During his tenure as Acting Comptroller of the Currency Michael Hsu has built a reputation as a thoughtful, even-keeled regulator, known for his ability to clearly communicate complex financial regulatory concepts with an almost philosophical level of reflection.
Appointed by Treasury Secretary Janet Yellen to the longest Acting term
Before his current role, Hsu honed his expertise at the Federal Reserve, where he worked closely with Yellen during her time as Chair. His work on the Large Institution Supervision Coordinating Committee, which oversees global systemically important banks, solidified his reputation as a meticulous and collaborative leader.
As Acting Comptroller, Hsu's speeches explore themes of accountability, trust and the balance between innovation and oversight. Hsu has guided the Office of the Comptroller of the Currency through tumultuous times, including a string of historically large bank failures and a pandemic.
American Banker: As the longest serving Acting Comptroller, you serve at the behest of Treasury Secretary Janet Yellen. How did you meet Secretary Yellen?
Hsu: I got to work with her in my capacity as a supervisor at the Fed when she was the chair. I rejoined the Fed in 2010, so this is after the financial crisis. It was really helping to stand up the, what they call the LISCC [or Large Institution Supervision Coordinating Committee] program, which oversees the largest G-SIBs [global systemically important banks]. In the course of those duties, especially with regard to Title I living wills, that's when I really got to work with her in a more direct capacity.
AB: Did you know going into this it would be an acting position for an extended period, and what made you accept the role?
Hsu: If there's not a Senate confirmed Comptroller, then the quote-unquote first deputy comptroller becomes the Acting Comptroller. So that's by operation of the statute. And the first deputy comptroller is appointed by the Treasury secretary. When I got the phone call, it was whether I wanted to serve as the first deputy Comptroller, as selected by Secretary Yellen. So that was kind of the offer that was on the table. Naturally, my question was: am I just keeping the seat warm, or am I doing the job? That was really kind of the key question for me, because I can understand either scenario. There may be some scenarios where [the Treasury Secretary says], 'Look, you know, you're acting, just don't do anything, just keep everything steady, but ready the ship for somebody else to actually do the job.'
She was very clear with me, she's like, 'No — you have to do the job,' and the time period of the acting [stint] was really unknown. I had no idea how long it was going to be.
AB: How do you view the concept of regulatory consolidation that's been proposed over the years, most recently by the Trump Transition Team and the Department of Government Efficiency. Are there inefficiencies in the system that are necessary checks, as you've
Hsu: Some of the discussion has been around rationalizing the … alphabet soup, so to speak, of regulatory agencies. As kind of an objective observer, one might look at the situation and say, 'Wow, this is awfully complicated. Why don't we rationalize it?' But I think context and history are important to understand.
The truth is, a lot of it is driven by choice. There's a lot of choice in banking. You can have a National Charter, you can have a state charter, you can be a state member bank, you could be a state non-member bank, you can have a holding company, or not have a holding company. Each of those choices leads to the need for these different agencies. So if you were to do the logic backwards and you were to rationalize all the agencies you'd have to take away some of that choice, there may be a good reason to do that. I'm not weighing in on whether that's what's desired or not, but I think that that's part of the discussion: is this number of choices serving the American people, and if not, maybe taking some of that away and rationalizing it makes sense. You've got to put some thought into it.
Breaking eggs for the sake of breaking eggs may feel good, but it might not serve the American people well. So I think there is a way to be thoughtful about that and I think we should be open-minded to it, but you have to recognize what some of these trade-offs are. If you start with the headline of saying, 'Are there ways of making government work better?' The short answer is going to be yes.
[I think it's fair to ask] are there any sacred cows? I think it's good with these election cycles to say, 'Hey, put it on the table and let's talk about it,' so I'm not against that. But I think it's good for government and its policy to work through all the pros and cons of doing that.
AB: That applies to prudential regulation, but Elon Musk has also called for eliminating the Consumer Financial Protection Bureau. Is that more concerning to you, is that a different conversation?
Hsu: The CFPB is a good example where lots of consumers have been really protected by the agency under different administrations with different leadership, [and] that's a good thing. Now are there ways to do things better so consumers can be protected with, you know, more efficient and more streamlin[ing], there may be various arguments for that.
I don't put too much stock into the kind of the shock value headlines of getting these things discussed because, at the end of the day, that's not what is going to get things done. It may be worth triggering a conversation, but if people are serious about getting things done, you have to get into these details which are worth wrestling with.
AB: Just hours before our interview, fellow regulator Fed Vice Chair for Supervision Michael Barr said he would step down from his role as Vice Chair, while remaining on the Board of Governors. This comes after months of debate among legal experts over whether Trump could remove him from his supervisory office. Are you concerned with how the potential for political conflict could be putting political pressure on even historically independent regulators?
