Michael J. Hsu | Trust, Hope, and the Financial System

Jen Tescher:
Welcome to Emerge Everywhere. I’m Jennifer Tescher, journalist turned financial health champion. As founder and CEO of The Financial Health Network, I’ve spent my career connecting forward-thinking leaders to the growing FinHealth movement. Now I’m sharing these conversations with you. Discover how these visionaries are challenging the status quo and improving financial health for their customers, employees, and communities. 

You’ll be hard-pressed to find a more engaging and down-to-earth financial regulator than Michael Hsu. He has spent his life in public service, largely focused on the health and stability of the financial system. Now, as Acting Comptroller of the Currency, he’s increasing the focus on the financial health of consumers. 

Welcome to Emerge Everywhere, Acting Comptroller, Hsu.

Michael Hsu:
Thanks so much for having me on.

Jen Tescher:
For this conversation. Is it okay if I call you Mike?

Michael Hsu:
Yes.

Jen Tescher:
Okay, excellent. So you became the Acting Comptroller of the Currency in 2021? For those of you who may not be familiar, tell us what does your job entail? This role is kind of an old-fashioned, at least in title, an old-fashioned name, Comptroller of the Currency. Tell us more.

Michael Hsu:
The OCC, Office of the Comptroller of the Currency, was founded in 1863. There’s a great history around it, we don’t have to get into it today. But the OCC oversees and supervises national banks and federal savings associations. And there’s over a thousand of them, and with about $14 trillion in assets, it’s almost two-thirds of the banking assets in the commercial banking system. We regulate and oversee those banks, so it’s a big job, and it’s about 3,500 employees. It’s a great place to work, it’s fantastic, but we’re really laser-focused on safety and soundness and ensuring that customers are treated fairly and have fair access to financial services.

Jen Tescher:
Excellent. You’re using language there that makes us sound a little bit like the UK, that fairness language. I like that.

Michael Hsu:
Oh, yeah. Of course, that’s part of our mission.

Jen Tescher:
Excellent, excellent. Well, it has been a very busy year for you. No shortage of timely issues that you’ve been asked to weigh in on, everything from cryptocurrency to the modernization of The Community Reinvestment Act or CRA, the growing interest among Fintechs, and getting bank charters, and there are many others. But when I sort of look at your speeches, and your policymaking, and the conversations we’ve had, it feels like if I had to sum up where you’re focused, it’s on reinvigorating trust in banks, in these major institutions. From where you sit, how do you think we got to such a place of distrust? And why is building trust, or building it back, so important right now?

Michael Hsu:
Money and banking all rest on trust. The entire system rests on trust. If you think about it for a second, why do we accept dollar bills? Why do we allow institutions to hold all of the money that we earn when we work? It’s because we’ve built the system that really enables that trust. And when you have that trust, a lot of good things can happen. I’ve been doing some form of financial regulation for 20 years now, including over the 2008 global financial crisis. That was one period where clearly there was just a huge loss of trust, and that trust was lost pretty much across the board. I just remember not only working through that, but going to parties with my friends, and everyone just asking me, “How come no one’s in jail? What happened? Is my money safe?”

There are all these questions, and a lot of anxiety, in a lot of sense that there was extreme unfairness in what happened. And coming on the back end of that, I had been at the SCC, I went to treasury, I went to IMF, just, I had been working a lot on restoring, and rebuilding capital, and the resiliency of the banking system with the idea of rebuilding that trust. And it’s really, really hard. Your trust takes a long time to earn and can be lost in seconds. That was in the large bank wholesale space, and then you pivot to the consumer retail space. And that’s a much longer story. I think if you go back to, like you mentioned CRA, for a long time, the banking system redlined, very actively redlined. It was basically serving certain people and explicitly excluding other people.

And that was a policy, and it really took the CRA, the civil rights movement, the CRA equal credit, and other legislation, to address that and say, “No, that’s wrong. The banking system needs to serve everybody, because that’s both as a policy matter is good, and as a moral matter is good.” And that, again, speaks to trust. Do we trust that the system is working for us, not against us? And I think that, us, needs to include everybody. So all of these elements to me tie together, and we have to constantly have to say, “We.” Both, we, as banking regulators who oversee banks, and banks, the industry, constantly need to say, “Is what we’re doing building trust or eroding trust?” Because it’s going to be one or the other.

Jen Tescher:
I wonder, how much this issue of trust is in this moment in particular, is unique to the banking industry versus institutions in general? I don’t know if you’re a consumer of the Edelman Trust Barometer, but as you know, trust is eroding across all institutions, government in particular. Even over the years, financial services has always been relatively low compared to other sectors. How much of what you see in the banking world do you think is part of this broader trend around just lack of trust in institutions at large?

