YouSaid · the spoken record

Michael Hsu

lines on the record: 42
first: 2023-11-09
most recent: 2023-11-09
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Money 202 Michael Sue. Joe, do you regret knock? Tracy, you're so capable as a host. That is my conclusion. You're so capable as a host. You don't even need me. You flatter”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“And so we want to be really, really attentive to that. And look, if there's a way to do it that's going to be safe, sound, and fair without financial stability concerns, I'm open. Like, let's talk about that. But history has proven that that's tough to do. All right. Sue, thank you so much for coming on All, it's really appreciated. Thanks so much for having All right, well, that was Live conversation recorded at”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“A bigger and bigger question to deal with because payment by itself is commerce. When you start to put it next to things that are adjacent to payments, lending, credit, deposits, savings, et cetera, that's banking. And this is a very fluid, rarely does a payments company say we're just going to do payments, and that's all we're going to do forever. At some point, they say, hey, wouldn't it be great if we just did a little bit of paid a little bit of yield on this cash that's sitting with us? Wouldn't it be great if we did some lending? It's a slippery slope.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“But we have lots and lots of examples where we said, hey, wouldn't it be great if we took these things and you take the best of each and it's like the chocolate and the peanut butter and you put them together and we get something better and in almost every single case I can think of, it's ended quite badly. And there's two problems that are associated with that, which we really have to be careful of. One is there does become an unusually high concentration of power, market power, because they reinforce the banking and the commerce reinforce each other in a way that's quite unfair. And that can have a lot of negative impact. So that's one thing to be attentive to. And the other is the opportunities for problems go up because now how commerce goes impacts banking. And again, that's not a safety and sound, that's outside of the zone of how safety and sound supervision typically go. So that's why we've had this separation. I do think today, going forward, this is going to become...”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“So, this is probably you need an entire podcast to talk about this. It's a fascinating question. The history of the blending of banking and commerce is not a good one.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Pickle where you've got large banks that are neither resilient, resolvable, or manageable. That's not a place that we can afford to be.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, absolutely, it's on the table, and it's taking some time, but it's because we want and we need to put people, communities at the center of that analysis. You know, we've got statutory factors. We're kind of working through that. And there's a lot of detail around that. But as long as we have that long tail, and as long as the US economy keeps growing, the banking system has to grow with the U.S. economy. So if you were to just graph US GDP and the size of the banking system, they pretty much match on top of each other. So as long as the U.S. economy keeps growing and different parts of the economy grow, we want and need the banking system to grow with that. It's got to be safe, sound, and fair. And this is why I spend so much time on large banks, because there are going to be more and more complex large banks in the future. They need to be resilient. They need to be resolvable, and they need to be manageable. And so we spend a lot of time like, let's articulate that so we don't get back into the pre-2000.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Doesn't fit all. Like the large megabanks can't serve, don't want to serve all those different, I got in this debate yesterday with one of the participants about this long tail of cases in the US economy. We have a very long tail of different communities, whether they're geographic or otherwise. And I think those are opportunities for banking. So then the question is, like, what is the best way to meet and empower all of them? To me, that's the real central question of merger policy. How do we set up merger policy so that we're approving, we're considering mergers that empower those communities?”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Of what you want? I get this question a lot, and it's half a loaf of a question. And the reason I say that is because Just like you said, the instinct of folks who are contemplating this usually is to say there's too many banks, like 4,000 is too many, what's the right number, or to compare to other countries. And what it's missing is banks exist to serve people and communities and the economy. So what's missing from the question is, well, who are the people, communities, and the economy that we're trying to support? is very, very different in Canada We've got 330 million people. We've got a very diverse economy, lots of different communities. And so that argues that we need to have an equally diverse banking system. So it's almost like regulators, love to think in terms of ratios. So the question of like, what should the banking system look like is the numerator. The denominator is what the economy looks like. And as long as we have a really diverse economy, we need a really diverse banking system because once”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“And so we're right back to this picture of each slice is doing something slightly different. And in my experience, whatever that happens, unless there's a lot of clarity about who's bearing what responsibility, when bad things happen, everyone's pointing at each other. That's a mess, and we don't want that. And so it's really important for us as this ecosystem evolves that we've got an eye on that and we guide it towards things that are healthy because there is good innovation out there that can be paired, that can be incorporated into the banking system. But we want to make sure that we don't end up with this kind of patchworky, disintermediated, disaggregated mess.