10.079 --> 01:08:12.749
things that look like deposits
act like deposits walk like

01:08:12.749 --> 01:08:15.599
deposits talk like deposits, but
we don't treat like deposits.

01:08:16.019 --> 01:08:18.209
And in the other sense, though,
this is totally new.

01:08:18.209 --> 01:08:18.630
Andy Barr: And following.

01:08:20.400 --> 01:08:21.060
Raul Carrillo: The collection.

01:08:21.060 --> 01:08:24.720
Brad Sherman: We'd have a few
very small old lLCs out there.

01:08:24.780 --> 01:08:28.410
But if Amazon exploits this,
they're going to be enormous.

01:08:28.410 --> 01:08:32.250
They don't do anything small.
And the question would then be

01:08:33.780 --> 01:08:36.930
would they be subject to the
Financial Stability Oversight

01:08:36.930 --> 01:08:40.530
Council, if they were a
systemic, of systemic importance

01:08:40.530 --> 01:08:41.520
to our financial system?

01:08:43.469 --> 01:08:46.229
Raul Carrillo: Yeah, there are
all these giant macro questions,

01:08:46.379 --> 01:08:49.559
which I believe Professor
Gerdling outlined quite well.

01:08:49.829 --> 01:08:53.159
And the issue to me is certainly
one of power even behind that.

01:08:53.819 --> 01:08:57.299
Congressman Sherman, the issue
is that entities like Amazon and

01:08:57.299 --> 01:09:00.299
Facebook and Walmart, which is
launched, the FinTech, as you

01:09:00.299 --> 01:09:04.199
said, has fired, you know,
people from outfits that don't

01:09:04.199 --> 01:09:08.549
respect privacy to come in under
the cloak of providing access to

01:09:08.549 --> 01:09:12.089
credit or financial inclusion
even. But to do so in a way that

01:09:12.089 --> 01:09:15.689
fundamentally depends upon mass
surveillance and a violation of

01:09:15.689 --> 01:09:18.419
our constitutional rights
consistently. There are other

01:09:18.419 --> 01:09:21.359
ways to do this, in which we
respect privacy. There are other

01:09:21.359 --> 01:09:23.969
ways even for private sector
companies to do this, let alone

01:09:23.969 --> 01:09:27.449
the government itself. And we
are not addressing those ways.

01:09:27.449 --> 01:09:30.479
I'd be really interested to hear
what for instance, Former Acting

01:09:30.479 --> 01:09:33.179
Comptroller Brooks has to say
about the Fourth Amendment, and

01:09:33.179 --> 01:09:36.239
again, the necessary violation
of privacy that is the business

01:09:36.239 --> 01:09:38.159
model of these companies. It
works.

01:09:38.459 --> 01:09:41.009
Brad Sherman: I do want to go on
to one other issue. And

01:09:41.219 --> 01:09:44.039
Professor Garrett girding I'm
probably going to ask you to

01:09:44.039 --> 01:09:48.089
respond for the record, but we
see that the state of Wyoming is

01:09:48.089 --> 01:09:54.449
moving toward cryptocurrencies
and the OCC is granted

01:09:54.449 --> 01:09:56.699
preliminary approval to the
anchorage Trust Company to

01:09:57.029 --> 01:10:01.499
become a National Trust Bank. in
Anchorage, of course claims to

01:10:01.499 --> 01:10:05.759
be a cryptocurrency asset
custodian. I have looked at

01:10:06.179 --> 01:10:09.299
Bitcoin and wondered whether
there was a big enough market

01:10:09.659 --> 01:10:14.339
among terrorists, drug dealers,
and it didn't seem to be enough.

01:10:14.639 --> 01:10:19.439
And then I realized when the IRS
commissioner testified for $1

01:10:19.439 --> 01:10:24.029
trillion, every year of
unreported taxes chiefly from

01:10:24.029 --> 01:10:27.689
the wealthy, that and I made up
a little advertising site in my

01:10:27.689 --> 01:10:32.459
hand help encourage a bitcoin is
not just for terrorists anymore.

01:10:32.609 --> 01:10:36.779
It was activators to that's the
market for Bitcoin. I yield

01:10:36.779 --> 01:10:37.139
back.

01:10:39.270 --> 01:10:41.850
Roger Williams: The gentleman
yields back. The gentleman from

01:10:41.850 --> 01:10:44.880
Texas, Mr. Williams is
recognized for five minutes.

01:10:45.270 --> 01:10:48.270
Thank you, Mr. Chairman. I think
one of the greatest exports

01:10:48.270 --> 01:10:52.200
America has are the products and
services that our entrepreneurs

01:10:52.200 --> 01:10:54.510
and businesses bring to the
marketplace and share with the

01:10:54.510 --> 01:10:58.080
world. I do not want to run the
risk of losing our pBrosition as

01:10:58.080 --> 01:11:01.590
the world leader in innovation.
That being said, I do not think

01:11:01.590 --> 01:11:05.280
we should have to or quite
frankly, need to add additional

01:11:05.280 --> 01:11:07.890
risk into the financial system
to help foster the business

01:11:07.890 --> 01:11:11.640
friendly regulatory environment
that we need. So Mr. Brooks, I

01:11:11.670 --> 01:11:15.000
also want to add thank you for
your service to our country, and

01:11:15.000 --> 01:11:19.680
also an ask, my first question
to you is how would eliminate

01:11:19.680 --> 01:11:23.580
access to charting options like
an ILC impact fintech companies

01:11:23.910 --> 01:11:26.730
from innovating and creating new
products and services? And do

01:11:26.730 --> 01:11:30.840
you believe that these companies
would just move to other

01:11:30.840 --> 01:11:34.200
jurisdictions outside of the US
to provide a more modernized

01:11:34.230 --> 01:11:35.160
regulatory system?

01:11:36.030 --> 01:11:38.160
Brian Brooks: Yeah, well, so
Congressman, I really appreciate

01:11:38.160 --> 01:11:40.710
that question. And I guess I
would answer it in two different

01:11:40.710 --> 01:11:43.890
ways. So before we talk about
offshoring technology, which is

01:11:43.890 --> 01:11:46.830
a real risk, let's just talk
about the actual companies that

01:11:46.830 --> 01:11:49.980
are actually applying for IOC
charters today. Okay, they're

01:11:49.980 --> 01:11:53.130
not Walmart, they're not Amazon,
they're not Google. They're

01:11:53.130 --> 01:11:56.280
financial companies. They're
affirm, which is a point of sale

01:11:56.280 --> 01:11:59.310
lending company that is one of
the largest companies in that

01:11:59.310 --> 01:12:02.280
space today. And all they do is
make loans. That's their entire

01:12:02.280 --> 01:12:06.480
business, they'd like to be an
LLC. So you have two choices in

01:12:06.480 --> 01:12:10.290
that world. That company can
come into the IOC world and be

01:12:10.290 --> 01:12:14.910
supervised by a state regulator
and by the FDIC or not. Okay.

01:12:15.000 --> 01:12:17.850
And so the question is, which is
a riskier scenario, letting them

01:12:17.850 --> 01:12:20.790
in the system so they can be
supervised and remember that

01:12:20.790 --> 01:12:23.970
federally supervised entities
fail and about half the rate of

01:12:24.000 --> 01:12:27.090
non federally supervised
entities, or we can keep them

01:12:27.120 --> 01:12:31.230
out of the system today? I would
argue that is riskier. Now, if

01:12:31.230 --> 01:12:34.290
the US adopts the anti tech
posture, and I think one of the

01:12:34.290 --> 01:12:36.990
comments made earlier is that we
can't take the politics out of

01:12:36.990 --> 01:12:41.700
tech. What you already see is
significant aspects of tech

01:12:41.700 --> 01:12:45.210
moving offshore primarily to
Asia, but even even to markets

01:12:45.210 --> 01:12:47.460
with somewhat more unified
financial regulation like the

01:12:47.460 --> 01:12:50.460
UK. So comments have been made
about cryptocurrency. Obviously,

01:12:50.460 --> 01:12:53.580
I disagree that the market for
Bitcoin is terrorists and tax

01:12:53.580 --> 01:12:56.280
evaders, we can have that
conversation separately. But the

01:12:56.280 --> 01:12:59.010
position we've taken in this
country thus far about

01:12:59.010 --> 01:13:01.830
blockchain and its
opportunities, has been a

01:13:01.830 --> 01:13:04.410
position that's led many
exchanges to leave the United

01:13:04.410 --> 01:13:07.500
States. Now, there's optimism
because of the Coinbase IPO

01:13:07.500 --> 01:13:10.050
yesterday that the US markets
are very welcoming of that

01:13:10.050 --> 01:13:13.230
business. But increasingly, that
activity is going to the UK, the

01:13:13.230 --> 01:13:17.040
EU and Singapore. And those are
countries that still have an

01:13:17.040 --> 01:13:20.550
idea that perhaps responsible
innovation with an appropriate

01:13:20.610 --> 01:13:23.730
amount of risk oversight is a
good thing. Not a bad thing. So

01:13:23.730 --> 01:13:25.230
I think we need to think
carefully about that.

01:13:25.830 --> 01:13:28.020
Roger Williams: Appreciate that
answer. Secondly, my office has

01:13:28.020 --> 01:13:30.960
been contacted by a variety of
stakeholders talking about the

01:13:30.960 --> 01:13:34.650
importance of the true lender
rule. The fact that it is being

01:13:34.650 --> 01:13:37.590
discussed as something that
could be invalidated with the

01:13:37.590 --> 01:13:40.410
Congressional Review Act has
already caused some market

01:13:40.770 --> 01:13:44.670
participants to get nervous as
they are working to provide

01:13:44.670 --> 01:13:48.090
services to banks that they have
partnered with. I think that

01:13:48.090 --> 01:13:51.420
when some of my Democratic
colleagues tried to simplify the

01:13:51.420 --> 01:13:55.830
rule down to saying is just a
rented charter scheme. It missed

01:13:55.830 --> 01:13:59.220
the intention of the rule. So
Mr. Brooks, again, can you talk

01:13:59.220 --> 01:14:03.930
to us about how the true lender
rules assist the OCC and

01:14:03.930 --> 01:14:07.110
protecting the safety and
stability of our nationally

01:14:07.140 --> 01:14:08.490
chartered banks?

01:14:09.090 --> 01:14:10.800
Brian Brooks: Yeah, so
Congressman, that's a great

01:14:10.800 --> 01:14:13.680
question. And there were two
motivations behind the true

01:14:13.680 --> 01:14:16.590
lender rule and its companion
rule, the valid when made rule.

01:14:17.460 --> 01:14:22.050
The first idea was that when the
madam decision came down in the

01:14:22.050 --> 01:14:25.380
Second Circuit Court of Appeals,
lending to low and moderate

01:14:25.380 --> 01:14:27.900
income people living in New York
and Connecticut, the state's

01:14:27.900 --> 01:14:32.040
subject to that rule fell by
64%. Let me just say that again,

01:14:32.310 --> 01:14:35.280
when you don't have the valid,
but when made rule, the people

01:14:35.280 --> 01:14:39.780
who get hurt are poor people.
And the point of the rule was to

01:14:39.810 --> 01:14:43.530
reinstate access to credit for
those low and moderate income

01:14:43.560 --> 01:14:46.800
Americans, our brothers and
sisters who were cut off from

01:14:46.800 --> 01:14:49.320
credit when banks weren't
allowed to sell loans in the

01:14:49.320 --> 01:14:52.560
secondary market. That was the
first reason. The second thing

01:14:52.560 --> 01:14:56.250
we did in that rule is make very
clear that rental charter

01:14:56.250 --> 01:14:59.460
schemes of the past which were
all about the idea that nobody

01:14:59.460 --> 01:15:02.370
was accountable For those loans,
not the bank and not the FinTech

01:15:02.370 --> 01:15:06.090
marketing partner, those were
over what we said our rule was

01:15:06.090 --> 01:15:09.090
that in the true lender regime,
if the bank is the true lender

01:15:09.090 --> 01:15:13.530
on the loan, it will be
responsible for all disclosure,

01:15:13.560 --> 01:15:17.250
all anti discrimination rules,
all consumer protections, we

01:15:17.250 --> 01:15:20.580
eliminated rental charter in
that rule. So it's a nice

01:15:20.580 --> 01:15:23.400
talking point to say that
somehow this incentivizes rented

01:15:23.400 --> 01:15:26.310
charter. But in fact, the text
of the rule solves rented

01:15:26.310 --> 01:15:29.880
charter and staff and career
over, you know, supervisors at

01:15:29.880 --> 01:15:32.430
the agency worked very hard to
make sure that was the case.

01:15:33.330 --> 01:15:35.670
Roger Williams: Thank you for
that. And, Mr. Chairman, I yield

01:15:35.670 --> 01:15:36.990
the remainder of my time back.

01:15:38.310 --> 01:15:42.120
Thank you, Mr. Williams. Another
gentleman from Texas, Mr. Green

01:15:42.120 --> 01:15:43.980
is recognized for five minutes.

01:15:49.680 --> 01:15:51.660
Al Green: Thank you, Mr.
Chairman. I greatly appreciate

01:15:51.660 --> 01:15:55.350
the opportunity to be heard and
Brittany, appreciate your having

01:15:55.350 --> 01:16:01.140
this hearing. Very valuable to
me. Let me start with coin base

01:16:01.140 --> 01:16:06.000
and lay a predicate for where
I'd like to ultimately on base

01:16:06.000 --> 01:16:14.730
made its market debut Wednesday,
and its reference price was

01:16:14.760 --> 01:16:23.010
$250. It ended up closing at
$328.28. The value of the

01:16:23.010 --> 01:16:30.480
company at $5.7 billion. For
those I'm sure you know, but

01:16:30.480 --> 01:16:36.420
some may not know that coin base
is a business that allows its

01:16:36.450 --> 01:16:40.680
clients its customers to buy and
sell digital currency. I

01:16:40.680 --> 01:16:44.160
mentioned this, because it's
just a matter of coincidence, I

01:16:44.160 --> 01:16:47.910
suppose. And I don't want to be
mean anybody but Mr. Bernie

01:16:47.910 --> 01:16:54.090
Madoff. He passed yesterday. And
Mr. Bernie Madoff, for those who

01:16:54.090 --> 01:16:59.970
may have forgotten as a father
of a $20 billion Ponzi scheme. A

01:16:59.970 --> 01:17:04.320
lot of people have consternation
about digital currency

01:17:05.250 --> 01:17:09.570
cryptocurrency because they're
concerned that it might end up

01:17:09.930 --> 01:17:14.550
being a Ponzi scheme. This is a
fear that people have people who

01:17:14.550 --> 01:17:18.900
don't understand maybe, but some
people do understand very much

01:17:18.900 --> 01:17:26.280
concern. My concern is this list
made off, made off with this

01:17:26.280 --> 01:17:32.760
money. Persons who, generally
speaking could care less about

01:17:32.760 --> 01:17:35.280
what Congress does, as long as
Congress kind of stays on their

01:17:35.280 --> 01:17:39.240
business. They made their way to
Congress, and they wanted

01:17:39.420 --> 01:17:43.020
Congress to help. They thought
we should have regulated to the

01:17:43.020 --> 01:17:50.940
extent that this fraud should
not have occurred. And I think

01:17:50.940 --> 01:17:53.370
that a lot of our concern and
consternation with

01:17:53.400 --> 01:17:57.840
cryptocurrency emanates from
people who saw what happened,

01:17:58.170 --> 01:18:01.740
and still are concerned about
what may happen. So here's my

01:18:01.740 --> 01:18:06.750
first question. And I'd like to
take this question to Mr.