Michael Hsu:
I think it’s definitely part of the same trend. I do remember coming across that elements study, and there’s a lot of studies like it. You can see it in not just the studies, I think in people’s everyday political lives. I think the amount of trust between neighbors, between communities, it’s freight in a lot of places, it’s not just in banking. Luckily, everyone can learn from these things. I think there is a recognition that you have to constantly work at this.

So it’s not good enough to just do a good job and assume that, “Well, I did a good job. Therefore, people should trust me.” That’s necessary but not sufficient. I think it takes a lot of constant attention. What do people need? What are their wants? What are their needs? What are their anxieties? And just responding to that. Again, letting folks know that you have their back, and that’s a very different mentality than just, “I’m providing this. It’s just transactional.” And that goes for government, it goes for banks, it goes for institutions of all kinds. I think you can be generalized, but I want to be careful, I stay within my purview here in terms of talking about banking.

Jen Tescher:
Yeah. Well, that’s a great segue to talking about financial health because you and I have had a number of conversations over the last six months or so. About how financial health can be a useful framework within the context of banking supervision, banking regulation, and really in the way in which banks operate in order to maintain and build that trust.

Michael Hsu:
That’s right.

Jen Tescher:
Thinking about not just providing a product or a service and hoping the consumer does okay with it. But really thinking about their goal, the institution’s goal is making money in a way that’s helping people improve their standing. Specifically, in one of your speeches, you mentioned that you thought policymakers, and businesses issues, “consider using financial health as an additional yardstick by which to assess banking, access, products, and services.” So in an ideal world, what would that look like? And why do you think this is a better way to operate?

Michael Hsu:
Jen, I have to give you full credit for planting a bunch of seeds with me on this topic. And I just want to tell your listeners, because of my role at the OCC, I’m also a director on the board of the FDIC. The FDIC has a bunch of different advisory committees, and one of them is the committee on financial inclusion, which you’re also on. And I just remember being in that meeting, I forget when it was, but it’s a really very engaging meeting, just talking with all the different perspectives and representatives. And without portraying confidence, as you had mentioned that the number of unbanked people… Because the FDIC has the unbanked, and underbanked study. The number of unbanked people in the U.S. will continue to trend outwards, which is good. But does that mean we’ve accomplished our goal of financial inclusion? And the answer is, of course not. There’s a lot more to it than just getting a bank account. Getting a bank account important, don’t want to under underplay, that’s super important, efforts like bank on, and others are really, really… just can’t under overemphasize how important those things are.

Jen Tescher:
Yeah, agreed.

Michael Hsu:
But it’s not enough. And then you had planted the seed for me, I had a little bit of a light bulb moment, like, “Yeah, we can’t just look at that one metric. We have to think about this more holistically, but not so holistically that it’s just mush. There’s got to be something there.” Then I started going down the financial health rabbit hole. You’re starting with the Financial Health Network and others and trying to understand, “Oh, what’s the history here? What are the frameworks? What work has been done?” Which I found both really, really fascinating and really, really hopeful. To me, in the ideal state, we’re able to measure the financial health for individuals, for communities, for products, for providers, for users. This is the lens, it’s a little bit like in medicine. The point is not to administer medicine, the point is to have healthy patients, so that they can go about their lives.

And that’s a really hopeful way to approach this. Now in a world with lots of data, a lot of sophistication, and methods, I feel we are now on the cusp of being able to actualize some of these things. I know a lot of the financial health efforts to date have been largely survey-based, which is great, I think that provides a nice snapshot. But taking that to the next level, making it a little bit more granular, a little bit more timely, bringing it down. I think holds a lot of promise to be able to be smarter about how we talk about different consumer financial products, how we talk about progress. How do we measure success in terms of delivery of financial services? I like to do extremes. So you could say, “Well, we need to have a world where there’s no consumer harm ever.” Well, the easiest way to do that is to just not provide any products at all.

And that doesn’t make any sense. At the same time, you say, “Well, we’re going to measure success as providing everything to everybody.” Well, that could lead to a lot of harm itself. So when you work your way in, from the extreme, you say, “Well, what is the right place? And how do we get there?” And to me, financial health holds a lot of interesting potential.

