The Office for the Comptroller of the Currency (OCC) has warned the US banking industry against becoming complacent in the wake of the Covid-19 pandemic.
In an oral statement before the US Senate, acting comptroller Michael Hsu urged bank leaders to be “especially vigilant” as the country continues to recover from the pandemic.
In his remarks Hsu said banks should be commended for withstanding the financial crisis that Covid-19 brought. However, the regulator’s acting boss is concerned this may lead to over-confidence in corners of the industry.
“I believe the banking system is at risk of becoming complacent,” Hsu told the US Senate committee on banking, housing and urban affairs. “I am concerned… that as the economy recovers and pressure to grow returns, over-confidence leading to complacency is a risk – when prudent risk management is set aside in pursuit of profit.”
Here, Hsu cited the losses incurred by several major banks relating to the collapse of Archegos Capital, as well as an ongoing concern about “froth” in the investment markets. Examples given of this phenomenon included the boom in special purpose acquisition companies and the rise of crypto assets.
Labelling these as “potential warning flags”, Hsu added: “Today, bank leaders, boards of directors, and we supervisors must be especially vigilant.”
Linked to his concerns about crypto, the OCC’s acting boss said the rapid digitization of financial services – further accelerated by the Covid-19 pandemic – required a collaborative approach from authorities.
As such, Hsu said more work was expected by several financial regulators to ensure fintechs, payment platforms, and digital assets fit properly into the regulated system.
Work already carried out has included pausing approvals of novel charters, taking part in a cross-regulatory ‘sprint team’ to assess digital assets and joining President Biden’s working group to develop policy recommendations for these.
“These efforts seek to adapt to a rapidly changing landscape, in a coordinated manner across agencies, to facilitate responsible innovation while limiting regulatory arbitrage and races to the bottom,” added Hsu.