Federal Banking Agencies are Open for Business

Just when I thought my grip on reality had been strained to the limit, a new test has confronted it.

The Office of the Comptroller of the Currency (OCC) has just conditionally approved a federal trust charter for World Liberty Trust, an entity 38% of which is owned by “an entity affiliated with Donald J. Trump and certain of his family members.” World Liberty Trust is being formed for the express purpose of issuing stable coins, crypto tokens backed by US Treasuries. The new trust company, if approved, will perform three functions that are important to the current Administration:

• Enriching the You Know Who Family

• Undermining the established structures of finance and government

• Providing a needed purchaser for the waves of Treasury debt that must be issued to finance the tax cuts of the Big Beautiful Bill and the Unconstitutional War in the Middle East. (I know: Emoluments Clause, Impeachment. Put such fevered thoughts aside)

If you liked the You Know Who Family “settlement” with the IRS (like the OCC, an arm of the Treasury), you’ll love World Liberty Trust.

As a trust company World Liberty Trust probably doesn’t require FDIC Deposit Insurance. Another de novo financial institution, Erebor Bank, NA, does. Erebor is not for you and me, dear reader. Rather, as stated in the OCC’s letter of conditional approval, it “will be a full service insured national bank that plans to target its products and services to technology companies and ultra-high-net-worth individuals that utilize virtual currencies.” So common folk like you and me are not invited (try the link to the bank’s web site above for a laugh.)

Erebor is in the process of raising $1.5 billion start-up capital from Silicon Valley backers. This stampede is a response to the demise of Silicon Valley Bank (SVB), the tech bros pet bank, which failed because of a pathetic misunderstanding of the market it was serving. SVB was taken over by First Citizens, a real bank headquartered in the real world that has apparently cleaned house and instituted real risk management. This is intolerable to the bros, who (just ask them) are operating on a whole other level. Erebor draws its name from a fantasy world in The Hobbit. QED.

It is of at least passing interest that the OCC’s conditional approval letter was addressed to Erebor’s counsel, Wendy M. Goldberg, Esq., of the law firm of Skadden, Arps. Slate, Meagher & Flom LLP. As you may recall, Skadden Arps was prominent among the law firms that infamously settled claims made against it by You Know Who about DEI and related issues of cultural significance. Draw from this factoid what you will.

In pondering these developments, I realized that I had lost track of who, exactly, was in charge of the OCC and FDIC these days. A quick review of the agencies’ web sites revealed the following:

Jonathan V. Gould is the current Comptroller of the Currency. Mr. Gould’s publicity photo presents him in the bloom of youth. The web site bio on him notes:

Prior to becoming Comptroller of the Currency, Mr. Gould was a partner at the law firm Jones Day. He previously served as the Senior Deputy Comptroller and Chief Counsel at the OCC and twice served on the staff of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, including as its chief counsel. He has spent the bulk of his career in the private sector as a consultant and lawyer, advising banks and other financial services firms on regulatory matters and risk management.

In a recent press release, on de novo chartering, the Comptroller bemoaned the difficulties raised by regulators for start-ups, leading to (violins please) a loss of innovation and choice in the industry. Having dispensed what he felt to be the the necessary gibberish, the Comptroller then gets to the point:

Entities that engage in legally permissible activities, including those involving digital assets and other novel technologies, should have a path to becoming a national bank. America and the OCC are once again open for business. (Emphasis added)

In my jaundiced view, Mr. Gould is an industry shill whose entire career has involved trips from K Street the halls of Congress and back and then to the agencies. This isn’t new. One predecessor from ancient times. John Hawke, blended a brilliant DC practice with outstanding government service. That was then, this is now. I knew Jerry Hawke and Jonathan Gould is no Jerry Hawke.

So what about the Federal Deposit Insurance Corporation? The Federal Deposit Insurance Act provides for a five-member board to oversee the corporation, with no more than three members having the same political affiliation. As is now common in the You Know Who Administration, the corporation itself is non-compliant. Its current board membership consists of: Chairman Travis Hill; Comptroller Jonathan Gould; and Russel Vought, Acting (please don’t laugh) Director of the Consumer Financial Protection Bureau, when he’s not doing his part-time job as Director of the Office of Management and (feel free to laugh) Budget.

Chairman Hill, who took office in January of this year, is another tender youth whose career experience is described as follows on the web site:

Prior to his terms on the Board of Directors, he was Deputy to the Chairman for Policy from 2018 to 2022 and, before that, served as Senior Advisor to the Chairman. In these roles, he oversaw and coordinated regulatory and policy initiatives at the agency and advised the Chairman on regulatory and policy matters.

Prior to joining the FDIC, Mr. Hill served as Senior Counsel at the United States Senate Committee on Banking, Housing, and Urban Affairs, where he worked from 2013 to 2018. In this role, he participated extensively in the drafting and negotiating of numerous bipartisan bills. Before working at the Senate, Mr. Hill worked as a policy analyst at Regions Financial Corporation from 2011 to 2013.

In my view, thin beer. But, you may think, Sheila Bair, who guided the FDIC through the Financial Crisis, was a Republican staffer whose only banking experience had been as a teller. Again, that was then and this is now. I know Sheila Bair and Travis Hill is no Sheila Bair.

So, the enabling statute be damned! The OCC and FDIC are perfectly aligned, for which read, “No pesky Democrats or other vermin on the FDIC board.” Whether there is quorum for the conduct of business at present is a question I will leave to experts like Todd Phillips. The fruits of alignment are obvious and troubling.

All of this is particularly galling to me as a former bank supervisor who sponsored, or tried to, innovation in the banking industry. The innovations I was seeking were to bring unbanked people into the financial system and increase competition in lending to small business. I was sometimes aligned with the aforementioned Jerry Hawke and Sheila Bair and sometimes not, but, whatever the situation, I had no doubt that all of us were pursuing the public interest as we saw it. This is not the case now and our country is worse off for the change.

The silver lining of our current situation is that You Know Who, abetted by the Supreme Court, has laid the foundation for sweeping change at the OCC and FDIC should the next President believe in a government that serves the public. Until then, Senator Elizabeth Warren, as always, is on the case. She needs help from all of us.