Jen Tescher:
First of all, I appreciate you giving me credit. But I will also say that ideas are a dime a dozen. It’s about what people do with them afterwards, so I want to give you the credit that you deserve. How do you think about this idea in the context of policymaking… and just to make it easier for you, I’m not talking about any time right now. This probably will never happen in the course of your term. But in a perfect State, how could this way of thinking this framework, particularly using transactional data, real-time data, how could that be effective, make policymaking more effective?

Michael Hsu:
I have one, I will admit right now, it’s a little bit of a dream. And I don’t want to belabor the health analogy too much, but there is-

Jen Tescher:
But it’s a perfect analogy. I use it all the time. So I’m totally with you.

Michael Hsu:
There’s this interesting thing with health where you’ve got these vital signs, four vital signs, breathing, heart rate, temperature. Every time you go to the doctor, they just take those vital signs. It just provides a very quick, very easy, rough sense of how’s the patient doing. And to me, that’s a powerful thing because we don’t have that right now. For individuals’ financial health or communities’ financial health, we use a lot of different proxies. We use income, we use wealth, we look at income gaps, we look at disparities, we look at redlining, there are all sorts of things we look at. But if you had to say, how is the financial health of Washington, D.C., where I am right now? Different neighborhoods, how is it trending? What parts are doing better? What parts are doing worse? It’s really uneven.

I think we have some sense. But ideally, I think we’d have something like that as both as a diagnostic, and that could then guide policy. So what are we trying to achieve with the CRA? We’re trying to improve lending credit, especially for low, and moderate-income communities. Every community is different. Some communities are going to be in different places, so what their needs are going to be different, and tailoring that could be very useful. Again, using the health analogy. If you’ve got a certain ailment, you don’t want to just get all the sorts of generic drugs and treatments, you want a targeted treatment to deal with that. That would be the best thing.

And I’m hopeful that we can start moving in that direction, so it’s a little bit more efficient and effective. If you do that, I think people would trust it more. It loops back to trust, is, “Why are we doing this?” I think there’s always a sense of, “Oh, the financial services industry, in general, is out for itself first, and out for me second.” And sometimes that’s true. When I talk to bankers, I think, by and large, folks want to do “the right thing.” So I think if you had a metric, if you had a lens, and a framework, by way of thinking, and judging that, that could help everybody.

Jen Tescher:
I like the health analogy for many reasons. One of them is, it gets very complicated very quickly when you think about the financial services application, but then when you think about healthcare, it’s no less complicated. In fact, it may be more so, in terms of the various things going on in someone’s body and in someone’s life, that ultimately affect it. But the other thing going on in health is this idea around the social determinants of health, that there are environmental issues, structural issues, all kinds of other issues that have a very important role.

And if we just treat people with even a doctor’s visit, a surgery, a medicine, whatever, we may not be getting at the underlying issue. And I feel the same is true in financial services. Figuring out what a financial services company can control, or have an impact on versus what they can’t, is challenging. And in the healthcare arena, we have this thing called public health, it’s a public good, and it’s underfunded, and all those things. But there is someone other than the money-making hospital thinking about these broader issues. And maybe the closest thing we have to that, in financial services, is you, is the regulator. I don’t know, what do you think about that?

Michael Hsu:
I like that because that is how I think about the job. The terminology we use is, there’s micro-credential supervision, there’s macro credential supervision. Micro-credential is bank by bank, so we need to make sure that each bank is safe and sound, is treating its customers fairly. Bank by bank, by bank, all thousand plus that we have. At the same time, we got to zoom out and say, “How’s the banking system as a whole doing? Is it safe and sound? Is it earning the trust of everybody? Is it providing, as a system, the necessary financial services?” And there’s always room for improvement. I could say that 2008 was quite a wake-up call because it was not just the banking system but just the broader financial ecosystem, had a lot of problems. And those problems manifested for a whole bunch of different reasons.

And there’s been this big project, not just in the United States, but globally, to repair all of that. It’s taken quite a while, it’s not completely done yet, but it has been pretty good. I think that the banking system today is a lot more safe and sound, and fair, than it was before. Now, but what is that? There’s risk by saying, “Wait, declare victory and move on.” Which is absolutely not. There’s so much more to do. And what I like about the financial health framing is that it helps to provide some direction there because, in some ways, it’s easy in 2010 to say, what do we have to do. Because in 2010 you got to build capital, you got to get rid of all these crappy products out there. There’s all easy, easy, easy. And then as you get better, it’s a little harder.