01:18:06.750 --> 01:18:11.970
Brooks. Our first question is
this, Mr. Brooks? Is is

01:18:11.970 --> 01:18:15.570
cryptocurrency an asset class?
Or is it a substitute for

01:18:15.570 --> 01:18:19.200
currency? How do you see it? And
can you just give me a quick

01:18:19.200 --> 01:18:21.810
answer? Maybe 10 or 15 seconds
because I have another question

01:18:21.810 --> 01:18:22.080
for you.

01:18:23.790 --> 01:18:25.500
Brian Brooks: Sure, so
Congressman Green, I really

01:18:25.500 --> 01:18:28.920
appreciate the question. I
separate crypto into two worlds,

01:18:28.950 --> 01:18:32.730
Bitcoin and everything else.
Bitcoin I think of as an asset

01:18:32.730 --> 01:18:35.580
class. It is an anti
inflationary asset class that

01:18:35.580 --> 01:18:37.920
some people believe as a
counterweight to inflationary

01:18:37.920 --> 01:18:40.950
monetary policy by governments.
All of the other

01:18:40.950 --> 01:18:43.740
cryptocurrencies that exist out
there are designed to create

01:18:43.740 --> 01:18:46.920
networks. They're essentially
inducements to create internets,

01:18:47.070 --> 01:18:49.410
on which various values can be
exchanged. I'm happy to talk

01:18:49.410 --> 01:18:51.960
more about that. But it's an
intranet protocol. It has

01:18:51.960 --> 01:18:54.540
nothing to do with Ponzi schemes
and tell me how much time you

01:18:54.540 --> 01:18:55.920
want. I can give you more
information on that.

01:18:56.100 --> 01:18:58.170
Al Green: I appreciate what
you've said thus far. Let me

01:18:58.470 --> 01:19:03.240
move forward. The American
dollar is backed by the full

01:19:03.240 --> 01:19:08.190
faith and credit of the United
States of America. That's a fair

01:19:08.190 --> 01:19:11.670
statement. I think.
cryptocurrencies seem to be

01:19:11.670 --> 01:19:15.750
backed by the people who hold
crypto currencies. Is that a

01:19:15.750 --> 01:19:16.470
fair statement?

01:19:17.160 --> 01:19:19.350
Brian Brooks: I don't think so.
Actually, I think I probably

01:19:19.350 --> 01:19:20.760
disagree with both of those
statements.

01:19:23.640 --> 01:19:24.660
Al Green: Explain please.

01:19:25.100 --> 01:19:28.610
Brian Brooks: Okay. So sure, so
what's backed by the full faith

01:19:28.610 --> 01:19:32.390
and credit of the United States
is US debt. Okay. $1 Bill is not

01:19:32.390 --> 01:19:35.180
US debt. $1 Bill is just a unit
of exchange you use to buy

01:19:35.180 --> 01:19:38.150
things with. If you look at
what's happened in monetary

01:19:38.150 --> 01:19:41.300
policy, over the last 12 months,
the US has increased the m two

01:19:41.300 --> 01:19:45.710
money supply by 40%, which
inherently devalues the amount

01:19:45.710 --> 01:19:48.290
of the purchasing power of the
dollar. You saw that in the

01:19:48.290 --> 01:19:51.470
inflation reports that were in
this morning's newspapers. So

01:19:51.470 --> 01:19:53.990
that's an example of the dollar
not being backed by the full

01:19:53.990 --> 01:19:57.140
faith and credit is backed by
American monetary policy at any

01:19:57.140 --> 01:20:02.210
given moment. So there's another
currency real quick. Right, so

01:20:02.210 --> 01:20:05.720
so so cryptocurrency, again put
Bitcoin aside just for a moment.

01:20:06.110 --> 01:20:09.950
But cryptocurrency is about is
the belief that a particular

01:20:09.950 --> 01:20:12.650
network will gain adoption. So
it's, you know, when you buy an

01:20:12.650 --> 01:20:16.340
Aetherium token and eath token,
that's like saying, I believe

01:20:16.370 --> 01:20:19.340
this network, which is a smart
contract protocol for building

01:20:19.340 --> 01:20:22.160
financial applications, it
basically apps like on your cell

01:20:22.160 --> 01:20:25.160
phone is going to have value. So
if you think Google stock has

01:20:25.160 --> 01:20:27.410
value, because you think
internet traffic is going to go

01:20:27.410 --> 01:20:30.230
up, and Google is a tracking
stock for the internet, like

01:20:30.260 --> 01:20:34.040
eath tokens is like believing
that the Etherion protocol will

01:20:34.040 --> 01:20:37.040
become the default protocol for
financial applications that

01:20:37.040 --> 01:20:39.860
that's what it's backed by is
adoption rates of that product.

01:20:40.770 --> 01:20:44.190
Al Green: if it's backed by the
belief, and I do concur with

01:20:44.190 --> 01:20:49.860
this, is that the possibility of
believers at some point no

01:20:49.860 --> 01:20:52.260
longer believing can take it to
zero.

01:20:53.430 --> 01:20:55.860
Brian Brooks: Sure, just as
believer, you know, in general

01:20:56.490 --> 01:20:59.640
can it's the past, was the
future. So I'm dumping my

01:20:59.640 --> 01:21:00.210
General Motors.

01:21:00.630 --> 01:21:02.490
Al Green: Thank you very much,
my time has expired.

01:21:02.600 --> 01:21:04.700
Raul Carrillo: Representative
green may I clarify a point of

01:21:04.700 --> 01:21:05.120
law?

01:21:06.360 --> 01:21:08.580
Al Green: Well, the chairman
would have to allow you to do so

01:21:08.580 --> 01:21:09.060
my time.

01:21:09.630 --> 01:21:12.870
Ed Perlmutter: Without
objection, you got 30 seconds.

01:21:13.560 --> 01:21:17.250
Raul Carrillo: Thank you. Former
Acting Comptroller Brooks said

01:21:17.250 --> 01:21:19.680
that the US dollar is not
government debt that is

01:21:19.680 --> 01:21:23.430
incorrect. It is a issue of the
US Federal Reserve, it is

01:21:23.430 --> 01:21:27.360
classified as a liability on its
balance sheet. It comes from an

01:21:27.360 --> 01:21:29.880
instrumentality of Congress,
although it is not considered

01:21:29.880 --> 01:21:33.090
under the debt ceiling to be
treated the same way as the US

01:21:33.090 --> 01:21:35.850
Treasury. It is very much a debt
of the United States government.

01:21:35.850 --> 01:21:38.760
It is money we owe to ourselves.
It is our main payment tool

01:21:38.760 --> 01:21:41.250
constitutionally and
administratively. Thank you.

01:21:42.330 --> 01:21:45.990
Ed Perlmutter: I thank the
gentleman. I think next we have

01:21:45.990 --> 01:21:50.400
the gentleman from Georgia. Mr.
Loudermilk, for five minutes.

01:21:51.350 --> 01:21:53.990
Barry Loudermilk: Thank you, Mr.
Chairman. And Mr. Brooks, before

01:21:53.990 --> 01:21:57.590
I get in my questions, I just
want to know if needed a moment

01:21:57.590 --> 01:22:00.500
a few seconds to respond to the
previous gentleman.

01:22:01.110 --> 01:22:04.110
Brian Brooks: Yeah, I mean, I
guess all I would say on that is

01:22:04.110 --> 01:22:08.220
that dollars are created by
government credit operations.

01:22:08.220 --> 01:22:11.430
And so the underlying thing that
has an obligation is the credit,

01:22:11.460 --> 01:22:14.520
right? It's the buying and
selling of government debt. But

01:22:14.550 --> 01:22:17.190
the dollar that you have in your
pocket, and any of us old enough

01:22:17.190 --> 01:22:20.250
to remember the 70s know this,
it's only as valuable as

01:22:20.250 --> 01:22:23.520
American monetary policy. I
remember 1980 when interest

01:22:23.520 --> 01:22:28.110
rates were 13%, athletic cost
21% to take out a mortgage, your

01:22:28.110 --> 01:22:30.930
dollar wasn't very valuable then
and nobody guaranteed its value.

01:22:32.160 --> 01:22:33.930
Barry Loudermilk: I'd appreciate
the clarification on that. In

01:22:33.930 --> 01:22:37.200
fact, recently I was at a
restaurant and the waitress had

01:22:37.200 --> 01:22:41.490
just taken cash and she handed
me a bill and she said, can you

01:22:41.490 --> 01:22:43.980
tell me if this is legal? It was
a silver certificate. I said,

01:22:43.980 --> 01:22:46.620
I'll tell you what, I'll give
you a bill of equal value. And

01:22:46.650 --> 01:22:52.620
I'll take it so. I do want to
follow up on the questions of

01:22:52.620 --> 01:22:56.880
Mr. Williams regarding FinTech
and true lender, you know, bank,

01:22:56.940 --> 01:22:59.520
fintech partnerships have
continued to grow. And the

01:22:59.520 --> 01:23:03.240
question of which entity is the
true lender is the subject of

01:23:03.240 --> 01:23:07.290
numerous court cases. And it's
been resolved on a case by case

01:23:07.290 --> 01:23:10.680
basis. In a lot of instances,
some courts have developed

01:23:10.680 --> 01:23:13.740
complicated multifactor tests to
determine who is the true

01:23:13.740 --> 01:23:17.250
lender, but that causes
significant confusion and

01:23:17.250 --> 01:23:20.760
uncertainty in lending markets.
So Mr. Brooks, can you discuss

01:23:20.940 --> 01:23:25.410
why the OCC, OCC is true lender
rule is important to give

01:23:25.410 --> 01:23:27.840
clarity and certainty to the
lending markets.

01:23:27.840 --> 01:23:28.830
Brian Brooks: Well, so
Congressman, it's a great

01:23:28.830 --> 01:23:31.530
question. And it's all about how
important you think clarity is.

01:23:31.710 --> 01:23:35.550
So last, the I have, which I
articulated the OCC many times

01:23:35.850 --> 01:23:38.340
was to quote Justice Brandeis
his famous statement when he

01:23:38.340 --> 01:23:40.740
said that sometimes it's more
important that a question be

01:23:40.740 --> 01:23:44.100
settled than that it'd be
settled, right. And so my belief

01:23:44.100 --> 01:23:47.070
is that lending contracts in a
big global economy, like the

01:23:47.070 --> 01:23:50.700
American economy need a rule,
you could pick a different rule.

01:23:50.760 --> 01:23:53.940
But our point was to say someone
needs to be responsible, there

01:23:53.940 --> 01:23:57.210
needs to be a clear bright line
test when a consumer takes out a

01:23:57.210 --> 01:24:00.930
loan as to who he's taking the
loan out from. And so our belief

01:24:00.930 --> 01:24:03.840
was, we'll have a two sentence
rule. The bank is the lender of

01:24:03.840 --> 01:24:06.300
its names on the note or the
bank is the lender if it funded

01:24:06.300 --> 01:24:09.090
the note on the date of
origination period, and we will

01:24:09.090 --> 01:24:12.180
take enforcement action against
any bank who is the true lender

01:24:12.210 --> 01:24:15.330
who violates the law, hard to
see how that's not a good thing.

01:24:18.090 --> 01:24:20.280
Barry Loudermilk: Right. And,
you know, some of the other side

01:24:20.280 --> 01:24:23.760
of you've heard over and over
again, today have alluded to

01:24:23.760 --> 01:24:27.330
that the true lender rule will
allow predatory lenders to

01:24:27.330 --> 01:24:30.000
engage in rented charter
schemes, and that is a concern

01:24:30.000 --> 01:24:36.900
of even some bank, state level
bank examiners or directors. Can

01:24:36.900 --> 01:24:40.080
you explain how that rule does
not allow for that?

01:24:40.080 --> 01:24:42.210
Brian Brooks: Yeah, well, the
first thing is, you know, we

01:24:42.210 --> 01:24:44.580
need to sort of take the
adjectives and adverbs out of

01:24:44.580 --> 01:24:46.890
this discussion and start
defining some terms. So when

01:24:46.890 --> 01:24:50.040
people call a loan, a predatory
loan, the question is, what do

01:24:50.040 --> 01:24:53.700
they mean by that? And what they
generally mean is, it was a loan

01:24:53.730 --> 01:24:56.760
that was originated at an
interest rate that exceeds the

01:24:56.760 --> 01:25:00.000
borrower's home states usury
cap. Okay, let's let's just

01:25:00.000 --> 01:25:02.460
define some terms. So with vast
what you mean by predatory

01:25:02.460 --> 01:25:06.690
lending, Congress in the Supreme
Court between 1978 and 1980,

01:25:06.720 --> 01:25:10.830
made clear that banks, both
national banks and state banks

01:25:10.920 --> 01:25:13.920
have the ability to export their
home states interest rate to

01:25:13.920 --> 01:25:17.310
other states. And why was that
important as a policy matter?

01:25:17.460 --> 01:25:21.630
Because again, in the late 70s,
the market rate of money was in

01:25:21.630 --> 01:25:25.080
the high double digits and the
state usury cap in some states

01:25:25.080 --> 01:25:27.630
was in the single digits.
Meaning that if you lived in

01:25:27.630 --> 01:25:30.090
that state, and you didn't have
interest rate exportation, you

01:25:30.090 --> 01:25:34.470
literally couldn't borrow money.
That's not a good thing in the

01:25:34.470 --> 01:25:37.950
market cycle. Right. And so that
I think the argument does, when

01:25:37.950 --> 01:25:40.530
Congress decided that banks can
export their interest rate, they

01:25:40.530 --> 01:25:43.620
decreed that that's not
predatory lending. So the

01:25:43.620 --> 01:25:46.800
question is, why does it become
predatory lending? When a loan

01:25:46.800 --> 01:25:50.100
that was legal when made is sold
to somebody else? The analogy I

01:25:50.100 --> 01:25:52.170
give is, if you're renting an
apartment, and you have a lease

01:25:52.170 --> 01:25:54.960
that says you have to pay $500 a
month, and then the building

01:25:54.960 --> 01:25:57.540
owner sells it to a different
owner, and your lease is still

01:25:57.540 --> 01:26:01.620
$500 a month. What's changed?
Did that rent suddenly become

01:26:01.650 --> 01:26:04.740
unaffordable? Did it suddenly
become usurious? No, you live in

01:26:04.740 --> 01:26:06.780
the same apartment and you
contracted to pay that amount.

