WEBVTT - The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now 0:00:10.760 --> 0:00:14.080 Hello, and welcome to another episode of the All Thoughts Podcast. 0:00:14.160 --> 0:00:17.200 I'm Tracy Alloway and I'm Joe. Why isn't thal so Joe. 0:00:17.200 --> 0:00:19.040 We've had a busy few months. 0:00:20.160 --> 0:00:22.960 Yeah, we really did. We were all over We crisscrossed 0:00:22.960 --> 0:00:26.920 the country. We did all three coast East Coast California, 0:00:27.640 --> 0:00:31.600 the third coast Texas. We went to California twice. Yep, 0:00:31.680 --> 0:00:34.360 in about three weeks, I think. But we have a 0:00:34.479 --> 0:00:35.319 nice little break now. 0:00:35.880 --> 0:00:39.800 Yes, I for one am grateful to not be living 0:00:39.800 --> 0:00:42.879 out of a suitcase for a while. But our last 0:00:43.400 --> 0:00:47.120 stop in the Whirlwind America tour was in Las Vegas. 0:00:47.360 --> 0:00:50.479 That was so fun. I loved going to Vegas. I 0:00:50.520 --> 0:00:52.760 really loved you. I love Vegas. It was so cool 0:00:52.800 --> 0:00:55.360 that I got the opportunity to join you in Las Vegas. 0:00:55.440 --> 0:00:58.440 Okay, listeners, this is where we're going to get into 0:00:58.440 --> 0:00:59.400 a little bit of an argument. 0:00:59.400 --> 0:01:01.360 But you're going to We're going to hear Odd Lot's 0:01:01.360 --> 0:01:03.040 co host air some dirty laundry. 0:01:03.160 --> 0:01:06.200 The day before, No, the day he was supposed to 0:01:06.319 --> 0:01:09.039 actually fly out to Las Vegas, Joe changed his mind. 0:01:10.160 --> 0:01:12.039 You decided Vegas isn't for. 0:01:12.040 --> 0:01:14.920 You, So, listeners, I love Vegas. It's one of my 0:01:14.959 --> 0:01:17.880 favorite cities in the country. I like playing poker, I 0:01:17.920 --> 0:01:19.800 love the strip, I love the lights, I love the 0:01:19.840 --> 0:01:23.160 water consumption in the desert. I was really excited. And 0:01:23.200 --> 0:01:25.120 then I got to the airport on this really. 0:01:25.040 --> 0:01:26.720 Nice He wasn't feeling it. 0:01:26.880 --> 0:01:29.000 No, it's not true. I got to the airport on 0:01:29.040 --> 0:01:33.280 this really nice fall day, and about thirty minutes after 0:01:33.280 --> 0:01:35.479 I got to the airport, my flight was pushed back 0:01:35.480 --> 0:01:38.200 about five hours. And I was only going to be 0:01:38.200 --> 0:01:42.120 in Vegas for twenty four hours as it was. And 0:01:42.400 --> 0:01:44.360 I wasn't even sure that the flight was going to 0:01:44.400 --> 0:01:45.920 take off when they said because actually who was the 0:01:45.959 --> 0:01:49.279 second delay at the time. And I did have family 0:01:49.280 --> 0:01:51.680 in town, which is also true, and Terracy was already 0:01:51.720 --> 0:01:55.240 out there, and Racy is a very capable co host, 0:01:55.320 --> 0:01:59.240 more than capable co host. Like a lot of excuse Joe, 0:01:59.360 --> 0:02:01.280 and I said, please, Tracy, can you just do this? 0:02:01.440 --> 0:02:02.920 Can you just do me a solid and do this 0:02:03.000 --> 0:02:06.840 episode by yourself and Tracy without any complaint or frustration. 0:02:06.920 --> 0:02:08.200 Well, at the time, I didn't complain. 0:02:08.320 --> 0:02:09.160 I complained when I came. 0:02:09.639 --> 0:02:12.560 No making me feel bad about myself obliged. 0:02:13.680 --> 0:02:17.120 Let me just say the world's smallest microscope would not 0:02:17.200 --> 0:02:20.720 be able to locate my sympathy for this argument. You 0:02:20.800 --> 0:02:24.720 know what, No, Okay, let's leave it there. I just 0:02:25.480 --> 0:02:29.200 never okay, listeners, let me say though, that you are 0:02:29.280 --> 0:02:31.959 in for a treat, as is Joe, because he wasn't there, 0:02:32.000 --> 0:02:33.679 so this is the first time he's going to hear 0:02:33.720 --> 0:02:38.000 this interview. But we spoke, or I spoke with Michael Sue, 0:02:38.120 --> 0:02:42.040 the Acting Comptroller of the Currency, and we had a 0:02:42.080 --> 0:02:46.000 