It gets harder and harder, but that doesn’t mean that there’s less to do. I would argue today, the pandemic has revealed huge inequalities, persistent inequalities. This is something that worries me a lot is, it’s not just that the mere fact that there’s big inequalities is that people just get locked in. That once you’re in that lower strata, you’re just on a hamster wheel, you can’t get off of it, and that’s structural, and that’s a system issue. That’s where it’s good to step back and have that system for you and say, “Well, what do we need to do to break down those structural barriers so there’s opportunity?” That’s just really, really important, and that’s fair, because it gets to fairness, and fairness gets to trust.

Jen Tescher:
Yeah. I’m going to beat this analogy to a pulp once more to transition us. Where I think the analogy stops between healthcare and financial services, is that in healthcare, there’s a third-party payer. And one of the things that has been driving this shift from a focus on treating sickness to promoting wellness is the incentive structure and this notion of pay for success as opposed to pay for the office visit. If we had something like that in financial services, I’ve often said that we would be paying banks to keep them from over-drafting their customers. That would be the closest analogy I can make. Of course, we don’t have a third party payer system in banking. Although I guess you could argue that the subsidy that banks get, in terms of the fed discount window, maybe that’s something there. I don’t know. I haven’t thought about that before.

But I want to talk for a minute about overdraft because a lot has happened on the overdraft front during your tenure. You’ve had a lot to say about overdraft. In fact, it’s in one of your speeches about overdrafts where you tried to make the financial health connection. So talk a little bit about how you’re feeling about the state of play today on the overdraft front, and what more do you think financial services companies can do, and will they do it without a stick?

Michael Hsu:
I’m pretty positive right now on the direction of travel because… well, let me back up. I think it’s good to put overdraft in historical context, overdraft didn’t exist for a long time in banking. And then they were created around the time the free checking was provided, and it was designed to be used infrequently…

Jen Tescher:
Courtesy. That’s how they call it, a courtesy overdraft.

Michael Hsu:
Right. It was not designed to be a big moneymaker for banks or to be used a whole lot by people. Of course, what happened over time? It’s that it did get used a lot by people. And I think that speaks to both ends of the equation is that for banks, it turned into a moneymaker, but more importantly, people needed it. I think people increasingly were basically in positions of living paycheck to paycheck, and they had to find ways to basically access that short-term credit or liquidity. That was one, and it’s not the only one. I think people think about check cashers, payday lenders, early deposit, all these products, I think sit in the same zip code in terms of use and cost, and potential abuse, not just potential, but actual abuse in some cases. That history is really important, and there have been advocates focused on overdrafts for a long time.

I really think they deserve a lot of credit for focusing on overdrafts, and payday, et cetera, saying, “Hey, these are exploitive.” In many cases, these are very exploitative on the people who can’t afford it. So it gets you back into that things that keep people stuck. And the way I like to talk about it: it’s expensive to be poor. I think people generally understand that conceptually in overdraft, in the financial, if that’s one of them. That’s one of those ways, it’s expensive, and it really only impacts people with very low balances or general people who are poor, or who are living paycheck to paycheck. And so the thought was, “Well, if you have this convergence of forces where the advocates had been focused on this for some time, but then you get increased congressional pressure. You’ve got competition from fintechs, you’ve got changes in technology.” You’ve got just a change in attitudes coming out through the pandemic, all came together.

And suddenly, you saw a couple banks saying, “We’re going to change. This doesn’t make sense anymore.” And those changes were very pro-consumer. I think those combinations… I think just the stars aligned. So I went out there and started talking about it, others went out there and started talking about it. Through a combination of shining a light on it, beating the drum even louder, highlighting a lot of these things, and a lot of cajoling, and other things, you started to see a number of banks saying, “Okay, we’re going to consider… Oh, no, now we actually are going to reform our programs. We’re going to lower the fees. We’re going to provide grace periods.” This whole mix of things, which were all pro-consumer, great.

As these things were happening… of course, we’re always considering what our legal options are, what our supervisory options are. But while all this is happening, there was a sense of momentum of, “Okay, now this is all going to change.” What I call traditional overdraft programs are going to be a thing of the past. Everyone’s going to start reforming these things, and that’s why I went out, and I told banks, “You don’t want to be the last one. Just get on board with this. Everyone’s consumers are a bit different. Talk amongst yourself about how to do this in a way that’s going to be pro-consumer.” Now, while all this is happening, there are some who are arguing to just get rid of overdrafts completely.

And while I have some sympathy for that, I think if you look at it through a financial health lens, that doesn’t make sense. Because if you were to get rid of overdrafts completely, then in some cases, that’s going to protect people from those high-cost debt traps that we worry about. But in other cases, you’re taking away a tool for people to manage their liquidity, to save money, to make ends meet. Otherwise, they’d have to turn to other means that are more expensive and more exploitative. Not in all cases. There’s nuance there.