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes. It's so funny. And so they go to them. And again, I don't want to paint all of them with a broad, there is a spectrum on this, and some of it is done in a way that I think can be safe, sound, and fair. In others, we've seen that's not the case. And so in those instances, the bank has no idea who the real customer is. In the fintech, it is like, look, we don't do compliance, we don't do KYC, someone else should handle that.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“And they apply all the KYC and the compliance and all of the bells and whistles that they would provide to any other customer is applied to that customer. Very simple. Hard to scale, but relatively simple, straightforward. And then what's the rev split between those two? And they can negotiate that. At the other end of the spectrum, you've got banks who then, who do they deal with? This is too complicated. Just want to provide the banking as a service. But we want to do it at scale. And lo and behold, there are some companies out there. This is what they do. So often they're referred to as middleware. And they'll say, well, if you come to us, we have partnerships with lots of fintechs and they tell the fintechs, we have partnerships with lots of banks.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“But let's take a step back. Let's go back to banking as a service. With banking as a service, there's a spectrum. And at one end of the spectrum, you'll have what I think of as something that's relatively simple. You've got a fintech, you've got a really cool app targeted at a population that they're really familiar with. They know it's going to work. And you've got a bank who traditionally doesn't know how to engage, to acquire that customer. So they partner together and they said, let's go get that customer together. And the bank says, that customer is my customer as much as it is yours.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Similar thing. So I think that's a very, very valid question. And I know there are some both FinTech and bank analysts who have kind of looked into this, and they're raising very similar questions. Like, is there enough to go around to support such a complex ecosystem?”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“So it gets back to this idea I have, which I think others have talked about. It's like you've got the conservation of matter. Risk is neither created nor destroyed. It can transform and be chopped up and reallocated, but it all adds up to the same thing. And so now we fast forward to today. And this is what's happening with payments. And if you talk to the payments companies, they say, it doesn't make any sense to basically have a full system front to back on this. You want to slice it up because different companies do a different job on things where they're better at it. So it's a very similar logic to the capital markets intermediation. And again, each point makes sense when you do it one by one. When you zoom out, what does it look like? And what's the risk reward and who's bearing what risk?”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“And so you'd say that logic in and of itself on a microscale made sense. It's only when you zoomed out and you looked at the whole thing that you said does this hold? And I think the real insight from the Pozar ash craft work was all the Fed facilities matched up to each of those points. So it's almost like the discount window was recreated for what had been disintermediated. Which is quite intuitive, actually.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“And so Adam Ashcraft was a co-author on the shadow banking paper, which basically said what banks used to do as lenders has now been broken up into six pieces or multiple pieces. And each piece is being done by a different group. So origination. Remember New Century and option one. They would do originations from mortgages. Warehouse lending. Someone else would do warehouse lending. Distribution. Someone else would do. And you look at that and say, well, does that make sense? Well, there's like a specialty there. And maybe they're particularly good at that and there's economies of scale.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, a bunch of folks had this map hit. It was a gigantic map. And again, for the nerds on the podcast, it's basically tea accounts. Assets, liabilities, equity, but for different points of the system. And it did what any good financial follow the money. You just follow the money.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it's confusing, but there's a logic to it. And so the analogy I like to draw is if you go back to pre-2008, Capital to markets disintermediated banking. It was really the lending and the deposit take. Money funds took deposit taking and securitization took lending.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“And so then they go to the bank. So, in a sense, the bank is the provider. That's why it's banking as a service. The bank is providing that service, but the dependency is flipped around.