01:26:07.140 --> 01:26:10.050
And in the 70s, and 80s. We all
recognized it was a good thing.

01:26:10.050 --> 01:26:13.500
And my testimony, I talked about
what a bipartisan consensus that

01:26:13.500 --> 01:26:17.250
was to allow rate exportation
Altru lender does is make those

01:26:17.250 --> 01:26:21.000
markets work better, provide
clarity, reduce litigation, and

01:26:21.000 --> 01:26:24.150
make credit more available.
Remember, in the two states,

01:26:24.480 --> 01:26:27.000
that rule for five years of
credit to low and moderate

01:26:27.000 --> 01:26:31.560
income people fell by 64%. That
can't be what we want.

01:26:33.180 --> 01:26:36.120
Barry Loudermilk: Well, access
to credit is really what the

01:26:36.120 --> 01:26:39.360
issue is, especially in a
recovering economy when people

01:26:39.360 --> 01:26:43.290
are trying to get back into the
workforce or become an

01:26:43.290 --> 01:26:46.710
entrepreneur and start a new
business. And as you know, bank

01:26:46.710 --> 01:26:49.590
FinTech Partnerships has
resulted in tremendous expansion

01:26:49.590 --> 01:26:52.620
of the availability of credit,
not just for those who have good

01:26:52.620 --> 01:26:57.540
credit, but also also those with
limited credit history. Can you

01:26:57.540 --> 01:26:59.850
explain why adding more
uncertainty in the lending

01:26:59.850 --> 01:27:02.340
markets will reduce access to
credit for consumers and

01:27:02.340 --> 01:27:02.910
businesses?

01:27:03.210 --> 01:27:04.290
Brian Brooks: Well I'd ask the
chairman.

01:27:04.350 --> 01:27:07.110
Ed Perlmutter: The gentleman,
the gentleman's question. Look,

01:27:07.110 --> 01:27:10.470
I gave 30 seconds last time, you
got another 30 seconds? Sorry.

01:27:11.820 --> 01:27:13.530
Brian Brooks: Yeah, so thank
you, Mr. Chairman, I would just

01:27:13.530 --> 01:27:17.430
quickly say that if a bank can't
engage in FinTech and other part

01:27:17.430 --> 01:27:20.010
partnerships to sell loans in
the secondary market, the bank's

01:27:20.010 --> 01:27:22.620
ability to provide credit is
limited by the size of its own

01:27:22.620 --> 01:27:24.960
balance sheet, right, because it
can't sell that loan and then

01:27:24.960 --> 01:27:27.960
use the proceeds to make the
next loan. When a bank is

01:27:27.960 --> 01:27:30.750
limited by the size of its own
balance sheet. Not surprisingly,

01:27:30.750 --> 01:27:33.360
it's going to focus on the
safest and most profitable

01:27:33.360 --> 01:27:35.820
loans, which mean loans to the
richest people and the people

01:27:35.820 --> 01:27:39.300
with the best credit scores. So
the first people who get hurt

01:27:39.300 --> 01:27:42.450
when credit starts getting
ration are poor people. Again,

01:27:42.480 --> 01:27:44.460
you know, the Federal Reserve
has done multiple studies

01:27:44.460 --> 01:27:47.370
showing that more credit equals
less poverty, and my philosophy

01:27:47.370 --> 01:27:50.010
is that making credit markets
work for everybody ought to be

01:27:50.010 --> 01:27:51.060
our highest priority.

01:27:51.690 --> 01:27:53.700
Barry Loudermilk: Well said, and
I yield back the remaining time

01:27:53.700 --> 01:27:54.690
I no longer have.

01:27:54.690 --> 01:27:57.690
Roger Williams: Gentleman's time
has expired. And, you know, if

01:27:57.690 --> 01:28:00.390
we get a chance, maybe we'll do
a lightning round for everybody

01:28:00.390 --> 01:28:03.390
after this. But we're basically
dealing with the whole banking

01:28:03.390 --> 01:28:07.320
system and a number of different
issues related to it. So I now

01:28:07.320 --> 01:28:10.560
would like to recognize the
gentleman from Illinois, Dr.

01:28:10.560 --> 01:28:19.860
Foster for five minutes. Oh, you
got on mute.

01:28:26.520 --> 01:28:29.430
Bill Foster: Apologies. So I'd
like to ask a couple of

01:28:29.430 --> 01:28:31.920
questions about what's going on
in Wyoming, which seems to be a

01:28:31.920 --> 01:28:34.800
state that has more senators
than they have actual people.

01:28:35.460 --> 01:28:39.420
But in 2019, the state of
Wyoming enacted a series of laws

01:28:39.420 --> 01:28:42.870
related to cryptocurrency,
including one authorizing the

01:28:42.870 --> 01:28:47.160
charter of a special purpose
depository institutions were SPD

01:28:47.160 --> 01:28:51.180
eyes. And in September, Wyoming
approved the first SPDIF

01:28:51.180 --> 01:28:55.470
application for Kraken Bank,
which is a digital asset company

01:28:55.470 --> 01:28:59.670
based in Cheyenne, the bank have
plans to offer services such as

01:28:59.670 --> 01:29:03.660
digital asset custody, demand
deposit accounts, wire transfer

01:29:03.660 --> 01:29:08.160
services. And at this time, it
seems that the Kraken bank is

01:29:08.160 --> 01:29:12.480
not seeking deposit insurance
from the FDIC. And instead the

01:29:12.480 --> 01:29:15.600
bank is promised that it will
maintain 100% reserves of

01:29:15.600 --> 01:29:20.760
deposits and fiat currency and
in liquid assets. Now, the rules

01:29:20.760 --> 01:29:24.720
of the Wyoming banking division
define liquid assets to include

01:29:24.720 --> 01:29:29.070
investment grade corporate debt,
investment grade US state and

01:29:29.070 --> 01:29:34.860
municipal securities and other
in and other investment grade

01:29:35.640 --> 01:29:40.500
federal or state government
agency securities. So, under

01:29:40.740 --> 01:29:43.620
stressful events, some of these
instruments would make that

01:29:43.620 --> 01:29:46.950
arrangement inherently unstable,
such as when you have an

01:29:46.950 --> 01:29:50.220
interest rate swing and Treasury
bond prices would fall or

01:29:50.220 --> 01:29:54.870
corporate credit risk may
increase and causing capital

01:29:54.870 --> 01:29:59.250
losses. And so, Ms. Johnson and
do you have concerns that this

01:29:59.250 --> 01:30:03.240
model of CAP realization may not
be robust enough to withstand

01:30:03.240 --> 01:30:04.740
periods of economic stress.

01:30:06.210 --> 01:30:07.710
Kristin Johnson: Thank you so
much representative for the

01:30:07.710 --> 01:30:11.430
question. I do have strong
concerns. And I'd like to sort

01:30:11.430 --> 01:30:15.540
of situate this conversation in
reference to the 2008 financial

01:30:15.540 --> 01:30:18.780
crisis. And in the moment, it
may not be the case that Kraken

01:30:18.780 --> 01:30:23.340
is soliciting Federal Deposit
Insurance. But however, should

01:30:23.370 --> 01:30:27.660
Kraken or other was referenced
earlier Coinbase other

01:30:27.660 --> 01:30:30.300
cryptocurrency exchanges or
platforms operating in this

01:30:30.300 --> 01:30:34.380
space experienced significant
solvency crises, we should not

01:30:34.410 --> 01:30:37.230
assume that they would not be
eligible for some type of

01:30:37.230 --> 01:30:40.020
relief, I would point in this
moment to the Fed's discount

01:30:40.020 --> 01:30:44.520
window being made available to
AIG. And in the moment that the

01:30:44.520 --> 01:30:47.160
Fed's discount window was being
made available to AIG to an

01:30:47.160 --> 01:30:50.160
earlier point in conversation, I
was leaving a position as

01:30:50.160 --> 01:30:53.850
Associate General Counsel at
JPMorgan Chase. It was within

01:30:53.850 --> 01:30:57.300
weeks of us acquiring another
bank now defunct, but had a long

01:30:57.300 --> 01:31:00.720
history Bear Stearns and I'd
like to just underscore that

01:31:00.720 --> 01:31:03.240
there is more than sufficient
evidence in the cryptocurrency

01:31:03.240 --> 01:31:06.330
space already, that exchanges
not only experienced solvency

01:31:06.330 --> 01:31:09.990
crises, but they are subject to
cyber attacks that have left

01:31:09.990 --> 01:31:15.390
them in a unable to satisfy
customer deposits. They've been

01:31:15.420 --> 01:31:18.600
also subject to any number of
scams and misconduct more

01:31:18.600 --> 01:31:19.110
broadly.

01:31:19.110 --> 01:31:22.170
Bill Foster: Thank you. And I'd
like to also talk a little bit

01:31:22.170 --> 01:31:26.730
about their their
capitalization. The Wyoming SBDI

01:31:26.760 --> 01:31:30.210
guide capital guidance states
that a prospective SBDI should

01:31:30.210 --> 01:31:33.690
consider one and a quarter to
one and three quarter percent of

01:31:33.690 --> 01:31:38.310
proposed asset under management
or assets on asset or assets

01:31:38.310 --> 01:31:41.820
under custody or $10 million,
whichever is greater as an

01:31:41.820 --> 01:31:45.630
appropriate minimum requirement
for chartering. However, these

01:31:45.630 --> 01:31:49.020
requirements are have been will
be developed on a case by case

01:31:49.020 --> 01:31:52.410
basis. The banks under
supervision of a federal banking

01:31:52.410 --> 01:31:55.470
agency are required to maintain
basic minimum capital

01:31:55.470 --> 01:31:58.830
requirements that translate to a
percentage of assets. And

01:31:58.830 --> 01:32:02.490
furthermore, traditional banks
have other key protections such

01:32:02.490 --> 01:32:06.000
as deposit insurance or access
to a lender of last resort.

01:32:06.300 --> 01:32:10.830
Professor girding since the SPD
eyes do not have deposit

01:32:10.830 --> 01:32:14.790
insurance or lender of last
resort, would you consider SPDIs

01:32:14.820 --> 01:32:18.300
to be adequately capitalized
under the Wyoming banking

01:32:18.300 --> 01:32:19.650
divisions general formula.

01:32:21.210 --> 01:32:25.170
Erik Gerding: It's very
difficult to say, representative

01:32:25.170 --> 01:32:28.890
Foster because of that, that
critical phrase that you

01:32:28.890 --> 01:32:33.870
mentioned in your remarks a case
by case basis. It's hard to know

01:32:33.870 --> 01:32:40.200
whether the way in which Wyoming
regulators will actually look at

01:32:40.200 --> 01:32:45.240
applicants for these charters in
a consistent way, and in a way

01:32:45.240 --> 01:32:48.720
that actually makes sure ensures
that they're well capitalized.

01:32:48.720 --> 01:32:52.830
And I wonder that I worry that a
lot of these decisions are going

01:32:52.830 --> 01:32:56.970
to be made in a case by case
basis and in a very non

01:32:56.970 --> 01:32:58.110
transparent way.

01:33:00.690 --> 01:33:03.390
Bill Foster: All right. So
that's, that's actually a

01:33:03.390 --> 01:33:08.040
valuable thing to keep our eyes
on. So I appreciate that. Just a

01:33:08.070 --> 01:33:13.500
quick question. You know, a big
issue with crypto generally

01:33:13.500 --> 01:33:16.770
fintech generally, is the whole
business of know your customer,

01:33:16.860 --> 01:33:23.700
and your the ability to use to,
for customers to to basically

01:33:23.700 --> 01:33:26.790
prove who they are online. And
there are proposals that are

01:33:26.790 --> 01:33:32.190
being made and actually done in
some states that that consumers

01:33:32.220 --> 01:33:35.370
will have access to so called
Digital driver's licenses to

01:33:35.370 --> 01:33:39.600
prove who they are online. Do
you have any comments on how

01:33:39.600 --> 01:33:44.520
that may make the whole KYC AML
situation approved? No matter

01:33:44.520 --> 01:33:45.870
what the charter you adopt?

01:33:46.470 --> 01:33:49.470
Roger Williams: The gentleman's
question will require a long

01:33:49.470 --> 01:33:52.590
time to answer and I would ask
that either we do it in a

01:33:52.590 --> 01:33:54.960
lightning round, or you
submitted in writing and the

01:33:55.200 --> 01:33:56.850
panelists can answer your
question.

01:33:57.570 --> 01:33:59.520
Bill Foster: I appreciate that.
Mr. Chairman, I yield back.

01:33:59.520 --> 01:34:01.740
Roger Williams: Gentleman's time
has expired. Thank you.

01:34:02.280 --> 01:34:05.970
Gentleman from Tennessee. Mr.
Kustoff, is recognized for five

01:34:05.970 --> 01:34:06.360
minutes.

01:34:07.860 --> 01:34:09.990
David Kustoff: Thank you, Mr.
Chairman. Thank you for holding

01:34:09.990 --> 01:34:12.420
today's hearing. And I do want
to thank the witnesses for

01:34:12.420 --> 01:34:18.000
appearing as well. Mr. Pacheco
if I if I can to you the

01:34:18.150 --> 01:34:23.670
obviously the last 12 and 13
months has created a lot of new

01:34:23.670 --> 01:34:27.090
normals a lot of new habits. Can
you talk about from your

01:34:27.090 --> 01:34:30.990
customers perspective? What
you've seen in in terms of

01:34:31.290 --> 01:34:36.000
changing a preference and maybe
changing up habits accelerated

01:34:36.000 --> 01:34:37.530
by the by the pandemic?

