Good afternoon! In today's edition, we asked experts around the financial sector to reflect on Michael Barr's confirmation news and weigh in on what they thought his first priority ought to be. Questions or comments? Send us a note at email@example.com
Director of federal affairs and assistant general counsel of policy at Brex
In July 2021, the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation issued a joint proposal to update and harmonize decade-old guidance on how banks should manage risks associated with fintech and other third-party partnerships. The collaborative regulatory approach reflected in the proposed guidance could enhance the quality of bank-fintech partnerships by setting clear and consistent expectations and guardrails for safe and sound financial innovation. Despite receiving public feedback on the proposal last fall, the regulators have delayed issuing final guidance, chiefly because the nation’s top banking cop — the Fed’s vice chair of supervision — had yet to be confirmed. Michael Barr must now act to expedite the agencies’ finalization of the proposed risk management guidance.
However, this is only an intermediate step toward modernizing the regulatory frameworks surrounding bank-fintech partnerships. Barr should also lead an interagency effort to develop a public-private standards-setting organization and voluntary certification process governing banks’ relationships with third-party service providers, including fintechs. These steps, which were previously floated by the FDIC, could improve oversight of bank-fintech partnerships while reducing compliance costs. This would help fintechs be reliable partners in regulatory compliance efforts while chiefly benefitting community banks, including minority-depository institutions, who partner with fintechs to modernize their business models, improve financial access among underserved populations and compete with larger financial institutions. Barr, given his fintech expertise, is well-positioned to breathe new life into this effort.
First, I want to congratulate Michael Barr on his confirmation as vice chair for supervision of the Federal Reserve Board. Gov. Barr is not only extremely qualified but also uniquely understands financial technology and where the future of finance is headed. We look forward to working with him and the full Fed board to modernize our financial system and advance commonsense financial regulation that benefits all consumers.
In his new role, we encourage Gov. Barr to promote the incorporation of leading financial technologies into the banking system to ensure resilience, global competitiveness and enhanced access for consumers and small and medium-sized businesses moving forward. Fintech delivers better financial services at lower costs to consumers. Almost nine in 10 American consumers use fintech to manage their finances because it helps them save time (93%) and money (78%), make smarter financial decisions (73%) and reduce financial stress (71%).
As part of this, we welcome the Fed’s: 1) promotion of bank-fintech partnerships, 2) championing of broad bank chartering authority for new entrants, 3) modernization of the federal payments system, including through increased participation of well-regulated payments companies and 4) support for the exploration of innovative payments models leveraging digital assets, including stablecoins and a U.S. Digital Dollar that can be distributed through regulated fintechs, as well as banks.
FinTech director of Center for Financial Markets at the Milken Institute
It may sound simple, but it’s important that Michael Barr step into his position with a vision for instilling confidence in the U.S. economy. He begins his role during a “perfect global economic storm” brought about by the pandemic, the war in the Ukraine, inflation and economic fears across the globe.
He should not be reactionary during this critical time and, instead, lean on his vast experience facing economic downturns and meltdowns to focus on promoting stability in the financial system. Managing inflation is of the utmost importance, and that should remain his top priority.
There are other immediate considerations for Mr. Barr, including the impact of the Federal Reserve’s regulatory and supervisory policy decisions on access to affordable capital, which is the fuel for social and economic mobility as well as the key to a thriving economy.
Michael Barr’s first task should be to evaluate the entire cryptocurrency landscape for himself to understand the needs of both consumers and the industry. There’s a lot of uninformed noise in and around the crypto space; by working with trusted names in the industry, he can avoid a damaging knee-jerk reaction, streamline compliance and address the root issues facing the cryptocurrency environment. He will quickly need to identify crypto structures that are made out of straw and those that are built with bricks.
Barr’s background in the regulatory arena and his experience advising notable cryptocurrency companies put him in a unique position where he can provide well-informed guidance to build guardrails and ensure the future success of DeFi.
Recent events have underscored the need for consumer and investor protections, and should act as a “call to clarity” to regulators. The lack of a clear regulatory pathway has led to an overly complicated framework that’s inaccessible to many organizations hoping to interact with digital assets. In order to facilitate the industry’s continued growth, this “call to clarity” must be answered.
In his new role, making amendments and updating the Community Reinvestment Act should be at the top of Barr’s list. The last rule update was in 1995 and the last change in regulations was in 2005. Overall there have been no amendments for nearly two decades, which does not reflect a changed landscape with the rise of online banks nor the phenomenon of super regional banks.
As a result, there’s little transparency about how these mega banks may or may not be serving the communities they’re in. It's important for banks to not only become more available across the country, but also to take some of their resources and reinvest in communities that need support. When residents are invested in their homes, communities benefit. And home ownership is also a path to generational wealth.
As it stands, consumers do not know which lenders are serving their communities. Is the bank that they're borrowing from reinvesting where they live or is it just providing low income housing financing? Are there areas where people are being priced out by external institutions that are looking to just become landlords? With greater transparency consumers would have the entire picture to make a decision about the bank with which they choose to do business.
As Barr steps into his role as vice chair for supervision of the Federal Reserve, one of his first priorities should be ensuring regulation and consumer protections are aligned with enabling innovation to continue.
An immense amount of innovation has happened over the past several years in the U.S. This is because fintechs have focused on the needs of consumers, which have historically been underserved by large banks.
A prime example of how innovation can lead to improved outcomes for consumers is the work we’re doing embedding financial products into payroll at Gusto. So far, we’ve combined work tools — like time tracking, benefits cards and more — with financial tools such as early access to pay, budgeting tools and savings goals. Most of these products are free or very low cost and aim to increase employees’ financial wellness.
These innovations are supported through our banking-as-a-service partnerships. Establishing a concrete BaaS regulatory framework is another example of how a sensible approach to regulation will enable innovation at scale without sacrificing consumer protection.
Fintech innovation can improve consumer welfare. A top priority for Barr should be ensuring both of these areas are better off tomorrow than they are today.
Reviving the 2022 cryptocurrency roadmap announced by the joint banking regulators in November of 2021 should be a priority initiative. The cryptocurrency market continues to evolve and grow, and consumers and businesses continue to engage in and explore new use cases. Providing financial institutions with the regulatory clarity to support the interests and demands of their customers will further the safe and sustained growth of the market.
While initial growth and interest has been focused on the ability to buy, sell, and hold cryptocurrency, consumers and businesses are looking to the next iteration of the market, acceptance of cryptocurrency as a purchasing mechanism. Enabling financial institutions to hold cryptocurrency on their balance sheets will open a range of additional capabilities and options for consumers and businesses to use and accept cryptocurrency. In addition, without further clarity, financial institutions will continue to lag behind non-bank fintechs on crypto-focused innovation.
Kevin McAllister ( @k__mcallister) is a Research Editor at Protocol, leading the development of Braintrust. Prior to joining the team, he was a rankings data reporter at The Wall Street Journal, where he oversaw structured data projects for the Journal's strategy team.