Jen Tescher:
Yeah.

Michael Hsu:
But I think that financial health lens provides that nuance. It embraces that nuance to be able to have that discussion, which is different than, “Are you for it? Are you all against it?” Because those arguments to me are just both on the side of those saying like, “No, no, overdrafts are great. Everyone likes it.” That’s too simplistic. And overdrafts are evil, and again, too simplistic. I think the right outcome is one where you’re maximizing financial health.

Jen Tescher:
Yeah. It is amazing that you have been so successful. And I take it so happy in Washington all these years because I feel that nuance is very hard to find. I don’t say that in a mean way. It’s the nature of the beast, where you end up in these very black and white conversations. The hill is very black and white, and they don’t know what to do, frankly, with me because I speak multiple languages, if you will. And I think for me, that’s one of the things that’s so refreshing about your interest in this topic, because you’re interested in bringing more nuance, and that can be very hard to find.

Michael Hsu:
I love my job. I love being a financial regulator. This is going to sound weird. I think it’s the best job in the world. I think it’s one of the most underrated, misunderstood jobs out there because there’s lots and lots and lots of challenges. It’s really, really impactful on people’s lives, and not everything requires nuance. To me, it’s really about effectiveness and to getting effective outcomes. And in many cases, you have to be smart about how you attack, how you’re attacking things, how you’re analyzing things. I will say, though, that there is a communications challenge that is really, really important.

I’ve gone through an evolution myself. When I was younger, I was more technocratic about these things, pointy-headed, policy, policy, policy. And looked at the communications politics part of it as dirty or as beneath the pureness of the policy. And I’ve actually come to a much different view now. These things all have to work together. And part of the reason I think there’s been a loss of trust in just institutions generally, in government, in other areas. It’s that we’ve done a really poor job of communicating to folks that we’re trying to do this for them, with them, on their behalf. Because it’s hard, it’s hard to communicate that, so sometimes we choose not to. And just to say, “Well, let the results speak for themselves.” And that’s not good enough because in that communication, you get this feedback, and you have to listen, you have to listen to what people want and what’s going to serve them. I think we’ve lost this part of listening a little bit, and this is for everybody-

Jen Tescher:
Oh, my gosh! I couldn’t agree more.

Michael Hsu:
So you’re going to be a better communicator if you listen really well. And I take your point, but I see that as part of my job. Part of our job now, it’s part of the trust building. Is to say, “Okay, we’re going to come up with these policies. We think these are the right policies. Here’s why.” And then to effectively communicate that, and say, “No, no, no.” And then to take the feedback, if people say, “No, that’s not right.” You got to adjust to that because… So my dad is an anesthesiologist. He treats pain for many, many years, and for a while, he ran a pain clinic, and patients would come in, and they’d say, “Oh, my back hurts.” So run some tests, all negative. “No, my back still hurts.” Run more tests, all negative.

It’s like, “Huh, what’s wrong?” And then he starts talking to them, “Oh, my son won’t call me. My uncle passed away. I can’t pay my bills.” Just a whole source of other things going on, which from a technical standpoint, you might dismiss that. But that’s part of how the patient feels. That’s a very real thing, and it’s manifesting as pain. And I think that it’s similar from a policy perspective. We can think we’re right on something. But that doesn’t give us the excuse not to connect and have that engagement with folks about, “Is this good?” It’s just actually desired.

Jen Tescher:
Yeah. Now I know where your passion for these health analogies come from. And I’m so glad you shared that because not only is it, but both physical health and financial health are highly emotional. But we now know that the stress, the cortisol that financial stress, or other kinds of stress in your life have a physical manifestation, a negative one. We just issued a paper on medical debt, that’s a very straightforward thing to understand, but it actually doesn’t always just go one way. Poor health have something wrong, bad financial outcome. It often goes the other way. Challenging finances drives negative health outcomes, and mental health outcomes. And so that story you shared was just so perfect. There was a research study, some focus groups done a while back, and one of the people in the focus group said, “If you want to reduce my stress, help me pay my bills on time.” I have all this physical, mental health stress – what’s causing it, well, help me with my finances. So, that’s really a powerful story.

Michael Hsu:
Aaron, a client at Brookings, had done a piece on connecting all of these things, which is fantastic. I highly encourage folks. And it really is in this space, but very well researched, right?

Jen Tescher:
Yes. In fact, I think I was on the panel after the event that he did to present the paper.

