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    OCC Publishes Testimony of Deputy Comptroller on AI

    June 10, 2022

    The Office of the Comptroller of the Currency (OCC) published testimony of Kevin Greenfield, the Deputy Comptroller for Operational Risk Policy, on artificial intelligence. Also published were the views of Michael J. Hsu, the Acting Comptroller, on the importance of community development financial institutions and minority depository institutions, vulnerabilities associated with cryptocurrency framework and stablecoin volatility, with Mr. Hsu also noting the need to update the framework for analyzing bank merger applications.

    Testimony on artificial intelligence

    During a hearing before the House Financial Services Committee Task Force on Artificial Intelligence, the Deputy Comptroller discussed OCC’s approach to responsible innovation and its supervisory expectations for banks’ use of artificial intelligence, including regulatory compliance. Discussing ongoing efforts to update the agency’s technological framework, he said that OCC employs a number of analytical and technology tools to support bank supervision and work is underway to materially upgrade the core supervision systems to further enhance its ability to monitor risks in the banking system. He also specified that OCC is continuing to update supervisory guidance, examination programs, and examiner skills to respond to the growing use of artificial intelligence. OCC will continue to perform robust supervision of banks’ use of artificial intelligence to ensure banks operate in a safe and sound manner, comply with applicable laws, provide fair access to financial services, and treat their customers fairly. He urged banks to maintain a well-designed risk management and compliance management program as well as monitor and identify outcomes that create unwarranted risks or violate consumer protection laws. He emphasized that, if these outcomes occur, OCC has a range of tools available and will take supervisory or enforcement actions as appropriate, to achieve corrective actions and address potential adverse consumer impact.

    Remarks of the Acting Comptroller

    At the Bloomberg Risk & Regulation Week 2022, the Acting Comptroller Mr. Hsu encouraged banks to assess exposures and adjust risk profiles ahead of the potential uncertainty and volatility in interest rates and loan performance. Mr. Hsu also discussed risk mitigation for counterparty and sector concentrations, also offering thoughts on underwriting trends and developments in retail and commercial credit. Additionally, Mr. Hsu discussed vulnerabilities in the cryptocurrency framework and recent volatility with stablecoins at the DC Blockchain Summit 2022. He also discussed the fragmented ecosystem of cryptocurrency, risk of contagion, and the underdeveloped custody and ownership rights, noting that the recent events in crypto should serve as a wake-up call and an opportunity to reset and recalibrate the problems the industry is trying to solve. Until then, OCC will continue to take a careful and cautious approach to crypto to ensure that the national banking system is safe, sound, and fair. In his remarks, the Acting Comptroller  He also emphasized OCC's careful and cautious approach to cryptocurrency to ensure the safety and soundness of the federal banking system. Another issue noted by Mr. Hsu is the need to update the framework used to analyze bank merger applications before the Brookings Institution. Without enhancements, there is an increased risk of approving mergers that diminish competition, hurt communities, or present systemic risks.

    Turning to the Community Reinvestment Act (CRA), Mr. Hsu noted that the recently released joint Notice for Proposed Rulemaking to strengthen and modernize the CRA proposes to strengthen provisions to support activities undertaken in cooperation with the community development financial institutions and minority depository institutions. The proposed rule also provides incentives for banks to invest in and support such institutions. The rule proposes that lending, investment, and service activities by any bank undertaken in connection with such a community development institution, at the time of the activity, would be presumed to qualify for CRA credit, thus doing away with documentation requirements. In addition, such loans, investments, and services would be given positive consideration in the “impact review” of banks’ community development activities. The rule also proposes that investments, loan participations, and other ventures undertaken by any bank, including by minority depository institutions, in cooperation with other minority depository institutions will receive consideration. The agencies are also seeking feedback on whether activities undertaken by an minority depository institution itself to promote its own sustainability and profitability should qualify for consideration. As proposed rule notes, allowing these activities to qualify could encourage new investments to bolster the financial positions of minority depository institutions, allowing them to deploy additional resources to help meet the
    credit needs of their communities.

     

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    Keywords: Americas, US, Banking, Artificial Intelligence, Regtech, Fintech, Credit Risk, Stablecoins, Crypto-Assets, Community Reinvestment Act, Lending, Consumer Lending, OCC

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