01:34:38.610 --> 01:34:40.980
Carlos Pacheco: Sure. Thank you
for the question. Congressman,

01:34:41.430 --> 01:34:45.390
the last 12 or 14 months has
been very disruptive. It's been

01:34:45.390 --> 01:34:48.450
disruptive for in Lobby
transactions and traffic, and

01:34:48.450 --> 01:34:51.540
we've had to shift to other
avenues and sources and

01:34:51.540 --> 01:34:54.090
solutions and that includes
things like mobile banking,

01:34:54.390 --> 01:34:58.290
online banking, desktop banking,
certainly a higher utilization

01:34:58.290 --> 01:35:02.100
of telephone banking and And,
you know, in a last resort

01:35:02.100 --> 01:35:06.030
perspective, reefer, utilizing
drive thru banking, so it's been

01:35:06.300 --> 01:35:08.790
very disruptive in each of those
cases, you know, we've used

01:35:08.820 --> 01:35:11.310
solutions that we partner with
other companies on our mobile

01:35:11.310 --> 01:35:14.250
banking platform would be a
great example. I think that's,

01:35:14.790 --> 01:35:17.250
that's the current, that some of
the current things we're doing

01:35:17.250 --> 01:35:20.580
relative to technology
innovation, to be able to drive

01:35:20.580 --> 01:35:23.190
that and then also, including
mobile deposits on that

01:35:23.190 --> 01:35:26.550
platform. And so the
partnerships that we've had have

01:35:26.550 --> 01:35:31.110
been a welcome and received
benefits to our membership

01:35:31.110 --> 01:35:32.040
during the pandemic.

01:35:32.040 --> 01:35:35.610
David Kustoff: Thank you, Mr.
Pacheco. Mr. Brooks, I could for

01:35:35.610 --> 01:35:40.290
you, I do an echo of the people
who, who thank you for your

01:35:40.290 --> 01:35:44.760
prior service to the government.
I appreciate your opening

01:35:44.760 --> 01:35:49.530
statement. I also appreciate
your written statement. Can you

01:35:49.530 --> 01:35:54.000
talk about and kind of following
up on Mr. Pacheco, the change in

01:35:54.000 --> 01:35:59.490
the way customers now operate in
this environment? And what does

01:35:59.490 --> 01:36:01.530
it say about the future of the
financial industry?

01:36:03.180 --> 01:36:05.370
Brian Brooks: Yeah, well, so. So
congressman, that is a great

01:36:05.370 --> 01:36:08.640
question. And I appreciate Mr.
Pacheco, his comments as well. I

01:36:08.640 --> 01:36:11.040
think one of the reasons it's
great to have a credit union

01:36:11.040 --> 01:36:14.430
representative on this panel is
that it shows to meet the credit

01:36:14.430 --> 01:36:17.280
needs of Americans, particularly
in a post pandemic, sort of

01:36:17.280 --> 01:36:20.340
contactless environment, it's
going to be all hands on deck.

01:36:20.520 --> 01:36:24.240
So the answer clearly is not
that the biggest banks alone can

01:36:24.240 --> 01:36:27.390
solve all of our credit
problems. Indeed, Jamie Dimon

01:36:27.390 --> 01:36:30.720
just said in his annual investor
letter last week, that the role

01:36:30.720 --> 01:36:33.360
and relevance of banks in the
economy is the smallest it's

01:36:33.360 --> 01:36:37.320
been at anytime in the last, you
know, number of decades, because

01:36:37.320 --> 01:36:40.950
customers preferences have
changed. Most people and I think

01:36:40.950 --> 01:36:43.200
Congressman Barr has it right,
there's a real urban rural

01:36:43.200 --> 01:36:46.860
divide on this. But most people
in the United States have

01:36:46.860 --> 01:36:49.290
elected not to visit bank
branches. I mean, just ask any

01:36:49.290 --> 01:36:52.140
of you when was the last time
you went into a branch for a

01:36:52.140 --> 01:36:55.350
significant transaction, and the
pandemic has accelerated that

01:36:55.350 --> 01:36:58.860
kind of thing. So you have a
combination of many people want

01:36:58.860 --> 01:37:01.860
to do things from home, like
we're doing this hearing today.

01:37:02.100 --> 01:37:04.770
Many people don't want to
interact with other people that

01:37:04.770 --> 01:37:08.430
they don't know in day to day
interactions. And a significant

01:37:08.460 --> 01:37:11.040
amount of capital has fled the
banking system for other

01:37:11.040 --> 01:37:14.010
applications. This is why
fintech valuations are now

01:37:14.010 --> 01:37:17.490
higher than bank valuations on a
revenue multiple basis over the

01:37:17.490 --> 01:37:20.970
last five year period. And so in
that world where capital has

01:37:20.970 --> 01:37:23.460
left banking and consumer
preferences have shifted to

01:37:23.460 --> 01:37:26.400
other kinds of platforms. The
policy question is, how do we

01:37:26.400 --> 01:37:28.380
make sure the system is still
safe and sound a consumer

01:37:28.380 --> 01:37:31.530
protections are respected?
That's the question. There's no

01:37:31.530 --> 01:37:34.290
one answer. It's not going to be
to keep all fintechs out of

01:37:34.290 --> 01:37:36.990
banking, that's not going to be
the answer. It's not going to be

01:37:37.080 --> 01:37:39.990
to say crypto must be, you know,
banned, because it's a source of

01:37:39.990 --> 01:37:42.240
terrorism financing. Now that
it's a two and a half trillion

01:37:42.240 --> 01:37:45.390
dollar market, what it's going
to be as an all hands on deck

01:37:45.390 --> 01:37:48.690
attempt to make sure that we
regulate similar activities.

01:37:48.720 --> 01:37:52.200
Similarly, regardless of whether
that activity takes place on a

01:37:52.200 --> 01:37:55.620
legacy bank platform, a fintech
platform, a crypto platform or

01:37:55.620 --> 01:37:58.230
whatever, if you're doing
payments, you should be subject

01:37:58.230 --> 01:38:00.930
to payments regulation. If
you're engaging in credit, you

01:38:00.930 --> 01:38:03.150
should be subject to the fair
lending laws. And it shouldn't

01:38:03.150 --> 01:38:06.240
matter whether you're a legacy
depository or something else,

01:38:06.240 --> 01:38:09.090
consumer preferences change, and
the system you all regulate has

01:38:09.090 --> 01:38:10.020
to evolve with that.

01:38:11.310 --> 01:38:14.340
David Kustoff: Thank you, I and
you mentioned Congressman bar,

01:38:14.340 --> 01:38:18.930
and I want to follow up on his
line of questioning and also the

01:38:18.930 --> 01:38:21.510
comments that you made in your
in your written statement, at

01:38:21.510 --> 01:38:26.940
least about the adobo banks and
the lack thereof over the last X

01:38:26.940 --> 01:38:32.160
number of years and the closure
of bank branches. You know, my

01:38:32.160 --> 01:38:35.940
district I represent part of
Memphis, but also fairly rural

01:38:35.970 --> 01:38:40.380
part of Tennessee. I traveled
across the district quite a bit.

01:38:41.250 --> 01:38:46.650
And what I heard was, we have a
lack of rural broadband. We have

01:38:46.650 --> 01:38:51.510
a lack of broadband. And as we
talk about the continued

01:38:51.510 --> 01:38:56.820
emergence of FinTech, and we
mash that together, how can how

01:38:56.820 --> 01:39:01.020
can the fintechs fill the void
of some of these closures, and

01:39:01.020 --> 01:39:02.760
yet our communities not have
broadband.

01:39:03.180 --> 01:39:05.040
Brian Brooks: Congressman,
that's the all hands on deck

01:39:05.040 --> 01:39:07.800
point, we need a combination of
it needs to be easier to charter

01:39:07.800 --> 01:39:10.650
new banks, and it needs to be
easier for fintechs to fill

01:39:10.650 --> 01:39:12.090
voids. We need all of that.

01:39:13.050 --> 01:39:15.330
David Kustoff: Thank you very
much. My time is up and I yield

01:39:15.330 --> 01:39:16.800
that. Thank you very much.

01:39:18.300 --> 01:39:21.030
Ed Perlmutter: Thank you, Mr.
Kustoff. The gentleman from

01:39:21.030 --> 01:39:24.480
Florida, Mr. Lawson is
recognized for five minutes.

01:39:25.289 --> 01:39:27.539
Al Lawson: Thank you, Mr.
Chairman. I'd like to welcome

01:39:27.599 --> 01:39:30.779
everybody to admitted it's been
a very good discussion. I'll

01:39:30.779 --> 01:39:32.879
probably have to bathtime and go
back to Mr. Brooks in the

01:39:32.939 --> 01:39:36.629
grocery mindset. Because, you
know, I have a lot of students

01:39:37.019 --> 01:39:39.959
in my district, you know, and
they are much younger and they

01:39:39.959 --> 01:39:43.169
don't want to go into banks but
somebody the other citizens

01:39:44.339 --> 01:39:46.559
around my age and stuff. They
still want to go in the branch

01:39:46.559 --> 01:39:49.889
bank banks and sit down and talk
to them but I really need to get

01:39:49.889 --> 01:39:53.399
this message. I hope I can come
back to you. I noticed that

01:39:53.399 --> 01:39:58.739
Professor Gerding and is really
testimony he stated that he

01:39:58.739 --> 01:40:03.659
wrote in the separation between
banking and commerce proposed

01:40:03.659 --> 01:40:07.379
risks for financial stability
and Consumer Protection have

01:40:07.379 --> 01:40:11.459
threatened to distort of
financial market by allowing

01:40:11.459 --> 01:40:16.589
commercial firms that can obtain
banking power and privilege to

01:40:16.589 --> 01:40:21.569
compete unfairly with the firms
that cannot. And secondly, is

01:40:21.569 --> 01:40:25.199
start Banking Markets by align
non banks to offer banking

01:40:25.199 --> 01:40:29.279
services without facing the same
degree of supervision and

01:40:29.279 --> 01:40:33.149
regulation as bank which in turn
would create incentives for

01:40:33.149 --> 01:40:38.099
banks to take more risks. Lobby
for deregulation, can you please

01:40:38.099 --> 01:40:39.449
explain those three points?

01:40:41.250 --> 01:40:45.540
Erik Gerding: Oh, thank you. Let
me explain the last piece first,

01:40:46.530 --> 01:40:51.540
when you undermine the bank
charter, when you allow

01:40:51.540 --> 01:40:55.740
competitors to unfairly compete
with banks, without being

01:40:55.740 --> 01:40:59.850
subjected to the same set of
regulations, and when you give

01:40:59.850 --> 01:41:04.410
all of the powers and privileges
of a bank, to a non bank, that

01:41:04.410 --> 01:41:09.030
has an effect on bank behavior,
as well. And it's just core

01:41:09.030 --> 01:41:12.150
banking economics, when you
undermine the bank charter and

01:41:12.150 --> 01:41:16.200
allow unfair competition, banks
are going to respond by taking

01:41:16.200 --> 01:41:21.450
more risks. And that's partially
what we've seen in the last 20

01:41:21.480 --> 01:41:24.900
years and part of the poor part
of what we saw on the global

01:41:24.900 --> 01:41:30.450
financial crisis. So that's the
effect on the banking sector, on

01:41:30.480 --> 01:41:34.830
the commercial sector, by
allowing non banks to get powers

01:41:34.830 --> 01:41:38.730
and privileges of banks,
including exemptions from a

01:41:38.730 --> 01:41:42.990
whole host of state laws, which
Mr. Brooks is not really

01:41:42.990 --> 01:41:47.520
mentioned, you're allowing the
firms that have charters to

01:41:47.520 --> 01:41:53.370
basically get to undercut their
rivals in commercial markets,

01:41:54.210 --> 01:41:58.590
and allowing commercial firms
and non banks to have access to

01:41:58.590 --> 01:42:02.250
things like Federal Reserve
emergency loans, and the Federal

01:42:02.250 --> 01:42:07.830
Reserve payment systems. without
being subject to the same set of

01:42:07.830 --> 01:42:11.700
regulations and the same duties
of banks and functions of banks.

01:42:12.060 --> 01:42:16.500
You're basically distorting
commercial markets, non Banking

01:42:16.500 --> 01:42:17.160
Markets.

01:42:19.920 --> 01:42:25.080
Al Lawson: That's incredible.
That's impressive, before my

01:42:25.080 --> 01:42:27.870
time ran out, and you talked
about the change in marketing

01:42:27.870 --> 01:42:31.260
and way individual like to do
banking, and really don't

01:42:31.380 --> 01:42:38.670
observe where, where people in
50 or 60. And above, you know, I

01:42:38.670 --> 01:42:40.530
don't know where you address
those group. And maybe they're

01:42:40.530 --> 01:42:43.860
coming along as much as the
young people, because I notice

01:42:43.860 --> 01:42:46.110
and a lot of whatever, we have a
lot of students and stuff in my

01:42:46.110 --> 01:42:49.410
area, maybe 50 or 60,000 of
them. It's a whole different

01:42:49.410 --> 01:42:53.760
story, in terms of how to go
into pain in the future. And so

01:42:53.910 --> 01:42:56.250
I don't care, I don't already
have time to comment on it and

01:42:56.310 --> 01:42:59.760
looking at the trends. But I
better stop right now for my

01:42:59.760 --> 01:43:01.440
time run out, give you a chance
to respond.

01:43:02.100 --> 01:43:04.080
Brian Brooks: Absolutely. Well,
Congressman Lawson, I really

01:43:04.080 --> 01:43:06.900
appreciate the question. So I'd
make a couple of comments. I

01:43:06.900 --> 01:43:09.480
mean, first of all, there's
clearly generational changes in

01:43:09.480 --> 01:43:12.000
preferences. So like, I'm the
youngest person, you know, who's

01:43:12.000 --> 01:43:14.370
still writes checks. You know,
nobody does that anymore. My

01:43:14.370 --> 01:43:16.770
kids aren't aware of what a
check is. So there's a little

01:43:16.770 --> 01:43:18.960
bit of that, where people just
like doing things on their

01:43:18.960 --> 01:43:21.120
phones. But there's also
something that's more

01:43:21.120 --> 01:43:25.950
fundamental going on here. And
that is that banks, as part of a

01:43:25.980 --> 01:43:29.760
business model division, have
retreated from areas that they

01:43:29.760 --> 01:43:33.390
used to serve better than they
do today. So for example, more

01:43:33.390 --> 01:43:36.990
consumer lending happens outside
of banks inside of banks, that

01:43:36.990 --> 01:43:39.930
would have been shocking 25
years ago. But today, the

01:43:39.930 --> 01:43:42.630
percentage of consumer bubbles
delivered is being done on

01:43:42.690 --> 01:43:45.960
FinTech and other non bank
platforms, not supervised by the

01:43:45.960 --> 01:43:49.980
OCC or any other federal
regulator. So why is that? It's

01:43:49.980 --> 01:43:53.640
because the cost involved in a
big bank, underwriting somebody

01:43:53.640 --> 01:43:56.850
for a $5,000 personal loan to
replace their hot water heater

01:43:56.880 --> 01:44:01.170
isn't worth the input cost and
so on. And so, you know, what I

01:44:01.170 --> 01:44:03.540
find interesting about the
discussion is there seems to be

01:44:03.540 --> 01:44:06.930
a belief that legacy banks are
somehow the only legitimate

01:44:06.930 --> 01:44:10.020
source of financing, and yet the
market tells us otherwise,

01:44:10.020 --> 01:44:13.500
they're not serving the needs of
sort of average Americans the

01:44:13.500 --> 01:44:15.870
way that they used to, and so
fintechs and others have come in

01:44:15.870 --> 01:44:18.570
to fill the gap. My belief is
that activity ought to be

01:44:18.570 --> 01:44:21.030
supervised, it ought to be safe
and sound the way that other

01:44:21.030 --> 01:44:24.480
things are. And we shouldn't
fetishize what the word bank has

01:44:24.480 --> 01:44:27.030
historically conjured up. It's
not what the statute says it's

01:44:27.030 --> 01:44:29.400
not the way it's always
Congress.

