Paradigm Files Comment with Banking Regulators on Safety and Soundness Standards

Banking regulators must uphold their mission of maintaining a safe and sound financial system while avoiding a retreat into outdated practices simply because they feel familiar. Our comment letter to the OCC and FDIC last month speaks directly to this point.

Specifically, we address whether regulators should use “generally accepted standards of prudent operations” when making safety and soundness decisions. As we note in the letter, even the concept of “generally accepted standards of prudent operations” is a concept that is not grounded in statute and frankly a stalking horse for stasis. It is good that there are standards for how to engage in safe banking. As the laws that govern the OCC and FDIC make clear, ensuring our banking system is safe and secure is the overarching goal of our entire system of banking regulation for nearly a century.

But the idea that all standards of safety and soundness are those which are generally accepted is not found in our statutes at all. Instead, it comes to us from thirty years after the FDIC was founded, via the testimony of a 1960s Federal Home Loan Bank Board Chairman. We do not apply the concept of adverse possession to our federal financial regulation regime. Just because everyone assumes something is part of a statutory regime does not make it so.

We therefore recommend that the OCC and FDIC restore the original vision of safety and soundness as it was first established in text, where the regulators consider novel approaches on the merits. It is in everyone’s interest that the banking system is safe and sound, including those of us in the crypto, fintech, AI, or prediction markets spaces. But to have a safe and sound banking system means neither abandoning all past practices nor refusing to change. As was famously said by a former U.S. President, “those who make reform impossible make revolution inevitable.” Only by having the ability to constantly innovate and consider how new innovations are able to improve our system can we ensure our banking system remains safe, sound, dynamic, and growing.