really interesting conversation. This was a live episode recorded on 0:02:46.200 --> 0:02:49.720 stage at Money twenty twenty, which you might know as 0:02:49.800 --> 0:02:53.120 the big sort of fintech gathering, and we talked a 0:02:53.120 --> 0:02:57.480 lot about the intersection between banking and technology and Joe. 0:02:57.560 --> 0:03:00.720 Here's where it gets kind of odd, lotsy. Michael has 0:03:00.760 --> 0:03:03.440 been arguing for a while that a lot of what's 0:03:03.440 --> 0:03:07.000 happening in banking right now, and particularly in payments, kind 0:03:07.000 --> 0:03:09.280 of looks like a supply chain. So a lot of 0:03:09.320 --> 0:03:14.840 banks are outsourcing different functions like payments to third party vendors, 0:03:15.240 --> 0:03:19.480 and this presents a bunch of new and interesting problems 0:03:19.520 --> 0:03:21.560 and risks and I guess also opportunities. 0:03:21.720 --> 0:03:25.800 It's so interesting to think about finance in this realm, 0:03:25.880 --> 0:03:28.360 and you can imagine how these things go in cycles, 0:03:28.360 --> 0:03:31.000 because you could imagine at some point these functions were 0:03:31.120 --> 0:03:33.880 very simple. It was all in how it's vertically horizontally 0:03:33.919 --> 0:03:37.440 integrated and so forth. And then, like many other areas 0:03:37.480 --> 0:03:40.520 of the economy, companies realized, okay, wait, what if we 0:03:40.600 --> 0:03:44.200 have one specialty. Other companies then specialize in this specific thing. 0:03:44.680 --> 0:03:50.080 I remember we did that episode about community banks and 0:03:50.120 --> 0:03:51.960 how they had to outsource a lot of their own 0:03:52.000 --> 0:03:55.000 functions about cybersecurity and so forth because they don't have 0:03:55.040 --> 0:03:57.240 maybe the capacity of a JP Morgan. So it is 0:03:57.280 --> 0:03:59.600 interesting to think about, like the supply chain of money 0:03:59.640 --> 0:03:59.760 in that. 0:03:59.760 --> 0:04:02.680 Rest Well, this is exactly it. So in one respect, 0:04:02.760 --> 0:04:05.800 it's a sort of natural evolution of the economy. Everyone 0:04:05.880 --> 0:04:10.280 becomes more specialized, everyone becomes more efficient, the business model 0:04:10.320 --> 0:04:14.280 becomes more streamlined. But as Michael points out, there are 0:04:14.400 --> 0:04:18.000 these sort of new problems that are potentially thrown up 0:04:18.040 --> 0:04:23.479 by everyone outsourcing kind of critical functions in some respects. So, 0:04:24.279 --> 0:04:28.200 without further ado, take a listen to this live episode 0:04:28.240 --> 0:04:32.839 with Michael Sue recorded in Las Vegas, Sans Joe at 0:04:32.880 --> 0:04:36.800 Money twenty twenty. Michael Sue, acting Controller of the OCC. 0:04:37.000 --> 0:04:38.200 Thank you so much for coming on on. 0:04:38.320 --> 0:04:41.039 Lots, Tracy, thanks so much for having me. Love the 0:04:41.040 --> 0:04:42.400 show and it's through all honor to be here. 0:04:42.480 --> 0:04:44.760 Oh, I appreciate that. So I'm sort of in a 0:04:44.760 --> 0:04:48.039 reflective mood lately. And I used to be a banking correspondent. 0:04:48.080 --> 0:04:50.919 I covered a lot of fintech back when people were 0:04:51.400 --> 0:04:53.800 super excited about it. I feel like they're not as 0:04:53.800 --> 0:04:58.680 excited about it anymore. This is a really embarrassing. First question, 0:04:59.120 --> 0:05:02.200 what is the OCC do and like, how does it compare? 0:05:02.240 --> 0:05:04.799 I feel like there are so many different banking regularly. 0:05:04.839 --> 0:05:05.680 How much time do we have? 0:05:05.800 --> 0:05:08.400 Yeah, well, there's the FDIC, there's the FED, there's the OCC. 0:05:08.560 --> 0:05:11.080 Who's doing what? How often do you step on each 0:05:11.080 --> 0:05:11.680 other's toes? 0:05:13.400 --> 0:05:15.280 We coordinate a lot, let me put it that way. 0:05:15.440 --> 0:05:20.680 So the OCC regulates and supervises nationally chartered banks and 0:05:20.720 --> 0:05:24.039 federal savings associations. So, just to put some numbers on that, 0:05:24.080 --> 0:05:27.520 it's about eleven hundred banks. Wow, Okay, now we've got forty. 