The confirmation of President Biden’s nominee Saule Omarova to head the Office of the Comptroller of the Currency (OCC) has taken a dive for the worse as Democrat Senators on the Senate Banking Committee begin to back away. Krysten Simena, Mark Warner, and Jon Tester, all Democrats from Montana, are rumored not to be happy with the Cornell University professor of law who is specialized in regulation and international finance.
One Democrat has defected from the 50-50 Senate, which makes the nomination unviable. Past positions of Ms. Omarova on bank policy have risen to the point where confirmation is uncertain.
Omarova has a long history in banking. She is familiar with the intricate details of this industry as well as the colorful people who work there. She once referred to it as the “quintessential a—— industry”.
Senators fear that her strong views will influence the OCC’s direction if she becomes the head of this powerful agency overseeing US national banks. RedState readers need to know that the chief of a regulatory bank agency can have real influence on policy. This could affect the financial sector as well as the daily lives of everyday Americans.
Coin of the Realm
One area where Omarova has received criticism is her support of the notion to take something called Demand Deposit Accounts (DDA’s), which include ordinary people’s checking and saving accounts, out of the purview of commercial banks and put these accounts directly with the US Federal Reserve. As a bank, every American would be able to open a Fed direct account. The change in “banking as we know it” stems from the advancements in technology that allow total centralization of transactions through a single federal clearinghouse instead of an array of middlemen, which is the function bankers served when the tech was not capable of it.
It’s an extension of the same argument that cryptocurrency advocates make about the transaction efficiencies of blockchain coinage. Omarova, an expert in bank infrastructure thought, recognized the efficiencies around a decade back but was skeptical of cryptocurrency companies having such powerful money control. They saw the similarities to the federal reserve’s function and said, “Why not just put it there?”
The problem with the concept is that these DDA accounts are what are known in the banking world as “core deposits,” considered the most valuable form of deposit on the bank’s balance sheet. They are stable. They are owned and maintained by local customers. They are a measure of branch banking’s service to the areas they serve. These relationships are the gateway to banking services such as lending and credit. They are, in other words: they provide the foundation for financial services’ house of cards.
This is a disgraceful recommendation that all business interests are affected. To continue making money, banks would need to change the way they do business. The systemic risk to the US’s financial market design would result. If the process is not designed correctly, there are risks that can turn out very bad. It often does, because complex economies require constant trial and error. It is best to allow innovation to develop incrementally, with smaller risks for each individual party so that there are no errors that could threaten the system.
It is impossible to imagine that pulling all DDAs out of private banking will result in incremental changes. Facebook’s Libra project, now known as Diem, has had fits and starts trying to get off the ground with a stable coin, which is what a Federal Reserve-operated DDA system would be, except owned by the US government. To use some old metaphors, the next coin of the realm will be different from the company script.
Congress isn’t so sure this is a good idea. This is not a good idea, according to bankers. Regardless of which side one is on, bankers support the campaigns of Congress. How about the average American? The vast majority of Americans are unaware of these lofty discussions and are only gradually being made aware of something that can change how we spend money. This includes, but is not limited to, the privacy of our financial affairs from the government’s prying eyes.
Take control of private investment
Omarova’s advocacy for the creation of a National Investment Authority, which would be an independent agency with the ability to direct private and public investment in the US is another area that has been criticised. To meet national goals, the idea of such an agency aims to nationalize and centralize US strategic spending.
The NIA will need to have the power to compel investors to invest in an agenda. It substitutes free-market choices with controlled markets. It’s a method of directing national spending used by many nations with more powerful central governments like China, who can direct their entire economies towards a common purpose.
Academically, it’s arguably more efficient. It’s also arguably less free. And for a nation like the United States where freedom of choice is deeply embedded into the culture, it’s a tough pill to swallow.
Perhaps too difficult even for Democrat Senators, who still represent 50 independent States of Union whose agendas and interests are different. It will not be easy to tell constituents, donors, and companies to surrender control of their fate to federal authorities.
It’s clearly causing pause in the Senate Banking Committee ranks.
Let’s ask the Democrats if they want banking policies to move in the central direction that academic scholars have advocated for years. Are they content with the US’s socio-economic experiment of incremental innovation, driven by individuals and taking risks?
The answer to that question will determine the outcome of Saule Omarova’s nomination to head the OCC.
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