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Things can break, and then the bank would say, Oh, that wasn't my fault, and they'll blame it on someone else. But at the end of the day, the bank itself is not going to be safe. We don't have a safe and sound system. So we want to make sure that that standard kind of carries through. It's almost like an extension of the bank, if you will. Okay, that's one-on-one. Now we fast forward to today. Now it's way more complicated because not only do you have lots of different kinds of vendors, like a lot of banks are now saying, hey, why stop with Cores? We can do this with a lot of, because our comparative advantage is different than a lot of the technology that's out there. There's a whole bunch of different use cases in terms of vendors. Now the tables are being turned. Now you've got some fintechs that are going to customers say, we will be the interface with you to take a deposit, make a loan, et cetera. But we need a bank to actually do that.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“But a bunch of others as well. And so the story I like to tell is way back in the beginning. Of banking was done by banks. And so you can imagine there's a box. And you can label that banks and banking ills the same box. They did everything by themselves. And then over time, they had to rely on others to do certain things. And probably the clearest example is with the core processors, a lot of banks rely on the core processors to do certain processing. Accounting, reconciliations, et cetera. And so that's now there's a dependency. And so as a regulator, you say, how do I ensure that everything that that bank does is safe, sound, and fair? Oh, I need to make sure that what they've done with that third party is up to snuff. If it's slipshot, if it's done sloppily.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the guidance is broader than just that You're onto something. So let me just zoom out for a second. That guidance is geared towards banks' relationships with any vendors. Any third parties.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly Exactly. And again, for the banking nerds and the payment nerds out there, this is exciting. Now, it's hard to tell this story to a retail because it's hard to see that difference. But those costs and those frictions add up, and there's quite a bit of time and effort that gets put into identifying, addressing, assessing, managing those risks and frictions. And so for the regulators and the central banks that have been kind of interested in this space, a lot of the more of the excitement going forward is really in this kind of tokenization space rather than in kind of the retail space, which I think has been colored by a lot of the crypto events.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“That's different. Because right now, when you again, we'll use the example when you buy a share of stock, you're sending a message to buy a share of Tesla or something. And then that message goes, and then a bunch of other things have to happen before that thing actually settles. Your money gets transferred, you get a share of stock, and that's held somewhere, and you have everyone's fully aware that that has happened. With tokenization, you actually collapse a lot of those steps into a single thing.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Right. And so the design of public blockchains was there were certain reasons for doing it. If you go back to the Satoshi Nakamoto white paper, That paper is pretty fascinating. It's a really interesting paper, and it makes the case for why you should do something that way. But to your point, Tracy, if the problem you're trying to solve is settlement frictions, you don't need that. And in fact, that probably just slows things down and gums things up. There are better ways to do that. Now, what's the innovation? That's your question. What's the innovation? It's basically taking messaging and settlement and combining it.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“And I think that's a very important distinction, right? I think there's been a little bit of a what's the best way to put it. It's almost like a Rawshaw test. You say blockchain, and some folks think, Oh, that's the next big thing, whether they understand it or not. Like, oh, it's super efficient and It's not super efficient or fast.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Tokenization is about solving a settlement problem. And this is really for your listeners. Now we're in the plumbing of the system. And for those who know, like when you buy a share of stock, there's all this stuff that happens in the background. It involves multiple players. There's different handoffs. There's risk that gets transformed in different ways. It's complicated. And it creates frictions and it creates costs. So, if there's a way to make that settlement process better, why not? And I think that's the promise of tokenization that some of those risks and frictions can be addressed by basically taking messaging and settlement and combining that.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“One of our favorites. And Hion is fantastic because he's got a very broad perspective across both monetary policy research, banking, and all things kind of crypto digital assets related, because at the BIS they've got the innovation hub, and there's a lot of intersection between his research and what they've been doing. In a word, there's been a growing divide between crypto and tokenization. In tokenization of real world assets and liabilities. Most crypto is not backed by anything, Bitcoin, Ether, et cetera. Or stablecoins. Tokenization is a different game. It's retail focused, and most of the interest in those coins is based on a hope for speculative gain.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“So the OCC is hosting a tokenization symposium on February 8th. Mark your calendars. Open to the public. Our keynote is going to be Hyon Song Shen from the BIS. I know you enjoy.