May 27, 2021

My guest today, John Ryan, is the man of the hour. He is CEO of the Conference of State Bank Supervisors, and CSBS is at the vortex of most of the currents of change swirling around the US financial system. What’s the future of banking charters? What’s the future for fintechs that want to operate nationwide? What’s the future for community banks? How will regulators keep up with the technology that’s transforming the markets they oversee? What’s the future of bank regulation itself? CSBS plays a key role in all of it.

This is John’s second appearance on the show, and a lot has changed since we last sat down together. I asked him to join me again when I saw the new CSBS initiative on “networked supervision.” In our conversation, John explains this new vision, and the work underway, to offer a decentralized but efficient alternative to national regulation. We all know there is pressure today on the US regulatory structure from fintechs that want to serve nationwide markets. Today, there is no such thing as a federal charter or license for a nonbank fintech -- that is, for a financial company that needs government licensing, like a lender or money transmitter, but is not a depository institution. At the state level, the financial regulators oversee both banks and nonbanks. Our federal financial regulators, in contrast, only oversee banks. (Yes, yes I know this is over-simplified, but we have a great conversation ahead and I don’t want to spend half the show explaining the endless complexity of the US financial regulatory system!)

This structural and legal framework has generated growing fintech energy in search of ways to become banks, and/or to partner with banks, and thereby gain the power to operate nationwide without needing to get fifty separate state charters and deal with fifty different state supervisory agencies.

CSBS, though, has another idea. What if the states coordinate with each other to streamline state-level regulation? And what if that same efficiency could be applied to supervising state-chartered banks, too? And what if state regulators could solve stubborn problems like whack-a-mole scenarios where bad actors are shut down in one state and then pop up in another under a different name? What if there was a platform with unique identifiers to catch that? What if there was a decentralized approach that used common standards and could seamlessly interpret?

Enter networked supervision.

John shares the journey of moving to this new approach. It started with the common platforms built to address the 2008 mortgage crisis, and now is expanding. It’s adding money transmitters, and it’s moving into more and more states -- using common information formats, common techniques, and willingness to rely on each other’s work to make supervision both more streamlined and more effective. He shares the statistics, for example, on how they are dramatically reducing license processing time.

In today’s conversation, John talks about how regulators can deal with the velocity of innovation in the financial system, and how COVID massively accelerated it. He talks about how regulators are appointing chief information officers. He talks about using agile techniques to build these new models. He talks about using these new methods to coordinate with the federal government, too. He talks about the need to use technology to address the proliferation of financial entities, which today can be started up anywhere, and can reach anywhere, through software and the internet. He says the more regulators use technology, the more they’ll be able to regulate it wisely.

One thing I love about talking with John is that he’s better than anyone else at reminding us that the dual banking system is rooted in America’s core history and philosophy -- in our original resistance to monarchy -- and cautioning us to think hard before discarding or undermining it in the name of efficiency.

And another thing I love is that in this show, he surprises me by wanting to talk about AIR’s Regtech Manifesto, the whitepaper we wrote last year arguing that we have to convert the financial regulatory system to digital design, and how to do that. I hope you’ll enjoy hearing my delight as he explains how CSBS has put the Manifesto to use -- and I hope other regulators feel inspired to do the same!

I know you will also be moved, as I was, to hear him talk about how CSBS responded to the murder of George Floyd last year -- how John himself felt affected by it, and what he learned, and how they have changed in the past year, and of course, how much more work lies ahead.

More on John

John Ryan is the president and chief executive officer of the Conference of State Bank Supervisors, the national organization of financial regulators from all 50 states and U.S. territories.  Since becoming president and CEO in 2011, He has provided strategic leadership in advancing the system of state financial supervision.

John previously served as CSBS’s Executive Vice President, and also as Assistant Vice President of Legislative Affairs. Before that he led the financial services consulting practice at a public affairs firm and worked on the U.S. House Banking, Finance and Urban Affairs committee. He has a B.A. in political science and economics from the University of California at Berkeley.

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Some updates on AIR’s activities:

On June 14, we are partnering with Google to host a webinar called AI and Financial Regulation: Exploring Benefits and Managing Risks. Artificial intelligence and machine learning (AI/ML) are transforming how financial companies monitor and mitigate risk and assure regulatory compliance. Join us for a discussion about AI/ML advances and how to maximize benefits — and mitigate the risks — of these new technologies. I’ll have a keynote fireside chat there with both Representatives Bill Foster and Anthony Gonzalez, who are the Democrat and Republican leaders of the newly reappointed House Financial Services Committee Task Force on Artificial Intelligence. We’ll also hear from AI experts at Google and other organizations. The event will especially look at how AI can help meet the new requirements in the Anti-Money Laundering Act passed last December, which is the biggest BSA/AML overhaul since the Patriot Act. I know many of you are hard at work writing comment letters for the joint RFI on AI that was issued by the US banking agencies (which, take note, has extended the deadline for comments to July 1). This event will be full of insights on these cutting-edge issues. Learn more and register here.

Next up on Barefoot Innovation: we’re excited to have Paypal CEO Dan Schulman for a really searching conversation about financial inclusion. Then we’ll have Sultan Meghji, the new Chief Innovation Officer of the FDIC who, as you will see, is going to change the regulatory world as we know it. We will also have former OCC Chief Counsel Amy Friend, who has authored AIR’s most recent paper, The Financial Conduct Authority’s Innovation Journey: Moving Forward in the Face of Uncertainty. Other shows will include conversations with the Deputy Governor of Central Bank of Kenya, Sheila M’Mbijjewe, who I had the pleasure of speaking with during our Women’s Economic Empowerment Conference.

June is another busy conference month! I will be speaking at Fintech South and FinCrime World Forum, and I’ll give a keynote regtech talk at the ABA’s Regulatory Compliance Conference — the one and only RCC. My colleague David Ehrich and I are also speaking at numerous events hosted by and for regulators, and hope to see many of you in those fascinating conversations.

In case you missed it, my good friend Brett King and our friends over at Breaking Banks celebrated their eighth year on the radio. I joined in for the special anniversary episode.

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