Hsu: I respect Michael Barr's decision and I've enjoyed working with him in his capacity as Vice Chair. He's been a really good collaboration partner, and that is very, very important. Just in general, if you want to be effective as a policy maker and as a regulator, you've got to be able to work well with others, and especially with other agencies, because as we opened up, there's a lot of agencies out there with different jurisdictions and authorities over the system.
Safety and soundness and fairness are not inherently political things. Our mission at the OCC is to ensure the safety, soundness and fairness of the federal banking system. I don't think that it's inherently a political job. It's mostly technical. It's technocratic. It's bureaucratic, in a good sense, in the sense that there's a lot of special knowledge and experience that is brought to bear to achieve those outcomes.
With regards to politics, that can change the priority and the lens with which you see those things. I think that's healthy — that's part of democracy, that's a feedback mechanism. Can you go too far, though? Yes, and I think it can get to a point where it's not healthy for the system and I'll just say that, as a general matter, I think it's good to kind of process these things before commenting any further on what was announced this morning.
AB: What are your proudest accomplishments from your time in this administration?
Hsu: When I took this position, we had done quite well coming out of COVID, the market was up. You could feel kind of animal spirits in the market and it just reminded me of some of the time period before 2008 [when] bankers and traders and others want to go on offense, which is okay if you have the controls in place. But I could feel — I could sense that folks wanted to go on offense without necessarily having the controls. So I really put out there, 'Hey, we need to guard against complacency,' meaning your risk management, your controls have to be in place.
You can do that if your risk management controls are in place. And we just beat that drum over and over and over again, to bankers, to examiners and others. And that served the OCC banks really, really well. In 2022 there was a wipeout in crypto: $2 trillion of value lost, lots of bankruptcies, FTX, that whole mess — and [yet], the banking system was fine. We didn't let the mess that was crypto infect the banking system, and that's because we maintained a steady hand on safety and soundness. We didn't get complacent. Then in 2023, rates rose really fast, you have the banking turmoil. None of the large bank failures were OCC banks, and I don't think that was by accident. I think that was really because we were very steady about safety and soundness, risk management, and didn't get complacent, so I feel good about that.
The other is on fairness, and elevating fairness. At the end of the day, a banking system that's safe and sound but not fair is not one that's trusted. So we did a lot to elevate fairness, the [Community Reinvestment Act], overdrafts, Project Reach, inclusion, financial health, vital signs — there's a bunch of things we put into motion and did which really kind of elevated fairness, which I think is good for communities, good for the banking system, good for the OCC.
AB: As we saw with the recent debacle at Synapse, consumers are not always able to understand the protections afforded to their money in an increasingly online and nontraditional financial environment. What could regulators do to help the average person better understand the difference between nonbanks and traditional banks?
Hsu: In the old days, all banking was done by banks, so the mental load for the average consumer was low. If it had 'bank' in the title, or if the service was banking, it was just a bank. You can't [assume] that today. Banking is executed by a bunch of nonbanks, as well as banks, often in partnership with banks, and it's confusing. Our focus has been to make sure that there's clear accountability between what the bank is responsible for and what the nonbank is responsible for, which you clearly did not have with Synapse.
One thing with the FDIC really spent [time on] — with my FDIC director hat on — was clarifying the use of the FDIC logo, because there are plenty of nonbanks, crypto firms in particular, who would just put that all over their websites and it was basically tricking people into thinking, 'Oh, everything here is FDIC-insured, I'm good to go,' which is not the case.
We revised that rule and then [we've] done some enforcement actions to make sure that that representation is really clear there's no confusion there — and it's really mostly with the deposit products. That's why we put out this RFI across the three agencies, and we broke it up — deposit arrangements, lending, payments — because deposits are different … than borrowing in terms of that FDIC logo. I think that having clarity and transparency with consumers is really important.
AB: There have been a number of open legal fights between regulators and banks this year, including bank industry groups' lawsuit over the revamped Community Reinvestment Act. Do you think the animosity between the industry and regulators has grown over time? Is there a way to foster more cooperation?
Hsu: From my perspective, in all cases, it's very important to maintain engagement. This can happen on both sides, where folks just refuse to talk, and I think that's when things can drift into a more antagonistic situation, so I constantly try to remind myself: talk to everybody.
