Comment Letter - Office of the Comptroller of the Currency: Warning of the Dangers Posed by the Shadow Payment System and Shadow Digital Money

17 Pages Posted: 13 Aug 2020

See all articles by Dan Awrey

Dan Awrey

Cornell Law School; European Corporate Governance Institute

Lev Menand

Columbia Law School

James McAndrews

Wharton Financial Institutions Center

Date Written: July 31, 2020

Abstract

This comment letter was submitted in response to the Office of the Comptroller of the Currency (OCC) advance notice of proposed rule-making regarding the digital activities of National Banks and Savings Associations. For the reasons set out in this letter, we believe that the OCC’s proposed approach to regulating new financial technologies, institutions, and platforms is fundamentally flawed. Rather than focus on relaxing the regulatory framework governing banks, we believe that the OCC should consider how to strengthen the legal regime governing an emerging contingent of non-bank financial institutions that now compete with banks in the realm of money and payments. This comment letter describes the business models of these new institutions, the antiquated and inadequate legal regimes that currently govern them, and the serious and growing risks they pose. This letter suggests modest and straightforward reforms that the OCC should recommend to Congress that would require these firms to back their monetary liabilities 1:1 with bank deposits. These reforms would harmonize state and federal law, prevent a weakening of the prudential safeguards that ensure the safety and soundness of money institutions, and yet still allow both banks and non-bank payment platforms to offer innovative services. These reforms would also be superior to alternative approaches such as a federal payments charter, which would likely prompt a dangerous race to the bottom between state and federal regulators.

Keywords: Bank Regulation; Financial Institutions; Monetary Institutions; Deposit Taking; Shadow Payment System; Shadow Digital Money; Money Services Businesses

JEL Classification: G2, G23, K2

Suggested Citation

Awrey, Dan and Menand, Lev and McAndrews, James, Comment Letter - Office of the Comptroller of the Currency: Warning of the Dangers Posed by the Shadow Payment System and Shadow Digital Money (July 31, 2020). Available at SSRN: https://ssrn.com/abstract=3664713

Dan Awrey (Contact Author)

Cornell Law School ( email )

Myron Taylor Hall
Cornell University
Ithaca, NY 14853-4901
United States

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Lev Menand

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States

James McAndrews

Wharton Financial Institutions Center ( email )

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States
9176090086 (Phone)
19104 (Fax)

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