Comptroller's Viewpoint 

We helped the federal banking system succeed as a conduit for delivering relief to consumers and businesses affected by the response to the global pandemic. In these efforts, we increased communication, reduced assessment fees, and issued nearly 50 rules and guidance documents, which provide banks with greater flexibility and regulatory clarity to use their strong capital and liquidity to support consumers, businesses, and the broader economy.

President Lincoln understood the need for a national strategy for our collective good when he created a system of national banks in 1863 to support interstate commerce and solidify a national currency backed by the country’s full faith and credit. As an agency with a 157-year history, we understand the pandemic’s seemingly long shadow is temporary, as is the immediate attention it demands.

Response to the pandemic has taken significant focus and effort. I appreciate the extraordinary work of OCC staff members who have shown great flexibility and agility adapting to different ways of working. As part of the nation’s critical infrastructure, banks never stopped operating during the pandemic, and neither did we. As conditions evolve, we will adapt, provide employees with the workplace flexibilities they need to do their jobs while supporting their families, and maintain our agency’s essential capabilities. I am confident that the federal banking system will continue to be a source of strength for the nation.

2020 Accomplishments

In 2020, our accomplishments included

• modernizing the Community Reinvestment Act (CRA) regulatory framework.
• enabling banks to better serve their customers while maintaining the safety and soundness of the federal banking system during the pandemic.
• increasing consumers’ short-term, small-dollar lending options.
• improving and streamlining the Volcker rule.
• enhancing legal certainty through the “Madden fix” and the true lender rule.¹
• enhancing the scope and relevance of the national charter by helping the federal banking system keep up with changes in the way consumers and businesses manage their finances.
• supporting responsible innovation by clarifying banks’ authority to provide custody services for cryptocurrency and to hold deposits as reserve backing stablecoins.
• ensuring that banks serve their entire communities through fair access to credit, capital, and financial services.
• providing OCC employees with engaging, rewarding, diverse, and challenging career opportunities.

Modernizing the CRA Regulatory Framework

In May, the OCC finalized improved CRA rules to encourage banks to lend and invest more in areas of need, including low- and moderate-income neighborhoods, and to make assessing bank CRA performance more transparent and objective.²

Changes we made to the CRA framework for banks benefit consumers, businesses, and communities by

• clarifying what activities qualify for CRA consideration.
• requiring banks to serve the communities where banks draw significant amounts of their deposits, regardless of whether they have a physical location in the community.
• evaluating bank CRA performance more objectively through quantitative measures that assess the volume and value of activity.
• making reporting more transparent and timelier.
• providing greater support for CRA-eligible businesses and farms (i.e., businesses and farms with gross annual revenues of $1.6 million or less), people with disabilities, family-owned farms, and Indian Country.

The final rule was the culmination of a multiyear process and more than a decade of dialogue about improving how the CRA works. We carefully considered more than 7,500 comments from stakeholders on the CRA notice of proposed rulemaking³ and incorporated many of those suggestions to improve the final rule.

Enabling Banks While Maintaining Safety, Soundness, and Fairness During the Pandemic

As the preeminent regulator of one of the 16 critical infrastructure sectors considered vital to the United States, the OCC took a two-track approach throughout the COVID-19 pandemic: protect the health and safety of our employees while engaging in extensive regulatory efforts to enable banks to serve their customers in a safe, sound, and fair manner.

In March, OCC employees began to work remotely, helping to prevent the spread of the coronavirus. During this time, we increased use of virtual capabilities across all aspects of our operations and remained well-connected, safe, and informed without compromising our mission capabilities.

Taking care of our employees ensured they could focus on our critical mission and contribute to national economic security while meeting basic family-care needs exacerbated by the pandemic.

This report details how rapidly we responded to situations presented by the pandemic and implemented sound regulatory efforts for banks. For instance, the Coronavirus Aid, Relief, and Economic Security (CARES) Act allowed for temporary adjustments to accounting rules and bank capital requirements⁴ so that banks could better serve the immediate needs of their customers. The OCC collaborated closely with the other federal financial agencies and promptly issued rulemakings and guidance to implement these and other CARES Act provisions, allowing banks to carry out the objectives of the law in a way that supports fair access and fair treatment of their customers.

As regulators, our goal during the pandemic has been to provide flexibility to banks so they may serve their customers while maintaining essential safeguards. The OCC will continue to work with our agency colleagues and the institutions we oversee to meet our nation’s banking needs.