01:44:32.910 --> 01:44:33.930
Al Lawson: I yield back, Miss
Chairman.

01:44:34.710 --> 01:44:38.910
Ed Perlmutter: Thank you, Mr.
Lawson. Now, we'll go to Mr.

01:44:38.910 --> 01:44:41.250
Rose from Tennessee for five
minutes.

01:44:43.230 --> 01:44:45.630
John Rose: Good morning. And
thank you, Chairman Perlmutter

01:44:45.630 --> 01:44:48.690
and Ranking Member Luke De Meyer
for holding this hearing today.

01:44:49.290 --> 01:44:52.980
Mr. Brooks, welcome back to the
committee and thank you to all

01:44:52.980 --> 01:44:57.600
of our witnesses for being here
with us today. As we discussed

01:44:57.600 --> 01:45:02.550
financial institution charters I
think it important that we avoid

01:45:02.550 --> 01:45:06.990
revisiting outdated regulations
and instead look to the future.

01:45:07.440 --> 01:45:10.710
Technology and Innovation have
increased access to financial

01:45:10.710 --> 01:45:14.340
services for many Americans. And
it is important that we provide

01:45:14.340 --> 01:45:18.120
clear rules of the road that
allow for continued growth in

01:45:18.120 --> 01:45:22.560
this space. A large portion of
my district in Middle Tennessee

01:45:22.560 --> 01:45:27.060
is rural. In addition to having
to travel further distances to

01:45:27.090 --> 01:45:30.210
obtain banking services, rural
communities have seen increased

01:45:30.210 --> 01:45:35.490
costs and accessing financial
services in part due to branch

01:45:35.490 --> 01:45:38.910
closures. As of the third
quarter of 2020, there were

01:45:38.940 --> 01:45:42.840
13,000 fewer banks and rural
communities than in the 1980s.

01:45:43.410 --> 01:45:46.440
And although our community banks
are doing their absolute best to

01:45:46.440 --> 01:45:50.310
serve our communities, rural
areas continue to face the long

01:45:50.310 --> 01:45:54.090
term effects of these closings.
Mr. Brooks, could you discuss

01:45:54.090 --> 01:46:00.120
how fintechs could help in could
step in to try and fill that

01:46:00.120 --> 01:46:01.800
gaps in rural communities?

01:46:02.550 --> 01:46:05.520
Brian Brooks: Yeah, absolutely.
So So congressman, first of all,

01:46:05.520 --> 01:46:08.010
I'll just say and with no
offense to the Chairman, that

01:46:08.070 --> 01:46:10.680
although I am from Colorado, I
did spend my first five years

01:46:10.680 --> 01:46:13.440
living in just outside of Paris,
Tennessee. So these issues

01:46:13.440 --> 01:46:16.530
actually sort of resonate with
me in a in a personal way. And I

01:46:16.530 --> 01:46:19.500
would also say that Fintech is
not the solution for every

01:46:19.500 --> 01:46:23.280
problem under the sun. But it is
a solution as part of an all

01:46:23.280 --> 01:46:26.550
hands on deck approach. Okay? So
the thing about Fintech is

01:46:26.550 --> 01:46:29.280
fintechs are able to bring
capital sources that are outside

01:46:29.280 --> 01:46:32.100
of your community, into your
community. And historically, the

01:46:32.100 --> 01:46:35.310
way that a rural area would be
served is you'd have a local

01:46:35.310 --> 01:46:38.700
community bank, it would have a
couple of branches, its deposits

01:46:38.700 --> 01:46:41.370
would all have been sourced from
the local community. And then

01:46:41.370 --> 01:46:43.770
those deposits would be
reinvested into loans to

01:46:43.800 --> 01:46:46.410
borrowers, whether they were,
you know, agricultural loans to

01:46:46.410 --> 01:46:48.690
farmers, or whether they were
small business loans to the mom

01:46:48.690 --> 01:46:52.890
and pop Cafe on Main Street or
whatever. The problem with that

01:46:52.890 --> 01:46:56.070
is, as American has disinvested
from rural communities over the

01:46:56.070 --> 01:46:59.760
last 30 years on kind of a long
term basis. That kind of

01:46:59.760 --> 01:47:02.460
capital, even if you had a bank
branch is probably not

01:47:02.460 --> 01:47:05.280
sufficient to serve the credit
needs of places like your

01:47:05.280 --> 01:47:08.580
district. And so one of the
advantages that FinTech offers,

01:47:08.580 --> 01:47:10.800
and I would argue, actually,
over the long term, one of the

01:47:10.800 --> 01:47:14.400
advantages of crypto offers, is
it unlocks sources of capital

01:47:14.400 --> 01:47:17.520
that are far far away from your
communities, right, and is able

01:47:17.520 --> 01:47:20.340
to deliver them over the
Internet to any credit worthy

01:47:20.340 --> 01:47:23.010
person who happens to live in
Middle Tennessee. And that is, I

01:47:23.010 --> 01:47:25.710
guess, my main point is there
may not be enough capital there

01:47:25.860 --> 01:47:29.040
to justify a de novo bank. And
yet there may be credit worthy

01:47:29.040 --> 01:47:31.230
people who need to access
capital sourced elsewhere.

01:47:32.670 --> 01:47:35.490
John Rose: During your time at
the OCC, you focused on

01:47:35.490 --> 01:47:38.910
increasing access to charters
for fintechs. Could you describe

01:47:38.910 --> 01:47:42.330
the barriers to entry for new
firms looking to get into

01:47:42.330 --> 01:47:43.380
payments or lending?

01:47:44.910 --> 01:47:47.640
Brian Brooks: Yeah, well, so if
you if you put aside the bank

01:47:47.640 --> 01:47:50.280
charter, okay, and you wanted to
start a payments company, let's

01:47:50.280 --> 01:47:53.670
say you wanted to start stripe
today, the first thing you have

01:47:53.670 --> 01:47:56.370
to do is you have to go and
obtain 50 Money transmitter

01:47:56.370 --> 01:48:00.240
licenses in all 50 states. And
that takes a lot of time. It's

01:48:00.240 --> 01:48:03.000
incredibly expensive. The legal
compliance costs that are

01:48:03.000 --> 01:48:05.610
different from state to state
become very difficult, because,

01:48:05.700 --> 01:48:08.190
you know, some states mandate
things that are literally

01:48:08.190 --> 01:48:12.420
prohibited in another state. And
so finding a way to do that is

01:48:12.420 --> 01:48:15.690
extremely difficult, generally
speaking, and I and I guess I do

01:48:15.690 --> 01:48:18.330
want to speak for a moment to
the state law preemption point

01:48:18.330 --> 01:48:20.310
that was raised a moment ago,
just so that I can I can say

01:48:20.310 --> 01:48:24.000
that I spoke to it. Back in the
early days of the Republic, when

01:48:24.000 --> 01:48:27.720
there was a debate about whether
the federal government should

01:48:27.720 --> 01:48:30.090
assume the state's revolutionary
war debts or whether we should

01:48:30.090 --> 01:48:32.670
have the First Bank of the
United States, we have this

01:48:32.670 --> 01:48:35.730
discussion. And the reason that
Alexander Hamilton won that

01:48:35.730 --> 01:48:38.010
debate as opposed to the
Jeffersonians is because of a

01:48:38.010 --> 01:48:40.860
belief that if we're going to
have a big economy, big enough

01:48:40.860 --> 01:48:43.500
to compete with the powers of
Europe, or in these days, the

01:48:43.500 --> 01:48:48.030
powers of Asia, we don't have
the luxury of suffocating our

01:48:48.030 --> 01:48:51.660
businesses, our big businesses
anyway, with different state by

01:48:51.660 --> 01:48:54.990
state regulation. That's why in
the 70s, Congress enacted rate

01:48:54.990 --> 01:48:57.960
exportation is because of a
belief that you don't want

01:48:58.170 --> 01:49:01.410
Illinois to be able to kill
commerce, because it I'm just

01:49:01.410 --> 01:49:04.140
making up Illinois, it has a
different view of interest

01:49:04.140 --> 01:49:06.600
rates, or banking charters or
anything else compared to

01:49:06.600 --> 01:49:10.230
Indiana. Right? That doesn't
make sense. We're a big unified

01:49:10.230 --> 01:49:13.110
nation. And as companies grow
and operate on an interstate

01:49:13.110 --> 01:49:16.290
basis, the idea of getting 50
state charters to operate your

01:49:16.290 --> 01:49:18.780
payment company doesn't really
make a ton of sense. I don't

01:49:18.780 --> 01:49:20.640
think Hamilton would think it
made a ton of sense.

01:49:21.930 --> 01:49:25.920
John Rose: In the few moments
that I have left, if you will,

01:49:26.160 --> 01:49:28.680
out. I'll ask this question. In
your testimony, you emphasized

01:49:28.680 --> 01:49:31.770
how there has been a lack of new
bank charters in 10 years, can

01:49:31.770 --> 01:49:34.140
you explain the benefits of
increasing the number of

01:49:34.140 --> 01:49:37.290
charters, whether for
traditional or online banks?

01:49:37.380 --> 01:49:40.050
Brian Brooks: For sure. I mean,
most Americans still feel most

01:49:40.050 --> 01:49:42.330
comfortable opening up their
account in a bank branch.

01:49:42.330 --> 01:49:44.820
There's certain transactions
they need to talk to a banker.

01:49:44.970 --> 01:49:47.040
It's not fair to see how we've
lost them.

01:49:49.200 --> 01:49:54.210
Roger Williams: Thank you, Mr.
Chairman. I yield back. Thank

01:49:54.210 --> 01:49:58.380
you very much. We will now go to
the gentleman from Illinois so

01:49:58.380 --> 01:50:02.310
he can defend his state of I'm
cashed in for five minutes.

01:50:04.380 --> 01:50:07.328
Sean Casten: Mr. Chairman, this
has really been a great hearing.

01:50:07.386 --> 01:50:10.855
I think you undersold it when
you said we're trying to learn

01:50:10.913 --> 01:50:14.035
about the whole banking
industry. We're also trying to

01:50:14.093 --> 01:50:17.505
learn about monetary theory.
It's, it's hard to do this all

01:50:17.562 --> 01:50:20.685
in five minutes. I want to just
start with sort of two

01:50:20.742 --> 01:50:24.385
statements that I think we all
agree with on this panel. Number

01:50:24.443 --> 01:50:28.085
one, there's been a tremendous
amount of good and necessary and

01:50:28.143 --> 01:50:31.439
entrepreneurial innovation in
the fintech space, which is

01:50:31.497 --> 01:50:34.793
fantastic and has, let's make
sure we don't squelch that.

01:50:34.850 --> 01:50:38.146
Number two, there isn't a
company in the world that comes

01:50:38.204 --> 01:50:41.789
before us and says, I would like
to have more regulation. And,

01:50:41.847 --> 01:50:45.200
and I mentioned that because
particularly with some of the

01:50:45.258 --> 01:50:48.785
emerging fintech players, we
hear all the time when they come

01:50:48.843 --> 01:50:52.485
before us what they're not. I'm
not an ETF. I'm not a bank. I'm

01:50:52.543 --> 01:50:56.070
not a credit rating agency. I'm
not a credit card company. We

01:50:56.128 --> 01:50:59.597
very rarely hear them say what
they are, because for them to

01:50:59.655 --> 01:51:03.008
say what they are would be for
them to implicitly say, and

01:51:03.066 --> 01:51:06.420
therefore I would like to be
regulated under the following

01:51:06.478 --> 01:51:10.178
structure. And I think the value
of this hearing is getting some

01:51:10.236 --> 01:51:13.589
clarity on what they actually
are. Miss Johnson, I got two

01:51:13.647 --> 01:51:17.059
kinds of big questions for you.
And I and I preface that by

01:51:17.116 --> 01:51:20.701
saying I'm probably going to cut
you off before you finish the

01:51:20.759 --> 01:51:24.344
first one, and I apologize in
advance for that. But in your in

01:51:24.402 --> 01:51:27.986
your remarks, you said that the
the OCC and the FDIC has taken

01:51:28.044 --> 01:51:31.398
steps to allow firms to engage
in banking activities while

01:51:31.456 --> 01:51:34.636
being subjected to less
regulation and supervision. And

01:51:34.694 --> 01:51:37.584
in that the OCC lacks the
authority to charter non

01:51:37.642 --> 01:51:41.227
depository national banks. Now,
if we think just about sort of

01:51:41.285 --> 01:51:44.870
the distinction between those
FinTech firms that are doing one

01:51:44.928 --> 01:51:48.108
small thing, as Mr. Brooks
mentioned, you know, maybe a

01:51:48.165 --> 01:51:51.692
payment processing firm, and
those in the big tech space that

01:51:51.750 --> 01:51:54.930
are doing this whole array of
consumer credit financial

01:51:54.988 --> 01:51:58.053
transaction services. Setting
aside the current legal

01:51:58.110 --> 01:52:01.464
authority, who do you think
should regulate those? And how

01:52:01.522 --> 01:52:05.222
would you think about that? And
in a minute or so so I get to my

01:52:05.280 --> 01:52:06.090
next question.

01:52:06.090 --> 01:52:08.457
Kristin Johnson: Representative
Casten And I think that's a

01:52:08.513 --> 01:52:11.839
great question. I think the
first point is the one you made

01:52:11.895 --> 01:52:15.446
what exactly is being regulated,
I think we must pin the firm's

01:52:15.503 --> 01:52:18.603
down and in the very least
require them to describe the

01:52:18.659 --> 01:52:21.929
regulatory regime they believe
they should be subjected to

01:52:21.985 --> 01:52:24.916
based on their activities,
otherwise, they engage in

01:52:24.972 --> 01:52:28.524
regulatory arbitrage, which is
the purpose of this hearing, you

01:52:28.580 --> 01:52:32.018
can evade tax, you can evade
securities law, if you arbitrage

01:52:32.075 --> 01:52:35.344
your activities in a manner that
avoids the application of

01:52:35.400 --> 01:52:36.810
regulation to your point.