0:05:27.600 --> 0:05:29.640 We got over four thousand banks in the banking system, 0:05:30.040 --> 0:05:34.080 but by assets, the largest banks tend to be nationally chartered. 0:05:34.640 --> 0:05:36.799 You know your your JP Morgan chases and your cities 0:05:36.800 --> 0:05:40.520 in the world. So by assets, the occ supervises and 0:05:40.560 --> 0:05:43.320 regulates about two thirds of the banking assets. Oh, got 0:05:43.320 --> 0:05:45.640 it in the system, right, So you get a little 0:05:45.680 --> 0:05:49.000 bit of that eighty twenty year rule for nationally charter banks. 0:05:49.080 --> 0:05:51.799 Banks can have state charters, and they can be members 0:05:51.920 --> 0:05:53.280 or not members of the Federal Reserves. So we have 0:05:53.360 --> 0:05:56.479 a complicated Actually your listeners might be interested in this, 0:05:56.560 --> 0:05:58.680 but maybe we'll spare them for there. 0:05:58.720 --> 0:05:59.880 Our listeners love detail. 0:06:00.520 --> 0:06:05.360 So there's a different kind of landscape. But we coordinate 0:06:05.480 --> 0:06:08.279 quite a bit at the federal level on all the 0:06:08.320 --> 0:06:12.000 major rulemakings because we want a level system. We want 0:06:12.040 --> 0:06:14.599 a level banking system. Now, I think it was really 0:06:14.600 --> 0:06:17.719 interesting about the occ IS historically. So we were founded 0:06:17.720 --> 0:06:21.120 in eighteen sixty three during the Civil War. Wow, and 0:06:21.200 --> 0:06:24.560 before the OCC you had free banking. And this is 0:06:24.600 --> 0:06:27.880 relevant for stable coins because that system. But they all 0:06:27.920 --> 0:06:31.320 issued their own currency, yes, I remember this. So you 0:06:31.360 --> 0:06:33.000 had the Bank of Tracy, and you had the Bank 0:06:33.040 --> 0:06:35.680 of Mike and the Bank of Joe, and each bank 0:06:35.720 --> 0:06:39.240 would issue its own dollar, different size, different color, but 0:06:39.279 --> 0:06:41.760 it would be a dollar. And so people are walking 0:06:41.800 --> 0:06:45.200 around with all these different notes and in theory they 0:06:45.200 --> 0:06:46.840 could go back to the Bank of Tracy and say, 0:06:46.880 --> 0:06:50.039 I want a dollar's worth of gold right specie, And 0:06:50.080 --> 0:06:52.320 sometimes you had it and sometimes you didn't, and so 0:06:52.360 --> 0:06:55.640 there would be discount rates on these dollars, and so 0:06:55.800 --> 0:06:58.560 it was a mess. And you imagine like there's panics 0:06:58.600 --> 0:07:00.880 all the time. There's a lot of fraud, and there 0:07:00.880 --> 0:07:03.920 were money men. People would walk go around with bags 0:07:03.920 --> 0:07:06.800 full of money from town to town to exchange these 0:07:06.839 --> 0:07:08.720 dollars because you know, if you're a farmer, you want 0:07:08.760 --> 0:07:11.000 to be able to do your business. So during the 0:07:11.000 --> 0:07:14.160 Civil War, Sam and Chase is like, hey, we got 0:07:14.160 --> 0:07:16.120 to fund the war and we got to bring the 0:07:16.200 --> 0:07:18.560 union together. So they've got they passed a series of laws. 0:07:18.640 --> 0:07:21.320 They've got now a green back, unified dollar, and they 0:07:21.360 --> 0:07:25.600 create national banks to basically both issue those and then 0:07:25.680 --> 0:07:29.320 take deposits and basically buy treasury bonds which funds the war. 0:07:29.680 --> 0:07:30.240 That's crazy. 0:07:30.280 --> 0:07:33.280 So the occ was around even before the fest yes, 0:07:33.360 --> 0:07:33.880 way before. 