OCC’s Hsu sees potential benefits, drawbacks in open banking

Open banking promises to give consumers more control over their financial data than ever before, but with that control comes heightened liquidity risk for banks and the potential for prejudiced results, Acting Comptroller of the Currency Michael Hsu said this week. Speaking at a financial summit in North Carolina, Hsu said the OCC’s mission is to ensure that federally chartered banks operate in a safe and sound manner and provide fair access to financial services. Open banking may affect how the agency approaches that mission, he said. Hsu also indicated the OCC may revisit guidance regarding banks’ obligations with respect to data aggregators—an issue that ABA has repeatedly flagged.

Hsu cited account portability as one example of potential risk in open banking, given that the technology makes it easy for customers to move savings and checking accounts from one bank to another. “The [liquidity coverage ratio]runoff rate for retail deposits is quite low—around 5%,” he said. “But with instant and seamless account portability, retail outflows in the future could be higher. Already, there is a sense that online and mobile banking may have facilitated unusually large and rapid outflows of wholesale deposits at Silicon Valley Bank and Signature Bank last month.” (Separately, the Consumer Financial Protection Bureau is drafting a proposed rule, which is expected to be released in the fall, that helps to quantify the level of risk associated with data access. ABA plans to scrutinize the language closely to ensure the scope has a legal basis in the statutory language of Dodd-Frank Act Section 1033.)

Hsu also said that while AI and machine learning are powerful tools for prediction, they could also lead to prejudicial outcomes. “If we become too starstruck with data and too wedded to statistical prediction, we risk locking people and communities in and overlooking their potential and the possibility of change and progress simply because of ‘what the data say,’” he said.