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Blog Post | January 21, 2021

Michael Barr's Past And Present Raise Deep Concerns If Appointed

2020 Election/TransitionFintechTech
Michael Barr's Past And Present Raise Deep Concerns If Appointed

Recent reports indicate that Biden plans to tap Michael Barr as Brian Brooks’ replacement at the Office of the Comptroller of the Currency. However, Barr’s record in public service and his keen advocacy for fintech firms should provide enough reason to look in another direction. As deputy assistant secretary for financial institutions in the early days of the Obama administration, Barr wrote Tim Geithner’s initial blueprint for a bill responding to the financial crisis, which would have babied the big banks far more than the final bill ended up doing. Barr reportedly attempted to weaken the final bill, the Dodd-Frank Act, at every opportunity. He also publicly opposed tougher derivatives regulations (derivatives being the class of bank securities which caused festering risk across the global financial system) and tried to “water down provision like the Volcker rule, and add loopholes that would allow for future bailouts of financial institutions.”

Barr was also a key architect of the maligned Home Affordable Modification Program (HAMP), a foreclosure mitigation program which failed to meet any of its stated goals. Far from helping struggling mortgagees refinance their payments, HAMP ended up being used as part of a project to effectively transfer liability for the foreclosure crisis from the government and banks to homeowners — again, all as Barr’s mentor Geithner wanted, when he infamously declared a plan to “foam the runway” for immolating Wall Street banks. Sheila Bair, the former chair of the Federal Deposit Insurance Corporation, is particularly critical of Barr’s role in developing the failed policy, noting that he failed to incorporate substantive critiques from her team. 

If appointed to Biden’s OCC, Barr will confront one major new question for the primary federal regulator of banks: how to handle the emergent “fintech” industry of lending and payments apps. Disturbingly, Barr’s history advising and investing in the fintech industry suggests an approach similar to Trump’s own fintech-friendly stooge, former acting Comptroller Brian Brooks.

Brooks spent only eight months on the job before stepping down last week. However, the one- time chief legal officer of Coinbase pushed for a special-purpose national charter for fintech that would greatly limit states’ financial services regulatory scope. The move would have offered national charters to companies that provide payments services, and permitted these companies to operate across state borders with a single set of rules, disregarding states’ regulatory requirements. Not only would such a charter allow firms to freely expand, it would pave the path to further consolidation of financial services into a handful of Too Big To Fail institutions. This is mainly because fintech firms would be able to partner with national banks to enlarge their suite of services. 

Senators Sherrod Brown and Jeff Merkley opposed a similar plan when Thomas Curry tried to push for a charter in 2017 writing that “offering a new charter to non-bank companies seems at odds with the goals of financial stability, financial inclusion, consumer protection, and separation of banking and commerce that the OCC has upheld under your tenure.”

The special purpose charter represents just one of Brooks’ fintech-friendly policies. In his final month as acting comptroller, Brooks presented fintech firms with another gift, releasing an interpretive letter permitting banks to use blockchain technology, issue stablecoins and exchange stablecoins for fiat currency (stablecoins are less volatile cryptocurrencies pegged to other cryptocurrencies, fiat currency and/or a basket of assets). The interpretive letter 1174 states that “banks may use new technologies, including independent node verification networks (INVNs) and stablecoins, to perform bank-permissible functions, such as payment activities.” Fintech expert, Rohan Grey, was one of many to express discomfort with the measure, as it “outsources the actual stablecoin infrastructure to non-bank entities.”

Brooks’ tenure highlights the important role the comptroller of the currency would play in the management of payment services and the regulation of financial technology. Thus, Barr’s resume of being a close confidant of the fintech industry is a worrisome signal. He served as an advisor to two scandal ridden firms, Ripple and Lending Club and currently advises the Alliance for Innovative Regulation, a fintech-funded group trying to overhaul financial regulation. Most especially, AIR and other OCC-focused fintech trade groups hope to allow these firms to use surveillance technology as a replacement for important Know Your Customer regulations. Barr would be well-positioned to grant them permission to use facial recognition or other biometrics for regulatory compliance, opening unprecedented corporate tracking of financial activity alongside the usual selling of personal data for targeted advertising.

Barr joined Ripple Labs’ advisory board in 2015, citing the need for fresh innovation in the global payments system. The firm, which is currently facing an SEC lawsuit over failure to register its virtual currency, XRP, as a security, aims to become “the Amazon of payments” according to its CEO; a central for-profit clearinghouse for online payment transactions. He also advised LendingClub, one of the pioneering firms in the fintech arena. LendingClub holds the notorious distinction of actively forging legal loan documents to facilitate the sale of its loans to the investment bank, Jeffries. 

In more recent times, Barr has been affiliated with the Alliance for Innovative Regulation, where he sits on the advisory board. The fintechfunded group seeks to replace the currency financial regulation system with a new “digital-first alternative,” which is exactly as vague and techno-optimistic as you might think. This alternative includes providing regulators and bank compliance officers with the exact same regulatory technology, while limiting the amount of information industry shares with regulators. Likewise, the group has called for overhauling or gutting practically every part of the regulatory process which allows public input or transparency — things like the Freedom of Information Act, public commenting periods, and disclosure rules about non-governmental (read: industry) actors advising regulators. 

The group’s anti-regulatory stance also extends to their calls for weaker compliance requirements for Know Your Customer rules and more regulatory sandboxes to facilitate experimentation and testing of their proposed “regtech” system. Similar to how fintech evangelists claim their apps will magically solve issues within the global payments system, supporters of regtech are pushing the idea that new technology will enhance the regulatory process with scant evidence. According to AIR, the main problem with American financial regulation is a lack of information, not a lack of actual action.

As society continues to wisen up to the dangers of unchecked private technology and innovation, we need public servants that appreciate the importance of strong regulation that actually protects users and the public. Hence, Barr’s fondness for fintech and regtech should disqualify him from taking the helm of a bureau that is responsible for the regulation of firms and products in those arenas. President Biden should, however, move towards elevating the likes of Mehrsa Baradaran — people who are committed to fixing some of our greatest issues. Her work on postal banking and the racial wealth gap — an issue on which Biden has articulated great interest — clearly demonstrates her readiness to take up a role in the midst of the ongoing pandemic. 

2020 Election/TransitionFintechTech

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