Highlighting risks and opportunities facing banks and consumers as federal agencies prepare for leadership changes following U.S. elections for control of the White House, House of Representatives, and Senate, Acting Comptroller of the Currency Michael Hsu testified Wednesday on the state of the federal banking system, before Congress’s Committee on Financial Services.
Hsu has headed the Office of the Comptroller of the Currency (OCC), an independent bureau of the Treasury Department, for more than three years without having been nominated to the permanent role. OCC-supervised financial institutions hold more than $17 trillion in assets, representing almost 66% of all assets held in commercial U.S. banks.
The large majority of these institutions have less than $1 billion in assets, while 54 have greater than $10 billion in assets. Many non-bank mortgage companies rely on partnerships with these institutions to import mortgage credit to the communities they serve.
In prepared remarks, Hsu reminded lawmakers of the importance of safeguarding trust in banking, as well as the agency’s efforts to “guard against complacency, elevate fairness, adapt to digitalization, and manage climate-related financial risk.”
Most of Hsu’s and the OCC’s efforts over the past three years, he said, have revolved around these core areas of attention. Remarks from today’s testimony of particular relevance to the mortgage industry are compiled, below.
On the fairness front, Hsu emphasized the OCC’s work “strengthening and modernizing” the Community Reinvestment Act (CRA) and updating the agency’s fair lending examination practices, to include assessing institutions’ fair lending risk and evaluating compliance with the Fair Housing Act, Equal Credit Opportunity Act (ECOA), and Regulation B, the consumer protection statute that implements ECOA.
As discussed in prior addresses, Hsu also directed lawmakers’ attention to the blindness of regulators to digital innovations occurring across the financial services sector. The failure and fallout of Synapse Bank underscores the complexity of relationships between banks, non-banks, and fintech intermediaries, which threaten to obscure systemic risk.
Prior to filing for bankruptcy in March, more than 100 fintechs and four banks had partnered with the Banking-as-a-Service (Baas) middleware firm to offer high-yield digital saving accounts among other banking services. “Notably,” Hsu explained, “neither Synapse nor any of the fintechs involved are regulated or supervised by the federal banking agencies.”
In the aftermath of the bankruptcy, thousands of customers across the U.S. could not access roughly $265 million. As of August, as much as $100 million of that total remains missing.
“Banking services are no longer provided by just banks,” Hsu said. “While this evolution has fostered greater competition and innovation in digital banking, it has also confused consumers, diffused accountability, and created an unlevel playing field between banks and nonbanks.”
As the insurance affordability and availability crisis continues, Hsu highlighted how the “financial risks from climate change to banks and the communities they serve are highly uncertain.”
Since 2021, the OCC and other federal banking regulators have engaged with the U.S.’s largest banks — those with over $100 billion in assets — to assess how climate change-related risks may put portfolio pressures on the banks, and how insurance and banking services have already been impacted.
“In general,” Hsu noted, “the OCC has observed that these banks have been making progress on incorporating climate-related financial risks into their risk management frameworks and policies.”
On what kind of progress those large banks have been making, Hsu did not elaborate. However, he added, “increases in the frequency and severity of extreme weather events, such as Hurricanes Helene and Milton, are likely to lead to changes that banks will have to adapt to.”
Hsu cited “changes in insurance markets” and “concerns regarding insurance gaps” as especially notable, with banks “at an early state of analyzing the effects of insurance affordability and availability challenges on their customers and asset valuations.”