0:07:34.040 --> 0:07:36.880 So you have one up on them so well, and. 0:07:36.920 --> 0:07:39.360 All we do is supervision. It's a we are a 0:07:39.440 --> 0:07:42.520 very supervisory focused agency. And so we've got a long 0:07:42.560 --> 0:07:46.040 deep history and you know, the stable coin debates. You know, 0:07:46.040 --> 0:07:48.880 this is less relevant now, but a lot of times 0:07:48.920 --> 0:07:50.920 folks were saying, well, why don't we want more? Don't 0:07:50.920 --> 0:07:53.360 we want stable coins? And it's like the stable coin 0:07:53.720 --> 0:07:56.960 landscape now looks a lot like free banking because each 0:07:57.000 --> 0:08:00.840 of these issuers is different and they try differently. I mean, 0:08:00.840 --> 0:08:02.400 if you go on the and you look these things 0:08:02.480 --> 0:08:05.920 up and it's not a long term sustainable system. 0:08:06.320 --> 0:08:10.120 Well, since we're on the topic of stable coins, as 0:08:10.160 --> 0:08:14.280 our Bloomberg opinion columnist Matt Levine says, often it does 0:08:14.320 --> 0:08:17.239 seem like a lot of crypto and maybe some aspects 0:08:17.240 --> 0:08:20.720 of fintech are learning the lessons of the financial system 0:08:20.800 --> 0:08:24.440 development sort of in real time. And on the topic 0:08:24.480 --> 0:08:26.600 of stable coins, you know, we did have a big 0:08:26.640 --> 0:08:27.960 collapse last. 0:08:27.800 --> 0:08:30.040 Year with Tara Luna. 0:08:30.440 --> 0:08:32.640 You at the OCC have always taken a sort of 0:08:32.679 --> 0:08:37.200 cautious approach to stable coins. What was it that kind 0:08:37.240 --> 0:08:40.400 of worried you about their development? What was it that 0:08:40.480 --> 0:08:43.440 you saw that made you think, wait a second? And 0:08:43.480 --> 0:08:46.720 in some respects it's kind of surprising because stable coins 0:08:46.720 --> 0:08:49.480 were supposed to be the safest aspect of the crypto 0:08:49.600 --> 0:08:52.240 system and then turned out to be very problematic. Although 0:08:52.480 --> 0:08:53.920 I guess you can say that about a lot of 0:08:53.960 --> 0:08:57.600 financial history. The safest assets often turn out to be 0:08:57.920 --> 0:09:00.680 the problematic ones. But yes, what was it that made 0:09:00.679 --> 0:09:01.920 you take that cautious approach? 0:09:02.240 --> 0:09:05.440 So if we back up a little bit and you know, 0:09:05.679 --> 0:09:09.719 just the rise of crypto. So I became Acting Comptroller 0:09:09.760 --> 0:09:12.800 in May of twenty twenty one, and that year alone, 0:09:12.880 --> 0:09:14.640 crypto was just on a. 0:09:14.760 --> 0:09:16.280 That was a big that was a big year of 0:09:16.320 --> 0:09:16.839 growth for. 0:09:16.800 --> 0:09:19.800 Crypto in general and stable coins, and so there's a 0:09:19.800 --> 0:09:23.000 lot of hype, a lot of fomo, and it felt 0:09:23.000 --> 0:09:26.599 familiar to me because it felt a lot like derivatives 0:09:26.920 --> 0:09:29.600 and structured finance circa two thousand and four to two 0:09:29.640 --> 0:09:30.080 thousand and six. 0:09:30.280 --> 0:09:32.280 Right, you pool all this stuff and then you trade 0:09:32.320 --> 0:09:33.440 it as well, one for one. 0:09:33.559 --> 0:09:36.160 And so there's Julian Ted got this great book, Fools Gold, 0:09:36.600 --> 0:09:40.840 and I recommend it to everybody because chapter one innovation, 0:09:41.559 --> 0:09:45.960 Chapter two, perversion, Chapter three crisis, and so this cycle 0:09:46.000 --> 0:09:49.080 happens over. The first innovations for credit to fault swaps 0:09:49.120 --> 0:09:52.880 were really really good. They solved problems, it was amazing, 0:09:52.960 --> 0:09:56.560 it's great, and then people are just innovating for innovation's sake, 0:09:56.920 --> 0:09:59.400 and then you have the high priests who understands this. Oh, 0:09:59.480 --> 0:10:02.319 only the p HD with you know, who understand you know, 0:10:02.400 --> 0:10:05.880 nuclear physics can actually explain the stuff, and that leads 0:10:05.880 --> 0:10:09.120 to it creates an environment where it can just kind 0:10:09.160 --> 0:10:12.240 of eat itself. And so I had a feeling within 0:10:12.320 --> 0:10:14.800 crypto maybe that's what's happening. And so of course I 0:10:14.800 --> 0:10:16.559 think we do what we do