Ever since the events on January 6th, several news outlets have called for the deprogramming of right-wing “extremists” asserting the need to eliminate them from key areas of society where they can do the most damage: the police, legislature, and military. This new “McCarthy” style purging, explained by Kyle Daly at Axios will lean on big tech platforms that are unwavering in their commitment to root out conspiracy theories, and “lies that underline the faith in democracy.” From this point of view, banning President Trump from Twitter was a complete asset in the effort to slow or undo radicalization, and aims to go further and call for an actual “Marshall Plan” of censorship to be implemented through Facebook and Twitter. They believe the U.S. requires an overwhelming and sustained effort to dismantle all ideas that they claim “undermine faith in democracy.” However, this is done without full consideration of the term democracy and the values such as free speech enshrined in the American Constitution. Lately, we have seen the line between conservative/Republican, and conspiracy theorist blurred, all the while when big tech is promoted as the arbiter of truth.
Big Tech and Finance
This worrying trend was buttressed late last week when the International Monetary Fund, (IMF) – the body that oversees the international monetary system and monitors the financial and economic policies of its members cited a working paper suggesting that non-financial data should be used when financial institutions determine customers’ credit-worthiness for loans, mortgages, etc. The IMF keeps track of economic developments on a national, regional, and global basis, regularly consulting with member countries and providing them with macroeconomic and financial policy advice, and this non-financial data they refer to would mean things like “browsing histories and the online shopping behavior of individuals, or customer ratings for online vendors”. According to the report, they say that detailed and comprehensive studies have pointed out how non-financial data is valuable for financial decision-making. Citing, Berg et al. (2019) they make the point that easy-to-collect information such as the so-called “digital footprint” (email provider, mobile carrier, operating system, etc.) perform as well as traditional credit scores in assessing borrower risk, as well as complimenting financial data by combining credit scores with a digital footprint to improve loan default predictions. As such, they claim big tech firms have the informational capacity to compete and possibly even outperform banks in financial service provision.
The report goes on to call the use of new types of data from customers’ various online activities for credit-worthiness analysis “the most transformative information innovation.”
Credit scoring used to rely on using so-called hard information (income, employment time, assets, and debts). Usually, the more data is available, the more accurate is the assessment, but the report suggests there are two problems with relying on hard information. “First, hard information tends to be “procyclical”: it boosts credit expansion in good times but exacerbates contraction during downturns. The second and most complex problem is that certain kinds of people, like new entrepreneurs, innovators, and many informal workers might not have enough hard data available.” They say even a well-paid legal immigrant to the US might get caught in the conundrum of not getting a credit card since they don’t have a credit trail and don’t have a credit trail since they don’t have credit cards. So, they aim to resolve such dilemmas by tapping various non-financial data, paving the way for big tech’s intrusion into the financial services world.
Later in the report, the authors acknowledge that central banks will also need to get more involved in economic activity. In general, a central bank will oversee the monetary system and monetary policy of a nation or group of nations, regulating its money supply, and setting interest rates. As a last resort in a failing economy, a central bank can thus be a lender to troubled financial institutions and even governments by printing more money during downturns.
The IMF report specifically, contends that the “procyclical bias of hard information” (procyclical meaning moving in the same direction as the overall state of an economy, for example, when the economy is going good with high employment, people’s credit ratings are good as they have the income to pay their bills, and vice-versa that they struggle to pay bills when employment is low,) “might require central bankers to be more ‘countercyclical,’ (i.e., potentially overcompensate with stimulating or cooling measures stronger than actual economic developments would warrant)”. They go on to note that as new players make banks less relevant for the financial system; central banks will therefore need to adapt the way they implement the monetary policy: “allowing nonbanks – i.e., big tech, access to liquidity lines and incorporating them in their operations.” This could see big tech actually completing functions, or checks on people, using non-financial data, on behalf of the banks as part of normal banking processes.
The Office of the Comptroller of the Currency (OCC)
As if using non-financial data as described, at a time when elites are hostile and overtly calling for the censor of their political opponents was not problematic enough, giving banks leverage to discriminate among who they do business with has also been codified in the Office of the Comptroller of the Currency (OCC) rules. The Office of the Comptroller of the Currency (OCC), charters, regulates, and supervises all national banks and federal savings associations as well as federal branches and agencies of foreign banks (“Federal Institutions”), and is an independent bureau of the U.S. Department of the Treasury. Thus, US banks are one of the institutions directed by OCC rules as to how they may operate – as to what is permissible and not.
During the Trump administration, when challenges, like New York Governor Andrew Cuomo‘s assertion that he would impose more regulations and state inspections on banks that were lending to gun manufacturers and gun shops, thereby decreasing the ability of those in the gun trade to the bank, the Office of the Comptroller of the Currency (OCC) added a section: 55.1(b)(3) to its rule on fair access so that banks cannot discriminate. That is to say, banks would not be able to deny a business loan to gun manufacturers, or make any denials based on ideological or political reasons.
Now though, since the Biden Administration has come to power, perhaps in an effort of bipartisan compromise, that clause was reversed by Brian Brooks, Comptroller of the Currency before leaving his post. Per the OCC, “in finalizing the rule, the agency considered more than 35,000 stakeholder comments and suggestions. As a result, the final rule excludes section 55.1(b)(3) of the proposed rule, which would have required that a covered bank not deny any person a financial service the bank offers when the effect of the denial is to prevent, limit, or otherwise disadvantage the person: (1) from entering or competing in a market or business segment, or (2) in such a way that benefits another person or business activity in which the covered bank has a financial interest. The overall rule, excluding that section, still leaves in place some “fair access” provisions that the next Biden-appointed Comptroller might disagree with. The revised rule, without the “Trump clause,” is set to take effect April 1, 2021, but a new, more political Biden appointee can still get rid of the rule in its entirety, and all fair access provisions too.