OCC chief economist pens working paper defending the issuance of charters to fintech, stablecoin firms

A working paper by the Office of the Comptroller of the Currency's (OCC) top economist explores the implications of chartering stablecoin banks — and why doing so may provide some regulatory benefits.

The paper by Charles Calomiris —entitled "Chartering the FinTech Future" — covers both so-called stable value coin banks as well as the broader fintech landscape with respect to what he terms shadow banks. In a broader sense, his paper aims to capture the technological march occurring in the financial technology sector and how that will shape the banking ecosystem over time.

As he notes:

"Section 3 describes how I believe the chartered banking system could and would evolve over the next decades if special interests fail in their attempt to preserve the status quo. In the near term, this evolution could see substantial numbers of FinTech shadow banks becoming chartered national banks, including many that do not rely on deposits as a source of funding. As part of that analysis, I show that there may be substantial advantages from the standpoint of efficiency, convenience, and stability to encouraging the creation of a  chartered national bank network of stable value coin banks issuing non-depository liabilities."

At the heart of Calomiris' argument is that the chartering process affords a greater degree of transparency into the operations of stablecoin issuers and would-be banks.

"By chartering them, we allow banks’ customers to gain from credible examination of their algorithms and accounting and managerial skills. By encouraging shadow banks of all kinds (including stable coin banks) into the chartered system, examination can ensure that consumers are not taken advantage of by unscrupulous, dishonest, or misleading practices," he wrote.

Calomiris notes later in the paper that, ultimately, the U.S. Federal Reserve may oppose such an evolution in the market, though he expresses hope for openness on the central bank's account.

"Given that the Fed could lose substantial power as the result of the chartering of nondepository FinTech banks, it may oppose them," he wrote. "One can hope that the Fed will be guided more by public interest than a desire to preserve its own power. As far as I know, the Fed has not taken an official position on the question of FinTech chartering. Time will tell."

The OCC made waves earlier this year with two policy moves — one allowing federally chartered banks to hold custody of cryptocurrencies, and another to allow those institutions to hold deposits for fiat-backed stablecoins. However, the OCC has triggered some opposition to its crypto-focused efforts. 

The full paper can be found below:

Pub Econ Working Paper Chartering Fintech Future by MichaelPatrickMcSweeney on Scribd