Increasing Consumers’ Short-Term, Small-Dollar Lending Options

Millions of consumers rely on short-term, small-dollar credit each year. Banks offer a safe, affordable choice and can help customers find a path to more mainstream financial services without trapping them in cycles of debt. Throughout the year, the OCC had discussions with several banks considering new small-dollar products. The federal banking agencies explored principle-based options to address regulatory uncertainty and to encourage banks to deliver safe, fair, and affordable short-term credit products that support the long-term financial health of their customers.

In March, the OCC partnered with other federal financial regulatory agencies to encourage responsible small-dollar lending.⁵ In May, the OCC joined other federal financial regulatory agencies in issuing interagency lending principles for offering responsible small-dollar loans to customers for consumer and small business purposes.⁶ These loans can help customers meet their needs for credit because of temporary cash-flow imbalances, unexpected expenses, or income disruptions during periods of economic stress or disaster recoveries like those related to the pandemic.

Improving and Streamlining the Volcker Rule

The Volcker rule⁷ generally prohibits banks from engaging in proprietary trading or investing in, sponsoring, or having certain relationships with hedge funds or private equity funds (referred to as covered funds in the implementing regulations). In November 2019, we finalized revisions to the proprietary trading and compliance program provisions of the regulations implementing the Volcker rule.⁸ Under the revised rule, companies that do not have significant trading activities face simplified and streamlined compliance requirements, while companies with significant trading activity have more stringent compliance requirements. The revisions continue to prohibit proprietary trading while providing greater clarity and certainty regarding the activities permitted under the law.

In addition, in July we finalized revisions that improve and streamline the covered funds provisions of the regulations implementing the Volcker rule.⁹ The final rule streamlines the covered funds portions of the regulations, addresses the extraterritorial treatment of certain foreign funds, and permits banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker rule was intended to address.

Enhancing Legal Certainty Through the “Madden Fix” and True Lender Rules

Loan transfers help support the orderly function of markets and credit by providing liquidity and alternative funding sources. They also allow banks to manage concentrations, improve financial performance ratios, and more efficiently meet customer needs.

On May 29, I signed the OCC’s final rule clarifying that when a national bank or savings association transfers a loan, interest permissible before the transfer continues to be permissible after the transfer. The rule supports the orderly function of markets and promotes the availability of credit by answering the legal uncertainty created by the Madden decision.¹⁰

In July, we proposed a companion rule to clarify when a bank makes a loan and is the “true lender.”¹¹ That rule was finalized on October 27, 2020, and addresses the concerns regarding “rent-a-charter” arrangements by clarifying that when a bank makes a loan, it is responsible for ensuring that the loan is made in a safe and sound manner and in accordance with applicable laws and regulations, including consumer protection laws.¹²

The regulatory certainty provided by the two rules supports banks’ lending relationships with third parties and facilitates access to affordable credit.

Enhancing the Scope and Relevance of the National Charter

To enhance the value of the national charter, the OCC has promoted responsible innovation in the federal banking system for several years. Innovation continues to change how banking products and services are delivered and consumed.

The OCC’s initiatives include identifying ways to promote and support banks’ responsible innovation, such as through the partnering of banks with financial technology (fintech) and other nonbank companies in a safe and sound manner. Doing so can result in reduced costs, increased earnings, and well-served customers.

In July, we approved a de novo charter for Varo Bank—the first-ever national bank charter issued to a fintech company. This full-service charter marks an evolution in banking and a new generation of banks, born from innovation and built on technology to serve and empower consumers and businesses. Fintech companies come in all shapes and sizes, and the national bank charter is flexible enough to accommodate multiple fintech business models that may focus on certain aspects of banking.

Payments is one of those core banking functions that 10 years ago was conducted almost entirely by banks. Today, much of that banking activity has migrated outside the banking system. That migration risks reducing federal regulators’ ability to spot systemic risk and ensure the safety and soundness of the system as whole. For those reasons, it is important that we provide a path for those companies to conduct their payments activities within the banking system, if they choose.

Clarifying Banks’ Authority With Cryptocurrency

Complementing the evolution in the financial services landscape brought about by fintech companies, cryptocurrencies, and distributed ledger technology are fueling tremendous change. Banks are already engaging in cryptocurrencies in ways that involve hundreds of billions of dollars and tens of millions of customers. As the primary prudential regulator for the federal banking system, we must provide the guidance and framework that recognize the reality of these assets and technologies so that the banks we oversee can provide those services in a safe, sound, and fair manner.