best in government. We 0:10:16.640 --> 0:10:19.960 dig in, what are the facts, let's like crack the 0:10:20.000 --> 0:10:21.840 thing open and try to understand this best we can. 0:10:21.920 --> 0:10:26.280 And the more we looked, the more worrying signs of like, hmm, 0:10:26.440 --> 0:10:28.920 this is not all it's cracked up to be. And 0:10:29.040 --> 0:10:32.760 especially with stable coins, there was a big gap between 0:10:33.440 --> 0:10:36.040 the talk and the reality, and so that just sets 0:10:36.040 --> 0:10:38.679 a whole bunch of flags up. And so, yeah, you're 0:10:38.679 --> 0:10:41.000 trying to telegraph very clearly to banks like, look, if 0:10:41.040 --> 0:10:43.040 you're going to get into crypto, it's got to be safe, 0:10:43.080 --> 0:10:46.280 sound and fair. Do your homework, you know, make sure 0:10:46.280 --> 0:10:48.040 you have those controls in place. And so for the 0:10:48.080 --> 0:10:50.280 banks that were, you know, like I call them crypto curious, 0:10:50.320 --> 0:10:53.079 and there were a lot at the time, they lost 0:10:53.120 --> 0:10:55.600 interest because I think they recognized, oh that that takes 0:10:55.640 --> 0:10:57.800 an awful lot of work, and then once the crypto 0:10:57.840 --> 0:10:59.679 winter happened, you know, a lot of that, there was 0:10:59.720 --> 0:11:00.360 a big pull. 0:11:00.240 --> 0:11:02.920 Back from that, right Well, the one other thing I 0:11:02.920 --> 0:11:06.520 want to ask is stable coins aside. You know, we 0:11:06.559 --> 0:11:10.400 did see a little bit of contagion from the crypto 0:11:10.440 --> 0:11:14.200 turmoil of twenty twenty two into the banking system. So 0:11:14.280 --> 0:11:18.080 notably we saw Silvergate collapse, and I guess we can 0:11:18.120 --> 0:11:20.160 debate how much of that was due to pure crypto 0:11:20.320 --> 0:11:23.280 or other dynamics with deposit outflows and things like that. 0:11:23.720 --> 0:11:26.280 But does it feel to you looking at the US 0:11:26.280 --> 0:11:29.360 banking landscape now in twenty twenty three, that there's enough 0:11:29.520 --> 0:11:33.920 of a barrier between regulated banks and crypto, there's enough 0:11:33.960 --> 0:11:35.839 of a sort of insulation there. 0:11:35.960 --> 0:11:37.880 So I'm going to knock on I'm not sure if 0:11:37.880 --> 0:11:39.480 this would I'm want to knock on it. 0:11:39.679 --> 0:11:42.760 Our producer Carmen's going to kill you for making ambient 0:11:42.840 --> 0:11:44.160 noise during the podcast. 0:11:44.840 --> 0:11:47.840 The short answer is, I think so. And that's in 0:11:47.920 --> 0:11:51.600 part because across all the federal banking agencies, we've been 0:11:51.720 --> 0:11:54.880 very clear and unified about how we feel and what 0:11:54.920 --> 0:11:59.160 our expectations are about banks engaging in risky activities such 0:11:59.160 --> 0:12:03.679 as crypto those risks out, you provide an interagency guidance. Again, 0:12:03.720 --> 0:12:06.200 it's not to say that banks can't do it, but 0:12:06.320 --> 0:12:08.520 if a bank is going to do it, whatever it is, 0:12:09.160 --> 0:12:11.679 it's got to be safe, sound, and fair, and they 0:12:11.679 --> 0:12:13.800 have to prove that to us. We feel that that's 0:12:13.920 --> 0:12:17.960 very appropriate given what's taking place in the crypto space. Again, 0:12:18.040 --> 0:12:20.360 if you go back, I think the stats are about 0:12:20.400 --> 0:12:22.880 a billion dollars of fraud, two billion dollars of scams, 0:12:22.880 --> 0:12:25.120 and three billion dollars of hacks last year. Like that's 0:12:25.600 --> 0:12:28.360 that's a risky space. That's not to say everybody's bad, 0:12:28.840 --> 0:12:31.160 because that's not true. There are good players in that space, 0:12:31.200 --> 0:12:33.720 but it's a risky space, and so we expect banks 0:12:33.760 --> 0:12:37.200 to do that work. And I think most banks either 0:12:37.200 --> 0:12:40.760 they're doing that work or they're decided it's just not 0:12:40.840 --> 0:12:41.439 really worth it. 0:12:42.080 --> 0:12:44.839 So crypto is by no means a monolith. 