Hsu discusses challenges facing community banks

Bank Regulatory Federal Issues OCC Community Banks Assessments Fintech Digitalization

On September 1, acting Comptroller of the Currency Michael J. Hsu delivered remarks before the Texas Bankers Association in Dallas focusing on the importance of community banks and the challenges and opportunities of digitalization. In his remarks, Hsu emphasized the OCC’s commitment to community banks, noting that more than 85 percent of the charters that the OCC supervises are community banks, which total nearly 900 individual institutions. He said that the OCC seeks to support community banks in five areas: (i) assessments; (ii) de novo licensing; (iii) risk-based supervision; (iv) local presence and national perspective; and (v) regulation. In particular, Hsu said the OCC is working to provide increased support for community banks by streamlining the licensing process for de novo banks and updating its approach to risk-based supervision. Hsu noted that the recent reduction in assessments is part of an effort by regulators to encourage community banks to invest in digital technologies. He stated that his “experiences in the 2008 financial crisis taught [him] about the disastrous consequences that can result from an unlevel playing field where regulatory arbitrage and races to the bottom are allowed to fester.” He added that while he has been at the OCC, the agency has been “requiring fintechs seeking a bank charter to be subject to the same requirements as all national banks and we are engaging with our peer agencies to limit regulatory arbitrage.” Hsu also noted that in order to “level the playing field,” the OCC will make a 40 percent reduction in assessment fees on a bank's first $200 million in assets and a 20 percent reduction on bank assets between $200 million and $20 billion. Hsu said that the cuts will result in a $41.3 million reduction in assessments for community banks in 2023. Hsu explained that “[t]he purpose of this adjustment is to level the playing field with the cost of supervision compared to state community bank charters, and that “[t]he recalibration will not reduce the quality of OCC supervision or the resources available to community banks.” Hsu mentioned that he is “hopeful” that the reduction gives community banks “extra breathing space and capacity to invest and seize opportunities related to digitalization, compliance, cybersecurity, and personnel.”