Michael Hsu:
Yeah. No, it was absolutely great. And I think that the other thing, too, is I met with the team at the CFPB, that does their financial health because they’ve got a whole research team. They put out a report on financial health, great report. And they were walking me through the methodology, and part of their measurement methodology includes a survey, which includes questions, which are, what I call relative, “How do you feel?”

Jen Tescher:
Subjective. Right.

Michael Hsu:
Yeah. And that was a very conscious choice on their part because they explained that, look, there are the metrics part, the quantitative, your balances, and things like that. But this subjectivity is really, really important for exactly the reasons that you highlighted, Jen. That matters how secure you feel, even if you’ve got a lot of money. If you’re feeling really insecure, simply because you have that money doesn’t make that insecurity go away.

Jen Tescher:
Right.

Michael Hsu:
And you have to recognize that. And I think, again, this gets back to okay, as a policymaker, that’s important. I think that’s an important thing to keep an eye on and to be aware of. But right now, our metrics are a little bit… they could be better developed.

Jen Tescher:
Interesting, because we do have as a country, macro metrics that we use to gauge how the macroeconomy is faring around consumer confidence, other kinds of consumer sentiment, but we use it really for macro purposes. And we haven’t really thought about it for micro-level decision-making, which is an interesting thing to explore further.

Michael Hsu:
Yeah.

Jen Tescher:
But I want to go back to what you were talking about, about communication. And use that as a segue to talk a little bit about crypto, or should I say blockchain? Because if there’s one thing we can all agree on about this topic, and this may be the only thing we can agree on, is that no one can really explain it. No one really fully understands it. And it suffers dramatically from a communication gap. You actually recently launched a discussion series titled “Vital Signs, exploring issues related to financial wellbeing of consumers.” And your first episode was on crypto. Most of the arguments we hear in support of it, identify the prospect of improving access, or increasing inclusion, or democratizing financial services. Is it really the equalizer? Where are you in the crypto topic?

Michael Hsu:
I’ll start off very clearly in saying I’m a crypto skeptic. I’ve been public about saying that I remain a crypto skeptic, and we can have a whole other episode talking about that. But I do want to bring it back to this first episode for Vital Signs because the way this came up, there’s a couple of interesting data points, I would say, on crypto. The first is, the birth of crypto took place in 2009 in the heart of the crisis. It was basically a response to the crisis that you had a combination of technology coming together with a philosophy that banks and governments had let the people down, and there needed to be another way-

Jen Tescher:
It all goes back to trust.

Michael Hsu:
Yes, yes, absolutely. And so if you read there’s this famous paper by Satoshi Nakamoto, which is the birth of Bitcoin, it’s a very short paper, actually. You really just need to read the first page because it just lays out the philosophy. And the philosophy was, “We need a system that does not rely on banks or governments to pay each other.” Then here’s all this interesting, complicated blockchain-type stuff in cryptography, but that was the Genesis. And that creation myth is really, really important to crypto, I think, culturally. So you take that, and you fast-forward, and you’ve got… I remember seeing the first time there was a survey by morning consult on who owns crypto. And they broke it down by fully banked, underbanked, and unbanked. Fully banked was 10%, underbanked was, I think, 20%, and unbanked… I’m sorry. Unbanked was 20%, and underbanked was 40%. So underbanked are people with bank accounts, but they still rely on other alternative providers for financial services.

Four times, and I thought, “That’s got to be a misprint.” And then other surveys started coming in, and you were seeing this pattern, owners are crypto younger, more diverse, and more underbanked than the general population, which really raised a ton of questions in my mind. So I started looking into it, and I think when you get into these communities, you realize there’s actually a fierce debate. There are some folks in those communities who are saying this, “The traditional banking system has let us down.” And you can trace this back to… like in the Black community, you go to the Freedman’s Savings Bank, and Black banking, and that whole history. Which is super interesting and really disturbing in the systemics of that, not just to blacks, but to other communities, it let us down.

And this new thing is antiestablishment, provides some promise for us, to bootstrap ourselves up by ourselves. And by the way, people are making some money on it. So there’s that sense and feeling… and there were others in the Black community here saying, “This is snake oil, watch out.” I really wanted to bring these views together, so, “Okay, let’s get past the talking points.” Let’s try to have a real debate about, “Is this healthy or not for the community? And if so, how?” It was really interesting.

Jen Tescher:
It sounds consensus was not reached.