0:12:44.960 --> 0:12:47.720 And even though you've taken a cautious approach to stable coins, 0:12:48.240 --> 0:12:50.160 I get the sense that you're a little bit more 0:12:50.200 --> 0:12:55.040 interested in another aspect of crypto, tokenization. You're holding a 0:12:55.040 --> 0:12:58.800 big tokenization conference, right, what's the draw there? 0:12:59.640 --> 0:13:03.760 So is hosting a tokenization symposium on February eighth, Market 0:13:03.840 --> 0:13:07.079 calendars open to the public. Our keynote is going to 0:13:07.160 --> 0:13:09.800 be Hyon Sugtion from the BIS. I know you enjoyed 0:13:10.920 --> 0:13:15.240 one of our favorites. Yeah, and and Hun is fantastic 0:13:15.320 --> 0:13:21.079 because he's got a very broad perspective across both monetary policy, research, banking, 0:13:21.559 --> 0:13:25.160 and all things kind of crypto digital assets related. Because 0:13:25.160 --> 0:13:27.400 that the BIS, I've got the innovation hub, and there's 0:13:27.400 --> 0:13:29.720 a lot of intersection between you know, his research and 0:13:29.720 --> 0:13:32.319 what they've been doing. In a word, there's been a 0:13:32.400 --> 0:13:37.200 growing divide between crypto and tokenization and tokenization of real 0:13:37.240 --> 0:13:41.400 world assets and liabilities. Most crypto is not backed by 0:13:41.440 --> 0:13:44.960 anything bitcoin, ether, et cetera, or if yes or stable coins. 0:13:45.240 --> 0:13:48.800 Tokenization is a different game, you know crypto's it's retail 0:13:48.840 --> 0:13:52.480 focused and most of the interest in those coins is 0:13:52.640 --> 0:13:56.920 based on hope for speculative gain. Tokenization is about solving 0:13:57.120 --> 0:14:01.400 a settlement problem. And this is real for your listeners. 0:14:02.040 --> 0:14:05.400 Now we're in the plumbing of the system and for 0:14:05.400 --> 0:14:07.360 those who know, like when you buy a share of stock, 0:14:07.920 --> 0:14:10.120 there's all this stuff that happens in the background. It 0:14:10.160 --> 0:14:13.680 involves multiple players, there's different handoffs, there's risk that gets 0:14:13.760 --> 0:14:18.840 transformed into different ways. It's complicated, and it's it creates frictions, 0:14:18.840 --> 0:14:21.360 and it creates costs. So if there's a way to 0:14:22.040 --> 0:14:26.400 make that settlement process better, why not. And I think 0:14:26.400 --> 0:14:29.360 that's the that's the promise of tokenization, is that some 0:14:29.400 --> 0:14:31.840 of those risks and frictions can be addressed by basically 0:14:31.880 --> 0:14:33.800 taking messaging and settlement and combining that. 0:14:35.800 --> 0:14:37.680 And can you explain that a little bit further Because 0:14:37.720 --> 0:14:40.520 when I think I think tokenization, I think, like, I 0:14:40.600 --> 0:14:45.480 presume these are centralized databases, and then I think, well, 0:14:45.600 --> 0:14:50.320 what's the difference between a tokenized central database versus an 0:14:50.320 --> 0:14:54.960 Excel spreadsheet? Right that's password protected? Yes, Like what is 0:14:55.000 --> 0:14:56.400 the innovation here? Right? 0:14:56.640 --> 0:15:00.040 So this is a very important point blockchain. I I 0:15:00.040 --> 0:15:00.520 didn't say. 0:15:00.440 --> 0:15:02.640 Blockchain, No you didn't, okay, And I think that's a. 0:15:02.680 --> 0:15:04.920 Very important distinction, right. I think there's been a little 0:15:04.920 --> 0:15:07.160 bit of a how should I what's the best way 0:15:07.200 --> 0:15:08.800 to put it? It's almost like a raw shot test, 0:15:09.520 --> 0:15:12.160 you know, you say blockchain, and some folks that, oh, 0:15:12.400 --> 0:15:15.680 that's the next big thing, whether they understand it or not, like, oh, 0:15:15.680 --> 0:15:18.960 it's super efficient and fast. It's not super efficient or fast. 0:15:18.960 --> 0:15:21.080 I mean, I remember that the years when we were 0:15:21.080 --> 0:15:24.480 going to put everything on the blockchain, like groceries or 0:15:24.640 --> 0:15:27.760 like balsamic vinegar was going to be traceable on the 0:15:27.800 --> 0:15:30.680 blockchain to make sure it came from a specific region 0:15:30.720 --> 0:15:31.680 and things like that. 0:15:31.560 --> 0:15:35.280 Right, and so the design of public blockchains was there 0:15:35.280 --> 0:15:38.240 were certain reasons for doing it. If you go back 0:15:38.240 --> 0:15:42.880 to the the Satoshi Nakamoto white paper, that paper is 0:15:42.920 --> 0:15:45.560 pretty fascinating and it's a really interesting paper, and it 0:15:45.600 --> 0:15:47.600 makes the case for why you should do something that way. 0:15:48.520 --> 0:15:51.680 But to your point, Tracy, if the problem you're trying 0:15:51.720 --> 0:15:55.760 to solve is settlement frictions, you don't need that, and 0:15:55.840 --> 0:15:59.000 in fact, that probably just slows things down and gums 0:15:59.000 --> 0:16:01.520 things up. They're better to do that. Now, what's the 0:16:01.600 --> 0:16:04.200 what's the innovation? That's your question. What's the innovation? It's 0:16:04.560 --> 0:16:08.680 basically taking messaging and settlement and combining it. That's different 0:16:08.720 --> 0:16:10.920 because right now, when you again we'll use the example, 0:16:10.920 --> 0:16:13.840 when you buy a share of stock, you're sending a 0:16:13.880 --> 0:16:17.480 message to buy, you know, a share of Tesla or something, 0:16:18.160 --> 0:16:19.880 and then that message goes and then a bunch of 0:16:20.000 --> 0:16:23.080 other things have to happen before that thing actually settles. 0:16:23.160 --> 0:16:25.000 Your money gets transferred, you get a share of stock, 0:16:25.080 --> 0:16:28.360 and that's held somewhere, and you have everyone's fully aware 0:16:28.400 --> 0:16:32.400 that that has happened. With tokenization, you actually collapse a 0:16:32.400 --> 0:16:34.560 lot of those steps into into a single thing. 0:16:34.680 --> 0:16:37.720 Oh, I see, So multiple processes can exist as sort 0:16:37.760 --> 0:16:40.000 of like one thing exactly that can then move through 0:16:40.040 --> 0:16:41.800 the system and be verified exactly. 0:16:41.960 --> 0:16:44.200 And you know, for again, for the for the for 0:16:44.240 --> 0:16:46.760 the banking nerds and the payment nerds out there, this 0:16:46.920 --> 0:16:50.760 is exciting. Now it's hard to tell this story to 0:16:50.840 --> 0:16:54.720 a retail because it's hard to see that difference. But 0:16:54.760 --> 0:16:57.040 those costs and those frictions add up, and there's quite 0:16:57.040 --> 0:17:02.200 a bit of time and effort that gets put into identifying, addressing, assessing, 0:17:02.600 --> 0:17:05.679 managing those risks and frictions. And so you know that 0:17:06.880 --> 0:17:10.119 in the for the regulators in the central banks that 0:17:10.160 --> 0:17:13.160 had been kind of interested in this space, a lot 0:17:13.200 --> 0:17:17.679 of the the more of the excitement going forward is 0:17:17.720 --> 0:17:20.080 really in this kind of tokenization space rather than in 0:17:20.160 --> 0:17:23.480 kind of the retail space, which I think is been 0:17:23.520 --> 0:17:25.720 colored by a lot of the recent of vicaild accent. 0:17:40.720 --> 0:17:44.239 Well, since we're on the topic of financial innovation and 0:17:44.359 --> 0:17:47.119 we are essentially at a fintech conference. We're at Money 0:17:47.119 --> 0:17:50.439 twenty twenty. I want to ask you about a recent 0:17:50.680 --> 0:17:54.320 publication from the OCC. It's the inter Agency has a 0:17:54.400 --> 0:17:59.520 very catchy name, the inter Agency Kidance on Third Party Relationships. 0:18:00.240 --> 0:18:02.800 Is that just basically a way of saying that you're 0:18:02.840 --> 0:18:05.600 worried about fintech partnerships with the banks. 