01:52:39.150 --> 01:52:40.980
Sean Casten: So thank you. And
if you have more thoughts, I'd

01:52:40.980 --> 01:52:43.140
love to follow up with you.
Because that is sort of that's

01:52:43.200 --> 01:52:46.950
at the core of all these
conversations. The second

01:52:46.950 --> 01:52:49.080
question gets into and I said at
the start, that we're having

01:52:49.080 --> 01:52:51.690
conversations that are really
almost about monetary theory

01:52:51.690 --> 01:52:55.470
right now, you know, I think
there's a lot of the underlying

01:52:55.470 --> 01:52:58.740
logic for Bitcoin is you know,
that they're old hard money,

01:52:58.740 --> 01:53:02.010
gold, gold bug kind arguments,
and we don't need to get into

01:53:02.010 --> 01:53:06.360
all that right now. But we have
a financial regulatory structure

01:53:06.810 --> 01:53:09.540
that is designed to ensure that
there's sufficient liquidity in

01:53:09.540 --> 01:53:12.000
the market in your bank that
when you go to withdraw

01:53:12.000 --> 01:53:15.840
something, the cash is there. If
you deposit tulip bulbs in your

01:53:15.840 --> 01:53:18.750
bank, the bank doesn't loan out
80% of your tulip bulbs and make

01:53:18.750 --> 01:53:23.070
sure it's all here. That's in
the safe deposit box. But, but

01:53:23.070 --> 01:53:28.410
as we've had things like this
recent situation, in this bank

01:53:28.410 --> 01:53:32.640
and Anchorage, that's, you know,
essentially a crypto company.

01:53:34.170 --> 01:53:37.500
How should we be thinking about
what the role of the regulator

01:53:37.500 --> 01:53:41.790
is to ensure that folding
increasingly volatile assets on

01:53:41.790 --> 01:53:44.880
the balance sheet doesn't
compromise the liquidity of the

01:53:44.880 --> 01:53:48.060
system, particularly as the
volume of those assets grows?

01:53:49.320 --> 01:53:51.680
Kristin Johnson: Representative,
I think this is a great

01:53:51.740 --> 01:53:55.432
question. And I think we only
have to look at the movement in

01:53:55.492 --> 01:53:58.760
the price of Bitcoin from the
moment that COVID 19 was

01:53:58.821 --> 01:54:02.573
declared a global pandemic today
and watch the movement in the

01:54:02.633 --> 01:54:05.962
value of that single asset,
right and an asset class to

01:54:06.022 --> 01:54:09.472
identify an example of the
problem you just described. If

01:54:09.532 --> 01:54:13.163
we are allowing banks to hold in
count or calculate reserves

01:54:13.224 --> 01:54:16.370
based on this asset class, I
think we really have to

01:54:16.431 --> 01:54:19.215
fundamentally revisit,
interrogate and clearly

01:54:19.275 --> 01:54:22.664
understand how we set those
valuations and the rules and

01:54:22.725 --> 01:54:26.537
regulations that apply to this
new asset class. I say that as a

01:54:26.598 --> 01:54:30.350
student, as a teacher, and as a
former practitioner engaged in

01:54:30.410 --> 01:54:33.618
the development of credit
derivatives, which I credit

01:54:33.678 --> 01:54:36.765
credit default swaps
specifically, are at the heart

01:54:36.825 --> 01:54:40.335
of the most recent financial
crisis and part and parcel of

01:54:40.396 --> 01:54:43.724
the problem. There was a
misunderstanding a fundamental

01:54:43.785 --> 01:54:46.992
misunderstanding of the
potential liability that this

01:54:47.052 --> 01:54:49.050
new class of assets could create.

01:54:50.340 --> 01:54:52.560
Sean Casten: Well, thank you.
I'd love to follow up on that as

01:54:52.605 --> 01:54:55.323
well. Mr. Mr. Carrillo with a
few moments left here. Did you

01:54:55.368 --> 01:54:57.000
have any follow on thoughts on that?

01:54:57.000 --> 01:55:00.116
Raul Carrillo: Yes, I would just
like to note that it's is all an

01:55:00.179 --> 01:55:03.670
environment for volatility and
instability, as Professor

01:55:03.732 --> 01:55:07.597
Johnson said, we keep hearing
about going back to the good old

01:55:07.659 --> 01:55:11.462
days of the 80s. But that's why
thinking was the speculative,

01:55:11.524 --> 01:55:15.390
wild to me, and it hurt
marginalized communities specifically.

01:55:15.390 --> 01:55:16.410
Sean Casten: Thank you. I yield back.

01:55:17.730 --> 01:55:21.356
Ed Perlmutter: Gentleman's time
has expired. Mr. Budd from North

01:55:21.430 --> 01:55:24.390
Carolina is recognized for five minutes.

01:55:24.390 --> 01:55:27.388
Ted Budd: Thank you, Chair. You
know, Mr. Brooks, today, we're

01:55:27.446 --> 01:55:30.790
seeing a lot of innovative
products in the form of digital

01:55:30.848 --> 01:55:34.480
assets, decentralized finance,
which could be revolutionary for

01:55:34.538 --> 01:55:38.113
the banking system. You know, we
had coin bases direct listing

01:55:38.170 --> 01:55:41.572
yesterday. So it's obvious that
this technology isn't going

01:55:41.630 --> 01:55:44.801
away. And we're now at the
crossroads of embracing this

01:55:44.859 --> 01:55:48.376
technology or falling behind
other countries, one of my great

01:55:48.434 --> 01:55:51.432
concerns is that we get
surpassed by other countries

01:55:51.490 --> 01:55:55.065
that are more willing to engage
on this. So Mr. Brooks, here's

01:55:55.123 --> 01:55:58.294
my question is, do you see a
world where we can have an

01:55:58.352 --> 01:56:01.984
intersection of legacy banking,
what we know of as banking, and

01:56:02.042 --> 01:56:05.559
also defy by allowing banks to
use like blockchain protocols,

01:56:05.617 --> 01:56:08.904
and use that to eliminate
inefficiencies and offer better

01:56:08.961 --> 01:56:10.980
products and services to consumers?

01:56:11.850 --> 01:56:16.020
Brian Brooks: Well, economist,
thank you for the question. And,

01:56:16.050 --> 01:56:18.180
and also, thank you for all of
your engagement. During my time

01:56:18.180 --> 01:56:20.430
at the OCC, I've I've always
loved these conversations, and

01:56:20.430 --> 01:56:23.850
I've learned a lot from them.
Specifically, your question, let

01:56:23.850 --> 01:56:27.150
me start with the legacy bank
part of things. Okay, so one of

01:56:27.150 --> 01:56:30.450
the reasons that the OCC that we
started focusing on crypto

01:56:30.450 --> 01:56:33.210
regulatory issues is because of
the fact that two or three of

01:56:33.210 --> 01:56:36.840
the largest banks in the United
States were already exposed to

01:56:36.840 --> 01:56:40.260
various crypto activities, to
the tune of billions of dollars.

01:56:40.320 --> 01:56:43.590
So for example, at the time that
I walked into the OCC, JP

01:56:43.590 --> 01:56:46.590
Morgan, you know, have deposits
of you know, exceeding a billion

01:56:46.590 --> 01:56:49.290
dollars backing a stable coin
project, but there was no

01:56:49.290 --> 01:56:51.780
federal guidance on how stable
coins ought to be thought about.

01:56:52.170 --> 01:56:55.650
State Street was doing likewise
for another stable coin project.

01:56:55.680 --> 01:56:58.920
And there were smaller banks,
silvergate and cross river and

01:56:58.920 --> 01:57:01.560
some others that were providing
other kinds of support services

01:57:01.560 --> 01:57:04.230
or for crypto assets. So it's
very clear that there's a lot of

01:57:04.260 --> 01:57:07.830
interest from traditional
companies in crypto and you see

01:57:07.830 --> 01:57:10.260
that from the fact that
intercontinental exchange has

01:57:10.290 --> 01:57:13.800
started its own crypto exchange
that Goldman Sachs is now

01:57:13.800 --> 01:57:16.830
restarting their crypto desk
with Fidelity has created a

01:57:16.830 --> 01:57:19.530
digital asset, custodian, and
Anchorage, you know, another

01:57:19.530 --> 01:57:21.870
bank that by the way, doesn't
have these assets on their

01:57:21.870 --> 01:57:24.510
balance sheet. They are a
custody bank that holds those

01:57:24.510 --> 01:57:27.810
assets for third parties. That's
a fee for service business, not

01:57:27.810 --> 01:57:31.320
an asset heavy business. But the
point of all of those things is

01:57:31.320 --> 01:57:34.470
to say that banks have
traditionally provided the role

01:57:34.470 --> 01:57:37.560
of safeguarding and safekeeping
their clients assets. And crypto

01:57:37.560 --> 01:57:40.590
is another asset that has come
along in the last 10 years and

01:57:40.590 --> 01:57:43.620
has now achieved scale. So
clearly, the legacy institutions

01:57:43.620 --> 01:57:47.370
have a role to play in terms of
technologies like defy and

01:57:47.370 --> 01:57:50.040
payments in the form of stable
coins and other kinds of things.

01:57:50.400 --> 01:57:52.920
These are the kinds of
technologies that bring internet

01:57:52.920 --> 01:57:55.710
technology to finance the way
that the original internet

01:57:55.980 --> 01:57:58.950
brought those decentralization
benefits to information sharing

01:57:58.950 --> 01:58:02.640
first and to regular commerce
second. So I think one of the

01:58:02.640 --> 01:58:06.360
biggest misunderstandings about
about crypto, which I think is

01:58:06.360 --> 01:58:09.930
really important to understand
is, we're building a second

01:58:09.930 --> 01:58:13.740
internet here, the whole point
of crypto tokens having value is

01:58:13.740 --> 01:58:16.860
to induce people to provide
computing power to maintain a

01:58:16.860 --> 01:58:19.710
decentralized network, that
otherwise we'd be maintained by

01:58:19.710 --> 01:58:23.400
Google and Facebook, right. And
the way to reduce regular people

01:58:23.400 --> 01:58:26.640
to connect computers to maintain
those Ledger's is to let them

01:58:26.640 --> 01:58:29.520
take a native token that has
value on it, right. So that's

01:58:29.520 --> 01:58:32.910
why we have a decentralized
ledger. It's not built for

01:58:32.910 --> 01:58:36.240
terrorism financing, it's built
to allow us to have a truly

01:58:36.240 --> 01:58:39.510
decentralized internet, that is
what it's all about. And so if

01:58:39.510 --> 01:58:42.660
you believe that American soft
power in the world has a lot to

01:58:42.660 --> 01:58:45.990
do with the fact that we control
ICANN and the Internet Protocol,

01:58:46.170 --> 01:58:48.480
I think he would feel similarly
about the use of these internet

01:58:48.480 --> 01:58:51.840
protocols in financial services
defy is one example of that,

01:58:51.990 --> 01:58:54.990
where, you know, having open
source software, there's

01:58:54.990 --> 01:58:57.840
allocating credit versus having
a credit officer sitting in an

01:58:57.840 --> 01:59:01.110
office, you know, these are ways
of making sure that there's not

01:59:01.110 --> 01:59:03.990
some renegade employee who's
discriminating or taking risks,

01:59:04.140 --> 01:59:06.720
because the algorithm is visible
for everybody to see and can be

01:59:06.720 --> 01:59:09.600
changed by other people on the
network. To me, that's a more

01:59:09.630 --> 01:59:13.050
optimistic view of the future
than a future that comes to the

01:59:13.050 --> 01:59:15.630
idea of individual bank credit
officers, you know, allocating

01:59:15.630 --> 01:59:16.710
capital in our society.

01:59:17.579 --> 01:59:19.979
Ted Budd: So you're talking here
with some examples of promoting

01:59:19.979 --> 01:59:23.189
very forward thinking structures
and policies, rather than

01:59:23.189 --> 01:59:26.339
revisiting outdated regulations,
which I don't think benefits

01:59:26.339 --> 01:59:30.269
consumers. But in order to
maintain the supremacy of US

01:59:30.299 --> 01:59:33.299
financial markets, we got to
work on modernizing charters,

01:59:33.569 --> 01:59:37.679
and finding ways to increase
competition innovation. Many

01:59:37.709 --> 01:59:40.199
finance modern financial
services providers and fintech

01:59:40.199 --> 01:59:44.069
companies today face the choice
of either relying on regulated

01:59:44.069 --> 01:59:47.399
partners or seeking existing
charter options that limit

01:59:47.429 --> 01:59:50.129
technology development. You got
other governments like

01:59:50.129 --> 01:59:55.139
Singapore, UK, the EU, and they
provide a modernized regulatory

01:59:55.139 --> 01:59:57.959
options on top of traditional
banking charters, which allows

01:59:57.959 --> 02:00:01.619
for more innovation. So what are
some of the ways Is that you

02:00:01.619 --> 02:00:06.029
know that we can navigate the
system and promote innovation?

02:00:06.510 --> 02:00:09.060
Brian Brooks: Well, that is a
great question. One obvious

02:00:09.060 --> 02:00:12.390
example is to ask the question,
why in the United States do we

02:00:12.420 --> 02:00:16.290
only allow banks but not other
financial systems or companies

02:00:16.290 --> 02:00:19.980
to access the payment system in
the UK and in other places that

02:00:19.980 --> 02:00:23.100
have open banking and E money
licenses, any payment company

02:00:23.100 --> 02:00:25.680
can access the payment rails in
the US that we fetishize and

02:00:25.680 --> 02:00:28.800
protect incumbent banks. That is
an advantage.

02:00:30.060 --> 02:00:32.100
Ted Budd: Thank you, and I yield
back. Enjoy the time.

02:00:34.350 --> 02:00:37.735
Ed Perlmutter: Thank you, Mr.
Bud. And I would just remind

02:00:37.814 --> 02:00:42.459
everybody that 10 to 12 years
ago, everybody was relying on

02:00:42.538 --> 02:00:47.026
our Federal Reserve in our
banking system to help kind of

02:00:47.104 --> 02:00:51.513
correct the global banking
system. So Mr. Taurus, who is

02:00:51.592 --> 02:00:55.608
the newest member of our
committee, and was looking

02:00:55.686 --> 02:01:00.489
forward to this primer on the
banking system and currency and

02:01:00.568 --> 02:01:04.662
I don't think he's been
disappointed. I yield to the

02:01:04.741 --> 02:01:09.780
gentleman from New York for five
minutes. Ritchie, you're muted.