Michael Hsu:
Consensus wasn’t reached. I think there was… what I sensed, and the two guests, we had John Hope Bryant, who focused on a financial literacy, and professor Tonya Evans, who is – their both African American – she’s a professor, Tonya she’s been in the Bitcoin blockchain space, very well recognized as an expert in her field. And I think there was agreement, as John would say, “Don’t bet your rent check on it. You have to diversify.” And then I think Tonya changing John’s mind on saying, “Well, there’s something here that’s worth looking into, and researching. It’s not just all totally smoking mirrors.” In that sense, there’s something there, but you’re right. 

Jen Tescher:
So do you, in your own mind, differentiate between being a crypto skeptic versus being a blockchain skeptic? Or for you, it’s all the same thing?

Michael Hsu:
For me, it’s very similar in the sense that, there’s this phrase, “It’s a solution in search of a problem.” Which I think is somewhat accurate in many cases where people say, “Oh, we’ll just put it on the blockchain.” As if that will solve “X” problem versus “Well, what’s X problem?” And so we have to say, as a policymaker, I say, “Well, if we define the problem as there are barriers to financial inclusion. Okay. Well, what are those barriers?” “Oh, we have a homeownership gap, big one. We’ve got credit invisibles, big one.” So these are ones to me that are very discreet problems, and it’s not clear to me how blockchain or crypto solves those. Remittances. There are areas where it’s like, “Okay, the use case here actually has some validity.” There’s something interesting there, but it does require nuance.

Jen Tescher:
Well, so I am also a crypto skeptic. I am more open-minded about blockchain technology. I do think that there could be some use cases, but they may not be financial.

Michael Hsu:
Yes. Yeah. I think that’s right.

Jen Tescher:
Or they may be financial, but it’s more legal. Think about the mortgage process and taking title, and could the blockchain improve that process? I suspect it could, but that’s different than money changing hands. I also think that there is, like you said, cross-border money movement; certainly, if we could reduce friction or reduce cost there, I think that’s great. But in my mind, that should be buried somewhere inside the tech stack, the retail consumer shouldn’t have to worry about what they’re transacting in. Let someone else in the back room figure that out. And if blockchain is a way to improve that, fantastic.

Michael Hsu:
Right, right. One thing I think those in the crypto skeptic space have been pretty good at highlighting. One of the pros and cons, in the blockchain space, is a lot of it depends on code. Some people, I think, technologists have greater faith in code than in people. And I think it’s because they know the space, and that’s what they deal with. I think if you’re not a coder, it’s a harder call. And it’s one of those things where, again, this gets back to, I think people have been disappointed in contracts, in the rule of law, and these things, because for instance, you sign up to something, and there’s terms of use, and you just click through it, and then you find out later, “Oh, I’m getting screwed in some way.”

And people say, “No, no, no, it’s there in the fine print.” That erodes trust, and so people will say, “Well, I don’t want that anymore. What else is out there?” And the coders say, “Hey, look over here.” We don’t have terms of use. We just have this blockchain that’s immutable, it’s programmable, it’s automatic.” Sounds great, until something bad happens. And then you’ve got a whole different kettle of fish, that you have to deal.

Jen Tescher:
It really sounds like the choice is about, do you try to reform the system you have, or you blow it up, and start something completely new. That, in theory, is institution less. So in a way, your perspective isn’t surprising because you’re an institutionalist in many ways, your career has been working… and so, at the end of the day, though, there are still significant legal and regulatory questions that are being raised every day, all different kinds in this arena. And in the role you’re in, you will probably have to make some policy choices. And I’m curious, how will you balance the need for guardrails here, and your own personal skepticism, with the potential need to enable continued innovation?

Michael Hsu:
I will always start and end with what is good for the people. Because to me, it’s a good compass on all of these questions is, what protects people, and in some cases, innovation protects people. Because they’re in a situation where you need innovation to break out of something that’s not healthy or something that’s exploitive. In other cases, you have to lean in, into reforming and hardening those parts of the institutional structure that are good, that are good for people. Not all is bad out there. There’s plenty of good stuff out there, too. And you want to reinforce those. It really depends on what the issue is. I’m not dogmatic on these things. I try to bring it back to we’re trying to solve problems for people. And it has to be all people, not just certain people. And often, those who are the most underserved, the most vulnerable, they need the most help from the perspective of the government because they have the least power relative to others.

Jen Tescher:
So you made a case earlier for why being a bank regulator is the best job in the world. And I have no doubt about that, but let’s be honest, kids don’t generally dream of becoming bank regulators. You clearly decided not to go into the family business of medicine, but you’ve been doing this your whole career, in one way or another. How did you get here?