0:18:06.160 --> 0:18:09.000 So the guidance is broader than just that, but you're 0:18:09.040 --> 0:18:10.800 onto something. So let me let me just zoom out 0:18:10.800 --> 0:18:15.160 for a second. That guidance is geared towards banks relationships 0:18:15.200 --> 0:18:17.600 with any vendors, any third parties. 0:18:17.680 --> 0:18:19.399 Okay, so payments as well and things like. 0:18:19.400 --> 0:18:21.720 That, but a bunch of others as well. And so 0:18:21.800 --> 0:18:23.840 you know, the story I like to tell is your 0:18:23.840 --> 0:18:27.240 way back in the beginning, all of banking was done 0:18:27.280 --> 0:18:29.480 by banks, and so you can imagine like there's like 0:18:29.480 --> 0:18:32.040 a box and you can label that banks and banking 0:18:32.080 --> 0:18:34.800 ills the same box. They did everything by themselves, and 0:18:34.840 --> 0:18:37.720 then over time they had to rely on others to 0:18:37.760 --> 0:18:40.720 do certain things. And you know, probably the clearest example 0:18:40.840 --> 0:18:42.840 is like with the core processors. A lot of banks 0:18:42.880 --> 0:18:46.440 rely on the core processors to do certain processing accounting, 0:18:46.520 --> 0:18:50.120 you know, reconciliations, et cetera. And so that's now there's 0:18:50.160 --> 0:18:53.440 a dependency. And so as a regulator, you say, how 0:18:53.480 --> 0:18:57.520 do I ensure that everything that that bank does is safe, 0:18:57.560 --> 0:18:59.840 sound and fair. Oh, I need to make sure that 0:19:00.000 --> 0:19:03.360 what they've done with that third party is up to snuff. Right, 0:19:03.400 --> 0:19:06.760 If it's slipshot, if it's done sloppily, things can break 0:19:06.800 --> 0:19:08.600 and then the bank will say, oh, that wasn't my fault, 0:19:08.880 --> 0:19:10.159 and they'll blame it on someone else. But at the 0:19:10.240 --> 0:19:11.879 end of the day, the bank itself is not going 0:19:11.960 --> 0:19:14.359 to be safe. We don't have a safe and sound system. 0:19:14.400 --> 0:19:16.840 So we want to make sure that that standard kind 0:19:16.840 --> 0:19:18.920 of carries through. It's almost like an extension of the bank, 0:19:18.960 --> 0:19:21.840 if you will. Okay, that's one on one. Now we 0:19:21.920 --> 0:19:26.040 fast forward to today. Now it's way more complicated because 0:19:26.160 --> 0:19:28.359 not only do you have lots of different kinds of vendors, 0:19:28.359 --> 0:19:30.960 Like a lot of banks are now saying, hey, why 0:19:30.960 --> 0:19:32.840 stop with cores. We can do this with a lot 0:19:32.880 --> 0:19:36.280 of because our comparative vantage is different than a lot 0:19:36.280 --> 0:19:38.280 of the technology that's out there. There's a whole bunch 0:19:38.280 --> 0:19:41.320 of different use cases in terms of vendors. Now the 0:19:41.320 --> 0:19:43.520 tables are being turned. Now you've got some FinTechs that 0:19:43.520 --> 0:19:46.320 are going to customers say we will be the interface 0:19:46.359 --> 0:19:48.680 with you to take a deposit and make a loan, 0:19:48.680 --> 0:19:51.600 et cetera. But we need a bank to actually do that, 0:19:52.680 --> 0:19:54.439 and so then they go to the bank. So in 0:19:54.440 --> 0:19:57.240 the sense the bank is the is the provider. That's 0:19:57.240 --> 0:20:01.640 why it's banking as a service, the bank providing that service. 0:20:02.320 --> 0:20:04.040 But the dependency is flipped around. 0:20:04.200 --> 0:20:06.560 Yeah, it's almost like, you know, we used to talk 0:20:06.600 --> 0:20:10.600 about the disintermediation of banks, and someone brought this up 0:20:10.600 --> 0:20:13.760 in our discord recently. Apparently I wrote an article which 0:20:13.760 --> 0:20:17.199 I'd forgotten, but all the time, Yeah, when there was 0:20:17.200 --> 0:20:20.960 all that excitement about peer to peer lending or direct lending. Yeah, 0:20:21.080 --> 0:20:24.680 Wells Fargo apparently like put out a notice to its 0:20:24.680 --> 0:20:27.960 employees saying, please do not invest in peer to peer 0:20:28.000 --> 0:20:30.639 lending because they're a direct competitor to us. Right, the 0:20:30.680 --> 0:20:33.200