This year we addressed two aspects of the crypto evolution: custody and reserve deposits for stablecoins. Banks have long provided custody services for physical objects and electronic assets. In July, we clarified that banks’ authority includes providing cryptocurrency custody services for customers.¹³ In September, we clarified that banks may hold deposits as reserves backing a certain type of cryptocurrency known as stablecoins.¹⁴ Combined, these two letters answer certain threshold questions we have received regarding banks’ authority to engage in activities related to cryptocurrency.

Expanding Access to Financial Services, Credit, and Capital

In July, we announced the launch of Project REACh to promote financial inclusion through greater access to credit and capital.

REACh stands for Roundtable for Economic Access and Change and brings together leaders from banking, business, technology, and national civil rights organizations to reduce barriers that prevent full, equal, and fair participation in the nation’s economy.

This collaborative effort intends to remove many structural barriers to financial inclusion, result in broader participation in the economy, and help millions of people, previously left out of the financial system, in a manner that enables them to pursue their American dreams.

Project REACh currently comprises three national initiatives:

• Inclusion for credit invisibles: Nearly 50 million Americans—disproportionately including poor and minority Americans—lack a credit score and cannot obtain mortgages, credit cards, or other lending products. Yet many people in this segment of society pay rent, utilities, and other recurring financial obligations. Project REACh intends to work with technology partners to synthesize a credit score from alternative data that meets safety, soundness, and fairness regulatory expectations. This will help tear down a major barrier to economic access for millions.
• Revitalization of minority depository institutions (MDI): The number of MDIs has declined over the years. The remaining MDIs are critical sources of credit and financial services in their communities. Project REACh is developing a pledge that banks could make to support the vitality of minority institutions through partnerships, increasing access to capital, and providing training, exchange programs, and mentorship to MDI executives and board members.
• Affordable housing: A recent analysis of home mortgage data found access to mortgage credit is significantly more challenging for minority borrowers, often because of cash required for down payment and closing costs. Project REACh intends to work with financial institutions and major civil rights and community-based organizations to encourage development of products that reduce the burden of down payments without adding asset risk. Such solutions can help thousands more obtain the American dream of owning a home.

Local Project REACh initiatives focus on developing regional solutions to reduce barriers to economic access for minority and underserved communities.

Contributing to Youth Financial Education and Development

At OCC Headquarters in Washington, D.C., we hosted the second year of our High School Scholars Internship Program through the Mayor Marion S. Barry Summer Youth Employment Program. The internship program provides an opportunity for participants to explore careers in financial regulation, gain an understanding of the financial services industry, and engage in enrichment activities to support whatever careers they choose.

The OCC led an expanded program in 2020, collaborating with the National Credit Union Administration and Consumer Financial Protection Bureau, to provide paid internships to 115 students, including 30 students returning from the inaugural program. While many federal agencies and private businesses canceled summer internship programs because of the pandemic, the OCC converted its program to a virtual experience to provide interns with positive, enriching experiences at a time when students needed such a program.

Providing Engaging, Rewarding, Diverse, and Challenging Careers

Our employees are essential to our mission; therefore, fostering employee engagement is crucial to succeed. We promote engagement by

• maintaining work-life balance and flexibility for employees by expanding telework, which we accomplished in December 2019.
• implementing a performance management program that responds to employee feedback, recognizes high performance, increases recognition, supports employee growth and development, and aligns employee contributions to the agency’s goals and mission. We implemented the new performance management program for the 2021 performance year.
• keeping our employees informed through increased engagement, including virtual town halls.
• following up on feedback from previous years’ surveys and continuing employee engagement discussions throughout the organization.

Fostering an Inclusive Workplace

Successful diversity and inclusion begin with the tone at the top. I have vigorously championed this commitment by leading senior-level discussions about how to improve diversity during recruitment, hiring, retention, and promotion decisions. To aid such efforts, this year we increased training for leaders to include soft skills such as emotional intelligence, cultural awareness, inclusive listening, and combating unconscious bias.

Through our Office of Minority and Women Inclusion, we sponsor eight employee network groups, each sponsored by a member of the agency’s executive committee.¹⁵ These groups provide a voice in communicating workplace concerns and input to management. They are an asset to attracting and retaining employees from diverse backgrounds and to creating an inclusive workplace for all employees.

Conclusion

I am proud of the work we have done to overcome the unique challenges of 2020 and to continue to ensure that banks operate in a safe, sound, and fair manner. I am optimistic about the agency’s future and that of the federal banking system.