Michael Hsu:
Just through a comment, it’s just dumb luck, is probably the best response, but I’ve always been drawn to public service. And that’s because I’ve been very lucky, more lucky than I deserve by a long shot. And just out of a sense of fairness, it’s like, “Okay, I got to do something good with that luck, not just consume it for myself.” That just doesn’t feel right. That’s on a core, underlying part. And then in the bank regulatory sphere, I just go back to: it impacts a lot of people’s lives. It’s both intellectually challenging and of soft skills, lives has tons of challenges. You got to deal with bankers, you got to deal with The Hill, you got to deal with analysts. There’s lots of dimensions to it, and perhaps there’s constant learning.

The system is constantly changing, so I just like learning things. And for folks out there, if you’re curious, you like to learn new things, you like to work with just a really interesting cast of characters, and to do something that’s both impactful and influential in the world, bank regulation should be in the top of that list. It doesn’t strike many people that way, but I can tell you, there have been folks who come into this job. They’re like, “Wow, I had no idea that this is what it was. It’s a bit of a gem.”

Jen Tescher:
You are like the poster child for this podcast, because you are someone who always puts people at the center. And you’re also a silo buster. You see across silos, which is also not typical in banking regulatory world. I’m curious, who are some of the leaders who really inspire you to do this work, and to have this perspective in the first place?

Michael Hsu:
In terms of the silos, there’s two things that I can point to. One is there’s a book by Gillian Tett, called The Silo Effect. So Gillian Tett-

Jen Tescher:
Yes. I read this book.

Michael Hsu:
And I love how she starts the book. For your listeners, she’s an editor at the Financial Times, but she’s an anthropologist by training. This is very important because she brings an anthropological view to things, which is awesome. All of her books are fantastic. But in The Silo Effect, it starts off, “How do large companies full of smart people make such dumb decisions?” That’s an interesting hook, and she just talks through, they just create silos, and these silos start working across purposes, and then things implode on themselves. I had read that shortly after – I have a good friend who form in Navy SEAL, worked with General McChrystal, Afghanistan. And that story is also very interesting. So there’s another book called Team of Teams, which he co-authored with general McChrystal, very similar-

Jen Tescher:
What’s his name?

Michael Hsu:
Dave Silverman. And very similar idea that, at the time when they got there, I think they were 13 different military forces and intelligence agencies, and they weren’t talking to each other. So they were losing, they were losing to an enemy that was very, very nimble and very different. So they had to change, it lives mattered. This wasn’t about money, this was about people’s lives. They had to change a lot, and that journey, and that those processes, had a lot of lessons for corporate America.

And then, as I was talking to my friend, Dave, and as I was reading the book, “Wow, we have a lot of lessons for us in government.” So just pulling these ideas together, it’s like, “Can that lead to a more effective bank regulatory function, not just within an agency, but across the different agencies?” That’s been very animating for me, having gone through the crisis, because in the 2008 crisis, it was super siloed. Part of the reason that crisis happened – every agency just drilled down on its own thing, which created a huge number of gaps. And we paid the price for that. So now, this is part of what motivates me now is that, “Okay, we’re not going to do that again. Let’s do it better. We can do it better.” And it’s not perfect, but I think the bones of what came out of Dodd-Frank, it’s the right structure. It’s a lot of this is people working together to try to make it work for the people.

Jen Tescher:
At the end of the day, culture matters. More than almost anything else.

Michael Hsu:
Yes, yes, yes. And the other leadership books, I’m reading Lowenstein’s Ways and Means right now. Which is about the Civil War, and the economic battle between the North and South. He puts everything through this economic lens. And Lincoln, it’s very interesting the way he presents Lincoln, in how he’s thinking about both anti-slavery, and both the morality of it, but this idea that everyone needs an opportunity to get on that ladder. That economic equality was really, really important to Lincoln, which comes through again, and again in a whole bunch of different decisions, which is not something I had heard emphasize so much before. But as you read this, you go through Legal Center Act, National Bank. So the OCC’s history is embedded within this book, which is fascinating.

Jen Tescher:
Oh.

Michael Hsu:
Yeah.

Jen Tescher:
I love it. All right, I’m putting that one on my reading list. I could talk to you all day, but I think we should bring this conversation to a close. So Mike, Acting Comptroller Hsu, thank you so much for joining me on Emerge Everywhere.

Michael Hsu:
Thanks so much for having me, Jen.

Jen Tescher:
This has been Emerge Everywhere, a financial health network production. If you like the show, please help spread the financial health message by leaving a review. And if you have ideas for future guests or thoughts on the show, please click on the link in the show notes to connect with us. See you next time.