The OCC’s Michael Hsu on the Big Risks Facing Banking Businesses Right Now

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:15)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

So Joe, we've had a busy few months.

Joe Weisenthal (0:20)

Yeah, we really did. We were all over it. We crisscrossed the country. We did all three coasts, East Coast, California, the third coast, Texas. We went to California twice in about three weeks, I think.

But we have a nice little break now.

Tracy Alloway (0:35)

Yes, I for one am grateful to not be living out of a suitcase for a while. But our last stop in the Whirlwind America Tour was in Las Vegas.

Joe Weisenthal (0:47)

Oh, that was so fun. I loved going to Vegas.

I really loved you. I love Vegas. It was so cool that I got the opportunity to join you in Las Vegas.

Tracy Alloway (0:55)

OK, listeners, this is where we're going to get into a little bit of an argument.

Joe Weisenthal (0:59)

You're going to hear Odd Lots co-host air some dirty laundry.

Tracy Alloway (1:03)

The day before, no, the day he was supposed to actually fly out to Las Vegas, Joe changed his mind. You decided Vegas isn't for you.

Joe Weisenthal (1:12)

So, listeners, I love Vegas. It's one of my favorite cities in the country. I like playing poker. I love the strip. I love the lights. I love the water consumption in the desert. I was really excited.

And then I got to the airport on this really nice fall day.

Tracy Alloway (1:25)

He wasn't feeling it.

Joe Weisenthal (1:26)

No, it's not true. I got to the airport on this really nice fall day. And about 30 minutes after I got to the airport, my flight was pushed back about five hours. And I was only going to be in Vegas for 24 hours, as it was.

And I wasn't even sure that the flight was going to take off when they said, because actually it was the second delay at the time. And I did have family in town, which is also true. And Tracy was already out there.

And Tracy is a very capable co-host, more than capable co-host.

Tracy Alloway (1:57)

Sounds like a lot of excuse, Joe.

Joe Weisenthal (1:59)

And I said, please, Tracy, can you just do this? Can you just do me a solid and do this episode by yourself?

And Tracy, without any complaint or frustration.

Tracy Alloway (2:06)

At the time, I didn't complain. I complained when I came back.

Joe Weisenthal (2:09)

No making me feel bad about myself obliged.

Tracy Alloway (2:13)

Let me just say, the world's smallest microscope would not be able to locate my sympathy for this argument.

Joe Weisenthal (2:20)

You know what?

Tracy Alloway (2:23)

No, OK, let's leave it there.

Joe Weisenthal (2:25)

Never.

Tracy Alloway (2:25)

OK, listeners, let me say, though, that you are in for a treat, as is Joe, because he wasn't there. So this is the first time he's going to hear this interview. But we spoke, or I spoke, with Michael Hsu, the acting comptroller of the currency. And we had a really interesting conversation. This was a live episode recorded on stage at Money 20, which you might know as the big sort of fintech gathering. And we talked a lot about the intersection between banking and technology. And Joe, here's where it gets kind of odd lotsy, because Michael has been arguing for a while that a lot of what's happening in banking right now, and particularly in payments, kind of looks like a supply chain.

So a lot of banks are outsourcing different functions, like payments, to third-party vendors.

And this presents a bunch of new and interesting problems and risks, and I guess also opportunities.

Joe Weisenthal (3:21)

It's so interesting to think about finance in this realm. And you can imagine how these things go in cycles, because you could imagine at some point, these functions were very simple. It was all in-house, vertically, horizontally integrated, and so forth. And then, like many other areas of the economy, companies realized, OK, wait, what if we have one specialty and other companies then specialize in this specific thing?

I remember we did that episode about community banks and how they had to outsource a lot of their own functions about cybersecurity and so forth, because they don't have maybe the capacity of a JP Morgan. So it is interesting to think about the supply chain of money in that respect.

Tracy Alloway (4:00)

Well, this is exactly it. So in one respect, it's a sort of natural evolution of the economy. Everyone becomes more specialized. Everyone becomes more efficient. The business model becomes more streamlined. But as Michael points out, there are these sort of new problems that are potentially thrown up by everyone outsourcing kind of critical functions in some respects. So without further ado, take a listen to this live episode with Michael Hsu, recorded in Las Vegas, Sands Joe at Money 20, 20