These lawsuits introduce the courts into the equation. Normally it's just regulators and the regulated banks. If you think of a pendulum, it can swing back and forth between those two, I call that a two-body problem: it swings, but it's somewhat predictable. Once you throw courts into the mix, now you have a three-body problem, because you don't know how the courts are going to opine on a particular topic — not just in your favor or against your favor — [but] they have rulings, those rulings have the force of law and that can introduce new elements and it's unpredictable. I think over time, banks are not going to like that uncertainty that comes with that unpredictability because it's very hard to run a business if you don't know where the rules of the road are going to be, so this will be interesting to see how this plays out.
You've already heard some bank CEOs, some large bank CEOs, towards the end of last year on certain topics, like Basel and others, saying, 'Let's just make a decision so we can move on, rather than trying to litigate every single thing.' Because the lawyers like that. But the lawyers aren't running businesses and making loans and serving communities — they like to litigate.
AB: What measures could regulators take, without involving Congress, to address the speed of bank runs like those seen with SVB?
Hsu: This is one of the key things, what I would call unfinished pieces of business, that the regulars need to address. Across all of the agencies, we as supervisors addressed this shortly after the failure of SVB, meaning we identified which banks had liquidity risk to these kinds of runs, these really severe runs, they were vulnerable to it, and we made sure that they shored up and improved their liquidity positions so that they weren't as vulnerable to that.
The hard thing about that is that it's invisible to the public. How do we know that [our efforts are], A, consistently done across banks, and then B, how do we know that that's consistently done across time? I feel good about that now, but is that always going to be the case? Myself and Vice Chair Barr talked about how, really, we should do a rule. There should be a rule that takes what we've done on a supervisory basis and make that transparent, get public comment and get all the benefits of having a public rule right in terms of that liquidity, discount window readiness and dealing with discount window stigma. The banks have to be able to borrow from the discount window when they need to without it looking like a bailout. That remains to be done.
[We] started to work that out, but it'll be up to our successors to finalize it if they think that that's the right thing to do. I think it's the right thing to do, but that's something they're going to have to assess.
AB: I was curious what you think the role financial journalism plays in banking today? You've previously mentioned the media could play a role in sort of amplifying, or directing attention towards the discount window stigma and contributing to bank runs.
Hsu: It's an excellent question. Let me maybe start by saying the media can be extremely influential in good ways and in less-good ways, but in all cases, it's influential because folks in general need to process what's going on. In the old days, I think the traditional media was able to kind of gatekeep and curate and frame how things were processed for folks to interpret and now you've seen, over the past probably 10 years or so, a real fragmentation in the sources.
People can get their information from lots of places to varying degrees, but there's still this issue of trust: what do you trust? And I think that will never go away, people are always going to want to know: what information can I trust?
There's always going to be a role for trusted journalists, trusted commentators. I think who is trusted, that's starting to change. It's no longer necessarily like a banner press organization. It can be an individual, but that will always be there — like trust. Trust is hard to manufacture. You know, but speed is a thing now, and you can get these strange feedback loops. To me, one of the benefits of having a very lively, robust, dynamic financial press, is that very rarely is there a black and white right answer and wrong answer. So having a diverse group of folks out there reporting on things, providing different perspectives, that's really valuable, because it helps us — individually, and as a group — kind of process what the heck is going on and what to make of things. Because from that you decide, where do we go, and why do we want to go there?
But sometimes you get these feedback loops where you get these echo chambers and everyone's just yelling at each other, and that's dangerous. I think there's more recognition of that. It's partly generational, because my kids, they're pretty discerning in terms of how they consume different media, whereas my parents … less so. I think that there's a bit of an adjustment that's going on, which will be interesting. I think AI is going to complicate this a lot, and so you're in an interesting time.
AB: Are you optimistic or pessimistic about increasing influence of AI in banking?
Hsu: I'm an optimistic person who has healthy paranoia, so the short answer is, 'Yes, I'm actually quite optimistic about what AI can do.' I'm also really scared about what it can do, and I think that it deserves a lot of attention to make sure that we can manage the ill effects of it while harnessing some of the power of it, because it is quite powerful for anyone who's played around with it. And so there can be a lot of good that comes from it, but we've got to make sure that the bad doesn't overwhelm the good.
AB: What's next for you? Are you hiring, considering a private sector role, running for office, or do you see yourself staying in the regulatory space?
Hsu: I'm committed to serving the public. All I've been doing my whole professional life is doing something in the public interest. I don't think that will ever go away. The form in which that takes and what exactly I do, I haven't decided yet, so that's something that I'll be considering. But I know my overall interest in doing things that help the general public is not going to go away. I can't suppress that. That's something that'll drive me for forever.
AB: Before we end, favorite Led Zeppelin album?
Hsu: That would have to be
