update 13 October 2021

The Future of Banks Lies in DeFi, Says OCC Chief

Brian Brooks, the Comptroller of the United States Currency believes that decentralized finance (DeFi) could determine the future of banks.  According to him, DeFi will eventually redefine the banking system provided that adequate regulations are put in place.

DeFi Could Change the Banking Sector

Brian Brooks the current director of the Office of the Comptroller of the Currency (OCC) revealed his thoughts in an opinion piece published for the Financial Times.  According to Brooks, licenses from national banks could one day be granted to DeFi protocols within the right regulations.

He believes that DeFi is likely to spread mainstream because of its automation and efficiency capacities that surpass current banks.  “DeFi’s projects include decentralized exchanges that allow users to trade without brokers and loan protocols that don’t involve loan officers or credit committees.  He added.

Brooks further elaborated his point by stressing that such DeFi solutions make it possible to end discrimination against certain borrowers. By ensuring that only algorithms make credit decisions, it could reDeFine the entire banking system. The director of the OCC goes on to say that DeFi could help fight fraud and corruption.  This is due to the automated process that many DeFi protocols use which does not require human intervention to work.

It should be noted that the OCC is the institution in the United States that regulates and supervises national banks. Therefore it is noteworthy that the head of the institution believes that DeFi could revolutionize the banking sector.

Regulations Crucial for DeFi Sector to become Mainstream

Brooks concluded by stating that for DeFi to make the next step, proper regulation must emerge in the sector. Citing the example of self-driving cars, he mentioned that the lack of clear regulations has delayed their deployment.

This is understandable given that 2020 was the breakout year for the DeFi sector.  Neither traditional banks nor regulators are ready for this new form of finance. Nevertheless, there has been progress in recent months which suggests that DeFi has caught the attention of the traditional finance sector.

DeFi protocol Aave recently received a license for an electronic money establishment from the Financial Conduct Authority (FCA). The FCA is the financial watchdog for the United Kingdom and the license was a major milestone for the DeFi sector.

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The future of DeFi appears to be mapping out and its adoption is expected to increase in the coming years. This could represent a major boom for Ethereum which hosts a majority of DeFi protocols.