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“But if a bank is going to do it, whatever it is, it's got to be safe, sound, and fair, and they have to prove that to us. We feel that that's very appropriate given what's taken place in the crypto space. Again, if you go back, I think the stats are about a billion dollars of fraud, $2 billion of scams, and $3 billion of hacks last year. That's a risky space. That's not to say everybody's bad, because that's not true. There are good players in that space, but it's a risky space. And so we expect banks to do that work. And I think most banks, either they're doing that work or they're decided it's just not really worth it.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“For making ambient noise during the podcast? The short answer is I think so. And that's in part because across all the federal banking agencies, we've been very clear and unified about how we feel and what our expectations are about banks engaging in risky activities such as crypto. We've listened those risks out. We've provided interagency guidance. Again, it's not to say that banks can't do it.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“What are the facts? Let's crack the thing open, try to understand as best we can. And the more we looked, the more worrying signs of like, hmm, this is not all that's cracked up to be, and especially with stablecoins, there was a big gap between the talk and the reality. And so that just sets a whole bunch of flags up. And so, yeah, you're trying to telegraph very clearly to banks, look, if you're going to get into crypto, it's got to be safe, sound, and fair. Do your homework. Make sure you have those controls in place. And so for the banks that were, you know, I call them cryptocurious, and there were a lot at the time. They lost interest because I think they recognize oh, that takes an awful lot of work. And then once the crypto winter happened, a lot of that, there was a big pullback from that.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“One for one. And so there's, you know, Jillian Tet got this great book, Fool's Gold. And I recommend it to everybody because chapter one innovation chapter two, perversion, chapter three, crisis. And so this cycle happens over the first innovations for credit default swaps were really, really good. They solved problems. It was amazing. It's great. And then people are just innovating for innovation's sake. And then you have the high priests. Who understands this? Oh, only the PhDs who understand nuclear physics can actually explain this stuff. That leads to it creates an environment where it can just kind of eat itself. And so I had a feeling within crypto maybe that's what's happening. And so, of course, I think we do what we do best in government. We dig in.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“So, if we back up a little bit. And just the rise of crypto. So I became acting comptroller in May of 2021. And that year alone, crypto was just on a that was a big year of growth for crypto in general and stablecoins. And so there's a lot of hype, a lot of FOMO, and it felt familiar to me.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“And all we do is supervision We are very supervisory focused agency. And so we've got a long deep history. And the stablecoin debates, this is less relevant now, but a lot of times folks are saying, well, why don't we want more, don't we want stable coins? And it's like the stablecoin landscape now looks a lot like free banking because each of these issuers is different. And they trade differently. I mean, if you go on to and you look these things up, and it's not a long-term sustainable system.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“And they create national banks to basically both issue those and then take deposits and basically buy treasury bonds Funds”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“And so it was a mess. And you imagine there's panics all the time, there's a lot of Money men, people would walk go around bags full of money from town to town to exchange these dollars because if you're a farmer, you want to be able to. Do your business. So during the Civil War, And Chase, like, hey, we got to fund the war. And we got to bring the union together. So they passed a series of laws. They've got now a greenback unified dollar.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“So you have the Bank of Tracy and you had the Bank of Mike and the Bank of Joe, and each bank would issue its own dollar. Different size, different color, but it would be a dollar. And so people were walking around with all these different notes. And in theory, they could go back to the Bank of Tracy and say, I want a dollar's worth of gold, species. And sometimes you had it and sometimes you didn't. And so there would be discount rates on these dollars.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“So there's a different kind of landscape, but we coordinate quite a bit at the federal level. All the major rulemakings because we want a level system. We want a level banking system. Now, I think what's really interesting about the OCC is historically. So we were founded in 1863 The Before the OCC, you had free bank And this is relevant for stablecoins That system”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“In the system So you'll get a little bit of that 80 20 rule for nationally chartered banks. Banks can have state charters and they can be members or not members of the Federal Reserve. So we have a complicated, actually your listeners might be interested in this, but maybe we'll spare them.”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source
“Coordinate a lot. Let me put it that way. So the OCC regulates and supervises nationally chartered banks and federal savings associations. So just to put some numbers on that, it's about 1,100 banks. Now, we've got over 4,000 banks in the banking system, but by assets, the largest banks tend to be nationally chartered. Your JP Morgan chases in your cities of the world. So by assets, the OCC supervises and regulates about two-thirds of the banking assets”
2023-11-09 · Odd Lots · The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now · IDENTIFIED FROM THE TRANSCRIPT · source