The Acting-Comptroller Of The Currency Shows His Crypto Roots
Last week, as the world debated President Trump’s photo-op on the steps of St. John Episcopal Church, a mile away the Comptroller of the Currency’s office was quietly proposing potentially sweeping changes in banking regulations — with a specific emphasis on blockchain.
The new Comptroller, Brian Brooks, had just become the new top banking regulator for the Trump administration. His last job? General counsel to crypto powerhouse Coinbase. Brooks, as acting-Comptroller, makes it clear: blockchain is not the problem — he thinks blockchain is the solution to our problems.
“Blockchain has potential to connect up, in a decentralized network, all kinds of data,” says Brooks. “It has the ability to create large, friction-free, decentralized networks of people. There is huge and great promise in blockchain and crypto.”
Brooks, 51, talked with Forbes at length about his views on crypto currencies, regulation and technology. Interestingly, he’s looking for decentralized networks in general — he cited Bitcoin, Ether and XRP in particular — to solve many of the problems hindering more than one-thousand financial institutions under his purview.
In his June 2 “proposed rulemaking,” Brooks targeted a re-write of existing regulations on “bank digital activities.” The request for comment, signed by Brooks, asks how artificial intelligence and blockchain technologies could be incorporated into strictly-regulated banking operations.
Brooks is especially concerned about the antiquated methods banks use to transfer money. “It takes three days if you’re trying to send money from the US to Europe… on the SWIFT network,” says Brooks. “Your money is at risk during that period. And even when the money is transmitted, foreign exchange fees are incurred. But a digital representation of value on both sides of the transaction can eliminate that friction and those costs.”
Other countries are focused on modernizing payments and Brooks sees that as a threat to the United States. He takes a shot at the slow-moving Federal Reserve. “The U.S. has lagged behind the U.K. and other counties in terms of faster payments,” says Brooks. “It took the Fed ten years to get where they are with the Fed’s version of faster payments — versus blockchain, which is instantaneous and immutable.”
He’s right: years ago the European Union, for example, created an instant payment settlement system called TIPS which the U.S. has yet to match. Brooks points out that MastercardMA and VisaV are independently exploring the use of stablecoins to keep up.
Brooks expresses a deep understanding about the differences between Bitcoin, Ethereum and XRP showing his crypto roots (though he mistakenly calls XRP “Ripple.”)
And yet Brooks doesn’t think the federal government should issue digital money. “I’m not in favor of a government-created token,” he says. “I just don’t think that’s the role of government, quite honestly. But I think that the Fed and the SEC need to be putting up frameworks of what that digital currency needs to be.”
It’s a tacit acknowledgement of the sprawling bureaucracy that governs banking and finance in the U.S., of which the Comptroller of the Currency is no small part. The agency is headquartered in a ten-story Washington, D.C. building, with 3,669 employees spread across offices in 60 cities. Its 2,442 bank examiners oversee the operations of 840 banks and 290 federal savings associations. To Brooks, their work is hampered by an adherence to technology — old technology.
“You’d be shocked,” says Brooks. “There are certain O.C.C. regulations that require that certain things be transmitted by fax and require banks maintain a fax number. Those were written at a time when faxes were a cool technology. Now they’re mandates.”
Brooks hopes that by rooting out regulations specifying specific technology he’ll open the door to new technologies — especially blockchain. “We need to do a thorough review” says Brooks. “We need to look at all of our regulations, policy statements, guidance documents and examination manuals, to identify every place where those documents embed a preference for a legacy technology.”
Brooks’ professional legacy surely helped him get to where he is. It all goes back to the last financial crisis, Treasury Secretary Steve Mnuchin and OneWest Bank.
And what was OneWest? A long story — to be short. In the depths of the 2008 financial crisis, Pasadena-based IndyMac Federal Bank blew up under the weight of lousy “Alt-A” and reverse mortgages it had sold to customers. The Federal Deposit Insurance Corporation needed someone to bail out IndyMac — a huge problem, as it was the fourth-largest bank failure ever. Mnuchin’s Los Angeles-based Dune Capital Management stepped in in 2009, forming “OneWest” to buy IndyMac for $1.6 billion. Mnuchin would be the chairman, and, in 2011, he brought in Brooks as vice-chairman and chief legal officer.
In short order, that bargain basement IndyMac purchase yielded $1.9 billion in dividend payments to Mnuchin and his investors — including Texas computer mogul Michael Dell and financiers J. Christopher Flowers, John Paulson and George Soros. After those payments, in just four years, OneWest was then sold to CIT Group
CIT for another $3.4 billion in 2013. It was the return of a lifetime.
And among the government agencies blessing that deal? The Comptroller of the Currency.
“I’m very bullish on technology,” says Brooks, now governing the agency that once governed his fate. “Things like AI, things like blockchain have a better ability to leverage the wisdom of crowds. It can look at more data points than the human mind can possibly imagine. It gives you a better insight on what will most likely happen tomorrow.”
Full disclosure: I once worked for Ripple, a blockchain company that sometimes uses XRP for crossborder payments in a fashion similar to SWIFT. At the time of this writing I do not own XRP.