Banking News

US banking regulator believes bank deposits to be replaced by blockchain

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Talking in a DC Fintech Week session, Brian Brooks, the Acting Comptroller of the Currency, shared his views on the future of banking. He doesn’t believe that the primary deposit-taking function of banks will survive blockchain decentralization. He sees a future role for banks in advisory and added value services.

Brooks spoke about the current role of banks to take deposits, enable payments, and extend loans. “In a pre-technology era, we needed one place to hold all of the money in order for it to be efficient in providing all of those services.”

The former Coinbase executive compared banking to the postal service. Before email, the primary way to send a written message across the country was to use the post office. In terms of banking, with technology someone can go online and say, “does anyone want to take my $10,000 and pay me 5% (interest). And the algorithm will find somebody who does,” said Brooks. “And all of a sudden, there’s no longer value in the bank aggregating all that money together. Because the technology is substituting for the aggregation function of banks.”  

He continued: “What I think banks are great for is value added services. They’re great for advice, for fiduciary stuff, for the custody of physical assets.”

Recently the OCC issued a letter stating that banks can take deposits to hold stablecoin reserves, outlining the requirements in a joint effort with the SEC. That may be just his first step re stabecoins.

“I expect there is a future where banks will be directly connected to blockchains, where they will see that as a payment network and they will become nodes on that network along with all sorts of other companies that also have nodes on that network.” And he envisions banks minting their own stablecoins.

“So I think there’s a huge role for banks. But it’s a transformational role, because the legacy role of being an aggregator of dollars may be completely disintermediated, which will allow them to focus on higher value add, higher profit services.”

The U.S. lagging in stablecoin regulation

Brooks also believes people overemphasize the risks relating to new technologies just because they’re new. And he pointed to the known risks of the status quo banking system, including money laundering, interest rate friction, and chargebacks. He believes there should be net risk calculations.

The Comptroller spoke about how banks will have to compete with other organizations. And this applies to international competition by regulators comparing the EU’s draft laws on stablecoins to the U.S.’s compliance rulings.  

In what may have been a slip of the tongue, he said, “instead, we’re still talking about a government built token system that might come online in four years.” Was he implying that a central bank digital currency system or digital dollar is being considered in that timescale? FedNow is due roughly on that timescale but doesn’t use tokens.

Returning to his stablecoin point, Brooks commented about the hockey stick growth in stablecoins in the last few months. “Which tells us the market wants these things. And the market will have these things.” He said one can pushback or embrace it. “We need to come out now and get in front of it by saying we’re okay with these projects as long as they meet these parameters. And only outside these parameters we’re going to have problems. We need to be clear about that if we want to be competitive as a country.” 

Perhaps this is a not so subtle hint about the topic of the OCC’s next guidance letter.