02:01:12.990 --> 02:01:14.730
Ritchie Torres: Thank you, Mr.
Chair. It's certainly a primer.

02:01:14.730 --> 02:01:17.340
I'm certainly new to these
issues. Obviously, one of the

02:01:17.340 --> 02:01:20.790
issues before us is the
separation of banking and

02:01:20.790 --> 02:01:23.220
commerce. You know, blurring the
line between banking and

02:01:23.220 --> 02:01:28.080
commerce as IOC is do raises
concerns about systemic risk,

02:01:28.110 --> 02:01:31.740
moral hazard and market
concentration. My question is,

02:01:31.740 --> 02:01:35.580
have we seen any all of these
concerns borne out by the

02:01:35.580 --> 02:01:38.940
experience of other countries
that allow for the intermingling

02:01:38.940 --> 02:01:42.780
of banking and commerce? What
lessons can be learned from the

02:01:42.780 --> 02:01:45.780
experience of those countries?
And anyone who knows the answer

02:01:45.780 --> 02:01:47.490
can feel free to and weigh in.

02:01:50.970 --> 02:01:52.350
Raul Carrillo: I'm happy to
speak to that as your

02:01:52.350 --> 02:01:58.410
congressman notice. So I
wouldn't say that a good example

02:01:58.440 --> 02:02:01.590
of the sort of thing, the
dangerous conglomeration that

02:02:01.590 --> 02:02:06.060
can occur when we have loopholes
in the broader depository

02:02:06.090 --> 02:02:10.560
infrastructure, or allow things
to exist, like stable coins that

02:02:10.560 --> 02:02:15.180
act like deposits, but are not
regulated, like deposits, is, is

02:02:15.180 --> 02:02:19.500
to be found in China, where the
company Tencent has been brought

02:02:19.530 --> 02:02:22.680
further into the system, but in
a particular way that is not

02:02:22.680 --> 02:02:26.130
particularly good for users, or
the people of China, especially

02:02:26.130 --> 02:02:29.490
when it comes to privacy and
surveillance. Of course, this is

02:02:29.490 --> 02:02:33.960
generally touted as bringing
efficient, but intermingling

02:02:33.960 --> 02:02:38.010
intense case the social media
platform with banking has led to

02:02:38.010 --> 02:02:41.370
again an unprecedented amount of
power that we have perhaps not

02:02:41.370 --> 02:02:44.700
seen in human history, because
of the way the data collection

02:02:44.700 --> 02:02:47.400
and surveillance works. Now,
we're getting that further to

02:02:47.400 --> 02:02:50.250
our monetary infrastructure here
does not bode well.

02:02:50.579 --> 02:02:53.677
Erik Gerding: Thanks. I could
add to that Representative

02:02:53.751 --> 02:02:58.178
Torress, that Balkan bank in
Japan and in South Korea, there

02:02:58.252 --> 02:03:02.827
is an intermingling of banking
and commerce. The problem there

02:03:02.900 --> 02:03:07.106
in both of those countries is
that that intermingling has

02:03:07.180 --> 02:03:11.017
served to entrench financial,
financial and business

02:03:11.090 --> 02:03:15.444
conglomerates in both of those
countries. So if we want our

02:03:15.518 --> 02:03:19.871
economies to have that high
degree of concentration that we

02:03:19.945 --> 02:03:24.298
have in Korea and Japan, then we
would start to think about

02:03:24.372 --> 02:03:27.840
erosion, the wall between
commerce and banking.

02:03:29.310 --> 02:03:31.470
Kristin Johnson: I just add to
that representative, notice, if

02:03:31.470 --> 02:03:35.910
I may, that we should also be
really mindful specifically, not

02:03:35.910 --> 02:03:40.140
just about the theoretical
issues here. But the practical

02:03:40.170 --> 02:03:43.920
Prudential regulatory oversight
that Professor girding raised

02:03:43.920 --> 02:03:47.730
earlier, I also think is
imperative to think about who is

02:03:47.730 --> 02:03:51.780
participating in which actions.
This committee and the broader

02:03:51.810 --> 02:03:55.440
Financial Services Committee and
all of Congress, in fact, has

02:03:55.440 --> 02:03:58.590
been thoughtful about the
implications of certain large

02:03:58.590 --> 02:04:02.190
technology firms and their
continued consolidation and

02:04:02.190 --> 02:04:05.850
growth in the industry. I would
like to underscore a point that

02:04:05.970 --> 02:04:09.030
my colleague on the panel, Mr.
Kotter, you pointed out, which

02:04:09.030 --> 02:04:12.900
is not solely a matter of the
prudential regulation that we

02:04:12.900 --> 02:04:15.210
were talking about, in the
moment, the separation of, of

02:04:15.210 --> 02:04:18.840
commerce and banking, but also
the specific consumer protection

02:04:18.840 --> 02:04:22.440
concerns that will impact
citizens in every one of your

02:04:22.470 --> 02:04:26.610
districts without fail and with
and without exclusion, rural,

02:04:26.640 --> 02:04:32.640
urban, big city, small town, all
across the nation. These

02:04:32.640 --> 02:04:38.010
companies monetize commodify
data about citizens, and we're

02:04:38.010 --> 02:04:40.740
now thinking about giving them
access to data regarding the

02:04:40.740 --> 02:04:46.590
financial transactions of all
citizens. And this is in a

02:04:46.590 --> 02:04:49.650
moment when we are unsure about
what exact data protections

02:04:49.650 --> 02:04:53.340
exist for consumer financial
data. This is an impending and

02:04:53.340 --> 02:04:55.950
continuing conversation and I
don't want to take all of your

02:04:55.950 --> 02:04:58.980
time I just want to underscore
that consumer financial data

02:04:59.010 --> 02:05:03.870
protection Alongside the broader
Prudential regulatory issues, I

02:05:03.870 --> 02:05:06.990
believe should be important to
everyone without respect to

02:05:06.990 --> 02:05:07.650
partisanship.

02:05:10.139 --> 02:05:12.869
Ritchie Torres: I know that much
of the regulation of these bank

02:05:12.869 --> 02:05:16.229
like entities happens at the
state level, but a case could be

02:05:16.229 --> 02:05:19.769
made, that as a general rule,
it's much better to have

02:05:20.219 --> 02:05:24.149
uniformity in the law and to
have a cacophony of widely

02:05:24.149 --> 02:05:29.399
varied state laws. So it seems
sensible to have a federal

02:05:29.429 --> 02:05:32.189
framework for regulating FinTech
and cryptocurrencies and

02:05:32.189 --> 02:05:36.959
blockchain. What's the argument
against uniformity of the law?

02:05:38.700 --> 02:05:42.618
Erik Gerding: I could address if
you'd like. I think there is an

02:05:42.697 --> 02:05:46.850
interest in uniformity and Mr.
Brooks mentioned money

02:05:46.929 --> 02:05:51.945
transmission stack statutes, it
is difficult for payment systems

02:05:52.023 --> 02:05:56.412
or payment companies to comply
with 50 different payment

02:05:56.490 --> 02:06:01.349
statutes in different states.
But the better way to do that is

02:06:01.428 --> 02:06:05.738
to have Congress act to create
or promote uniformity in

02:06:05.817 --> 02:06:10.676
statutes not to have the OCC do
that in a backdoor manner, and

02:06:10.754 --> 02:06:15.613
basically preempt state laws.
Look a four page policy document

02:06:15.692 --> 02:06:20.237
that created a radical FinTech
charter. The district court

02:06:20.316 --> 02:06:21.570
agrees with you.

02:06:22.230 --> 02:06:22.770
Ritchie Torres: Thank you.

02:06:24.960 --> 02:06:27.867
Ed Perlmutter: Gentleman's time
has expired. The gentleman from

02:06:27.928 --> 02:06:31.320
Minnesota Mr. Emmer, is now
recognized for five minutes.

02:06:31.320 --> 02:06:33.849
Tom Emmer: Well, thank you,
Chairman Perlmutter. I

02:06:33.914 --> 02:06:37.742
appreciate that and ranking
Chairman looked my I appreciate

02:06:37.806 --> 02:06:41.828
that you're hosting what is a
very important hearing, in which

02:06:41.893 --> 02:06:45.591
we've been able to examine our
unique dual banking system

02:06:45.656 --> 02:06:49.223
through a nonpartisan as
financial innovation advances,

02:06:49.288 --> 02:06:52.791
it's important that we work to
provide appropriate and

02:06:52.856 --> 02:06:56.554
considerate regulatory avenues
for FinTech companies, and

02:06:56.618 --> 02:07:00.446
financial institutions to best
serve their customers. As we

02:07:00.511 --> 02:07:04.014
know, access to financial
services greatly impacts the

02:07:04.078 --> 02:07:08.035
American consumer in terms of
financial literacy, fair prices

02:07:08.100 --> 02:07:11.928
for financial services and
convenience. Competitive FinTech

02:07:11.992 --> 02:07:15.625
companies that offer these
affordable services to anyone

02:07:15.690 --> 02:07:19.712
with a cell phone should not be
held back from deploying their

02:07:19.777 --> 02:07:23.020
services to any and every
American, which is why I

02:07:23.085 --> 02:07:26.718
appreciate the testimony
encouraged today, in support of

02:07:26.783 --> 02:07:30.869
us as policymakers, we must keep
this focus at the forefront of

02:07:30.934 --> 02:07:35.021
our attention. It's my hope that
the FinTech task force will be

02:07:35.086 --> 02:07:39.173
renewed for the 117 Congress and
I look forward to carrying out

02:07:39.238 --> 02:07:43.324
these policy issues further on
that task flirts. With that, Mr.

02:07:43.389 --> 02:07:47.216
Brooks, it's great to see you
again. Thank you for all your

02:07:47.281 --> 02:07:50.655
work over the past couple of
years as the OCC as the

02:07:50.719 --> 02:07:54.417
Comptroller of the Currency,
you've demonstrated a strong

02:07:54.482 --> 02:07:57.790
commitment to drafting a
regulatory environment are

02:07:57.855 --> 02:08:01.034
creating a regulatory
environment that encourages

02:08:01.098 --> 02:08:05.120
innovation and growth in this
FinTech space. And you've been a

02:08:05.185 --> 02:08:09.012
leader in providing industry,
the industry with the clarity

02:08:09.077 --> 02:08:13.164
that's so necessary to make sure
they can innovate confidently.

02:08:13.229 --> 02:08:16.862
Question, Mr. Brooks, during
your tenure at the OCC, the

02:08:16.927 --> 02:08:20.754
agency issued interpretive
letters clarifying that national

02:08:20.819 --> 02:08:24.516
banks could offered services,
such as custody for digital

02:08:24.581 --> 02:08:28.473
assets that they've historically
offered for traditional app

02:08:28.538 --> 02:08:32.560
assets, and that national banks
can participate in independent

02:08:32.625 --> 02:08:36.712
node verification networks that
facilitate payments. Why do you

02:08:36.777 --> 02:08:40.604
believe these issues require
clarification? And what impact

02:08:40.669 --> 02:08:44.172
do you believe these new
technologies will have on the

02:08:44.236 --> 02:08:45.210
banking system?

02:08:47.850 --> 02:08:50.790
Brian Brooks: Well, Congressman
Emmer, first of all, your your

02:08:50.820 --> 02:08:54.120
partnership and guidance on the
issues dating back long before I

02:08:54.120 --> 02:08:56.670
came to the OCC has been one of
the joys of my life. And I

02:08:56.670 --> 02:08:58.890
really appreciate all the
dialogue that we've had over the

02:08:58.890 --> 02:09:02.730
years about all these issues, I
would answer in two basic ways.

02:09:03.390 --> 02:09:07.140
First of all, it became clear a
year ago, year and a half ago,

02:09:07.440 --> 02:09:13.290
that assets have grown to bank
customers, and I have some

02:09:13.290 --> 02:09:15.900
background noise. So maybe,
maybe you could feed our phones.

02:09:16.020 --> 02:09:17.070
So you can all hear me.

02:09:18.270 --> 02:09:21.090
Ed Perlmutter: Somebody, I think
if you're ever maybe you need to

02:09:21.090 --> 02:09:21.450
be

02:09:24.900 --> 02:09:27.368
Brian Brooks: Great. So, so, so
the point is, crypto is now a

02:09:27.420 --> 02:09:30.677
two plus trillion dollar asset
class and the customers who are

02:09:30.729 --> 02:09:33.513
owning crypto assets are the
same people who are also

02:09:33.565 --> 02:09:36.401
depositors and checking account
customers and mortgage

02:09:36.454 --> 02:09:39.868
borrowers, etc, of of banks. And
so it was no longer possible for

02:09:39.920 --> 02:09:43.229
us to ignore the fact that the
assets that were growing in size

02:09:43.282 --> 02:09:46.485
and scale on the crypto side,
were lacking a safe place to be

02:09:46.538 --> 02:09:49.584
custody or a safe place to be
exchanged for value, the way

02:09:49.637 --> 02:09:52.683
that all other assets can
transact on a bank. So the first

02:09:52.735 --> 02:09:55.992
reason that we launched down the
path was the recognition that

02:09:56.044 --> 02:09:59.143
the market had grown And that
banks traditionally provide a

02:09:59.195 --> 02:10:02.504
safe custody location and safe
transaction rails for for people

02:10:02.557 --> 02:10:05.708
engaged in those things. But as
we thought more deeply about

02:10:05.760 --> 02:10:08.859
that, over time, what also
became clear and this comes back

02:10:08.912 --> 02:10:12.220
to my point about how we sort of
tend to fetishize legacy banks

02:10:12.273 --> 02:10:15.266
over other people who are
performing the same services in

02:10:15.319 --> 02:10:18.418
a different way, is it became
clear at a certain point that

02:10:18.470 --> 02:10:20.991
one of the things that
blockchains are, is their

02:10:21.044 --> 02:10:24.458
payment networks, they are a set
of technologies for transmitting

02:10:24.510 --> 02:10:27.766
value from person A to person B.
Now, as I said, in the United

02:10:27.819 --> 02:10:30.865
States, unlike in our global
competitor countries, we only

02:10:30.918 --> 02:10:33.596
allow banks as defined to
connect to the government

02:10:33.649 --> 02:10:36.695
payment system at the Federal
Reserve or to connect to the

02:10:36.747 --> 02:10:40.004
automated clearing house, which
is essentially the bank cartel

02:10:40.056 --> 02:10:42.892
that runs its own payment
system. We don't allow other

02:10:42.945 --> 02:10:46.043
companies and at the OCC, our
basic view was wait a minute,

02:10:46.096 --> 02:10:49.142
there's nothing magic about
Fedwire. There's nothing magic

02:10:49.195 --> 02:10:52.136
about ACH. The point is, banks
have a statutory power to

02:10:52.188 --> 02:10:55.182
process payments. That's the
pain checks power and 12 USC

02:10:55.234 --> 02:10:58.333
Section 24. And so if a new
technology has arisen, which is

02:10:58.386 --> 02:11:01.642
an open blockchain platform for
transmitting payments, there's

02:11:01.694 --> 02:11:04.898
no reason banks shouldn't be
allowed to take advantage of the

02:11:04.951 --> 02:11:07.787
faster and more secure and more
certain environment of

02:11:07.839 --> 02:11:10.886
blockchain if they can also
connect to Fedwire or Swift or

02:11:10.938 --> 02:11:14.142
ACH. That's the point of what
innovation is always about. And

02:11:14.194 --> 02:11:17.293
by the way, the OCC has always
used interpretive letters to

02:11:17.346 --> 02:11:20.549
clarify the way that existing
bank powers can be conducted on

02:11:20.602 --> 02:11:23.648
new technology platforms. Think
back to the 1960s when the

02:11:23.700 --> 02:11:27.009
comptroller at the time issued
an interpretive letter that said

02:11:27.062 --> 02:11:29.740
banks can engage in data
processing. No one thought

02:11:29.793 --> 02:11:32.944
Congress had to act at that
time, but the point is computers

02:11:32.997 --> 02:11:36.095
had been invented. And now a new
internet of finance called

02:11:36.148 --> 02:11:39.404
blockchain has been invented.
And the OCC will always lead and

02:11:39.457 --> 02:11:40.560
help bank technology.

02:11:42.210 --> 02:11:44.970
Tom Emmer: Thank you. My time's
expired. Thank you, Mr. Chair.

02:11:45.510 --> 02:11:47.970
Roger Williams: Thank you, Mr.
Emmer. The gentleman from

02:11:48.030 --> 02:11:52.290
Illinois, Mr. Garcia is
recognized for five minutes.

02:11:53.700 --> 02:11:56.520
Jesus "Chuy" Garcia: Thank you,
Chairman Perlmutter, and Ranking

02:11:56.520 --> 02:12:00.870
Member Luqman for convening this
hearing. And thanks to all of

02:12:00.870 --> 02:12:04.560
our witnesses today for shedding
light on a complicated but

02:12:04.560 --> 02:12:09.810
important topic, I represent a
working class immigrant, largely

02:12:09.810 --> 02:12:13.590
immigrant district, and my
district in Illinois needs the

02:12:13.590 --> 02:12:17.490
same things as any other
district, we need investment in

02:12:17.490 --> 02:12:19.470
our neighborhoods and
institutions, we need

02:12:19.470 --> 02:12:22.890
opportunities for growth. And
all too often these things are

02:12:22.890 --> 02:12:27.300
out of reach for communities
like mine. Unfortunately, that's

02:12:27.300 --> 02:12:31.770
not new. But every time a
company wants to get out of

02:12:31.770 --> 02:12:34.890
regulations, they say that
they're going to change that

02:12:34.890 --> 02:12:37.860
they say that they're going to
help if they can just sell a

02:12:37.860 --> 02:12:41.400
certain type of product or
market in a certain way. That's

02:12:41.400 --> 02:12:45.090
not know either. What I'm
worried about is that the

02:12:45.090 --> 02:12:50.130
business model of many companies
we're discussing today is either

02:12:50.310 --> 02:12:54.600
take advantage of consumers or
take advantage of unregulated

02:12:54.600 --> 02:12:59.250
competitors of regulated
competitors. I should say, since

02:12:59.250 --> 02:13:02.700
my colleagues mentioned the two
lending rule, I want to clarify

02:13:02.730 --> 02:13:06.660
that I introduced the resolution
to repeal the rule for that very

02:13:06.660 --> 02:13:10.440
reason. The rule undermines the
ability of states like mine, and

02:13:10.440 --> 02:13:14.580
more than a dozen others to
protect consumers from predatory

02:13:14.580 --> 02:13:18.900
lending. But I turned back, Mr.
girding let's say a retail

02:13:18.900 --> 02:13:22.410
company like WalMart, or Amazon
offered financial services

02:13:22.410 --> 02:13:26.490
through an AI LLC. All of a
sudden, they know a lot about

02:13:26.490 --> 02:13:30.000
you. They know how much money
you have, or whether you can pay

02:13:30.000 --> 02:13:33.540
your credit card bill, they know
what you buy. So should

02:13:33.540 --> 02:13:38.130
consumers worry about this kind
of blending of commercial and

02:13:38.130 --> 02:13:41.340
financial companies in with
these companies have a

02:13:41.340 --> 02:13:45.210
competitive advantage over other
businesses that don't have this

02:13:45.210 --> 02:13:47.790
kind of data about their
customers?

02:13:49.020 --> 02:13:52.260
Erik Gerding: Absolutely.
Representative Garcia gray

02:13:52.260 --> 02:13:55.710
shouldn't be worried. One of the
things that the other panelists

02:13:55.710 --> 02:14:00.090
have mentioned earlier is that
you're you have to worry not

02:14:00.090 --> 02:14:04.530
only about financial stability,
but data privacy. And a lot of

02:14:04.530 --> 02:14:08.190
the big tech and big retail
companies already have enormous

02:14:08.190 --> 02:14:13.020
amounts of information about
consumers. Being able to combine

02:14:13.020 --> 02:14:17.280
that with payment services,
banking services, and

02:14:17.310 --> 02:14:20.190
information financial
information about customers

02:14:20.460 --> 02:14:25.560
would exacerbate those problems.
I should note that there is one

02:14:25.560 --> 02:14:29.070
way of dealing with that the
gramm leach Bliley act, one of

02:14:29.070 --> 02:14:33.450
the bright spots of that act was
introducing privacy regulation.

02:14:33.870 --> 02:14:38.160
But that privacy rules under
gramm leach Bliley only apply to

02:14:38.160 --> 02:14:42.990
financial institutions. So if
large conglomerates are going to

02:14:42.990 --> 02:14:46.740
be entering into the banking
space and being given bank

02:14:46.740 --> 02:14:50.430
charters, I think we need to
start thinking about expanding

02:14:50.430 --> 02:14:54.150
and applying the gramm leach
Bliley privacy provisions to a

02:14:54.150 --> 02:14:57.870
whole host of larger
institutions and larger

02:14:57.870 --> 02:14:58.680
conglomerates.

02:14:59.100 --> 02:15:01.576
Jesus "Chuy" Garcia: Thank you,
sir. Mr. Carrillo, in your

02:15:01.643 --> 02:15:05.726
testimony, you discussed how
companies and laws that claim to

02:15:05.793 --> 02:15:09.742
expand financial access for
underserved communities can end

02:15:09.809 --> 02:15:14.093
up preying on those communities.
Can you tell us about the risks

02:15:14.160 --> 02:15:17.774
of allowing new FinTech
companies to offer unregulated

02:15:17.841 --> 02:15:21.656
services? And how can Congress
promote economic inclusion

02:15:21.723 --> 02:15:25.740
without leaving our constituents
vulnerable to exploitation?

02:15:27.120 --> 02:15:30.210
Raul Carrillo: Thank you very
much, Representative Garcia, I

02:15:30.210 --> 02:15:34.530
want to zoom out and say that,
to your point, the in this war

02:15:34.530 --> 02:15:38.190
between the Neo Hamiltonians and
the Neo Jeffersonians was last

02:15:38.190 --> 02:15:41.310
is the actual people who
currently use the US financial

02:15:41.310 --> 02:15:44.550
system. And people do not need
to be included, if they're

02:15:44.550 --> 02:15:48.270
included and in predatory
structure. They do not need to

02:15:48.270 --> 02:15:51.630
be given access to credit if
what they're given access to is

02:15:51.630 --> 02:15:54.630
something that actually hurts
the way that for instance, the

02:15:54.630 --> 02:15:57.480
Former Acting Comptroller talks
about credit, you would think

02:15:57.480 --> 02:16:00.600
that it had no downside. And
he's still has not addressed the

02:16:00.600 --> 02:16:03.150
privacy issues, nor had any of
the Republican members of this

02:16:03.150 --> 02:16:05.460
panel, despite the fact that
they go to our very

02:16:05.460 --> 02:16:08.040
constitutional protections,
which would be important to

02:16:08.040 --> 02:16:11.100
everyone in this room. I would
appreciate if we did not look at

02:16:11.100 --> 02:16:14.490
this debate with one eye. Thank
you. Thank you, sir.

02:16:16.830 --> 02:16:20.220
Kristin Johnson: May I just add
one tiny line to what Professor

02:16:20.220 --> 02:16:22.950
girding just offered regarding
privacy protections and the

02:16:22.950 --> 02:16:26.220
gramm leach Bliley Act. The Dodd
Frank Act also contains in

02:16:26.220 --> 02:16:30.630
Section 1033, and opportunity
area for this Congress to act

02:16:30.810 --> 02:16:34.920
and to protect consumer
financial data. I really think

02:16:34.920 --> 02:16:38.100
that your commentary is
accurate, the marginalized hard

02:16:38.100 --> 02:16:42.270
working, low income, low income,
struggling middle class

02:16:42.270 --> 02:16:45.630
families. In many of these, the
districts represented by this

02:16:45.630 --> 02:16:49.800
committee would be most
vulnerable. If some of the

02:16:49.800 --> 02:16:53.910
conglomerates existing in big
tech gain access to additional

02:16:53.910 --> 02:16:57.420
information, in fact, they will
form surveillance capitalism.

02:16:58.140 --> 02:17:01.470
And that will most affect black
and brown individuals. Just to

02:17:01.470 --> 02:17:02.820
be blunt and honest.

02:17:02.940 --> 02:17:04.500
Jesus "Chuy" Garcia: Thank you
for chiming in Professor Ron

02:17:04.500 --> 02:17:06.450
Johnson. Thank you. I yield
back. Mr. Chairman.

02:17:08.070 --> 02:17:11.283
Ed Perlmutter: Thank you, Mr.
Garcia. I think that is the last

02:17:11.352 --> 02:17:15.523
member to be here and to want to
ask questions. I think we've

02:17:15.591 --> 02:17:19.489
gone on two and a half hours
now. So I will want to bring

02:17:19.557 --> 02:17:23.592
this to a close. This has been
very interesting. And to the

02:17:23.660 --> 02:17:27.831
ranking members point, I think
we're just really beginning to

02:17:27.899 --> 02:17:32.071
get some idea of this subject
and the need for innovation, as

02:17:32.139 --> 02:17:36.378
Mr. Brooks has talked about, so
that, you know, people use the

02:17:36.447 --> 02:17:40.481
services and, you know, don't
skirt. Businesses don't skirt

02:17:40.550 --> 02:17:44.516
around the edges of the system
where there's no regulation

02:17:44.584 --> 02:17:48.482
whatsoever, but also the
detriments whether it's privacy,

02:17:48.550 --> 02:17:52.242
or some kind of abusive
approaches that that a company

02:17:52.311 --> 02:17:56.140
may take to, you know, to an
individual or to a business

02:17:56.208 --> 02:18:00.106
we've got, there's nothing new
under the sun might happen

02:18:00.174 --> 02:18:04.072
faster, or something might
happen in a different way. But

02:18:04.140 --> 02:18:08.311
we need to make sure that we
have prudential regulations that

02:18:08.380 --> 02:18:12.141
allow for businesses and
individuals to transact things

02:18:12.209 --> 02:18:16.654
and without being harmed. And so
I think, Mr. Ranking Member, I'm

02:18:16.722 --> 02:18:20.756
going to try to convince the
committee that we have another

02:18:20.825 --> 02:18:24.996
couple hearings on this subject.
And so I'd like to thank our

02:18:25.064 --> 02:18:29.235
panelists your your testimony,
both your oral testimony, your

02:18:29.304 --> 02:18:33.612
written testimony, outstanding.
I wish Mr. Torres would here be

02:18:33.680 --> 02:18:38.056
was here because if you read all
of those papers that you've all

02:18:38.125 --> 02:18:42.364
written, you'll learn just about
everything there is about the

02:18:42.433 --> 02:18:46.535
banking system from Hamilton and
Jefferson today. So without

02:18:46.604 --> 02:18:50.570
objection, I like to enter
statements into the record, the

02:18:50.638 --> 02:18:54.809
American Bankers Association,
the American Financial Services

02:18:54.878 --> 02:18:58.980
Association, the bank policy
institute, the consumer Bankers

02:18:59.049 --> 02:19:02.741
Association, Independent
Community Bankers of America,

02:19:02.810 --> 02:19:06.160
National Association of
industrial bankers, I was

02:19:06.229 --> 02:19:10.468
surprised nobody mentioned Glass
Steagall, in the commerce and

02:19:10.536 --> 02:19:14.366
banking kind of context today.
But obviously, as we came

02:19:14.434 --> 02:19:18.742
through the Depression, we want
to make sure that we didn't mix

02:19:18.810 --> 02:19:22.845
commerce and banking. I want to
thank all the witnesses for

02:19:22.913 --> 02:19:26.332
their testimony, and for
devoting their time their

02:19:26.400 --> 02:19:30.572
talent, their intelligence, to
share your expertise with this

02:19:30.640 --> 02:19:34.811
subcommittee. Your testimony
today will help advance the work

02:19:34.879 --> 02:19:38.982
of our subcommittee and the US
House of Representatives. The

02:19:39.051 --> 02:19:43.085
chair notes, some members may
have additional questions for

02:19:43.153 --> 02:19:46.914
this panel, which they can
submit to you in writing and

02:19:46.983 --> 02:19:51.290
without objection, the hearing
record will remain open for five

02:19:51.359 --> 02:19:54.983
legislative days for members
Submit to submit written

02:19:55.051 --> 02:19:59.291
questions to these witnesses and
to play as their responses in

02:19:59.359 --> 02:20:03.257
the record, and also without
objection, members will have

02:20:03.325 --> 02:20:07.360
five legislative days to submit
extraneous materials to the

02:20:07.428 --> 02:20:11.120
chair for inclusion in the
record. I remind members to

02:20:11.189 --> 02:20:15.291
submit written questions and
materials for the record to the

02:20:15.360 --> 02:20:19.189
email address provided. Thank
you all very much for your

02:20:19.257 --> 02:20:23.223
testimony to the Coloradans.
Good to have you here. But to

02:20:23.292 --> 02:20:27.189
those of you not from Colorado,
we're very happy that you

02:20:27.258 --> 02:20:31.566
participated as well. And with
that, this hearing is adjourned.

02:20:31.634 --> 02:20:32.250
Thank you