The news: Saule Omarova, a Cornell University law professor who is President Joe Biden’s choice to run the Office of the Comptroller of the Currency (OCC), faces an uphill climb to get Senate confirmation due to concerns from some Democrats, per CNBC.

The senators have qualms about Omarova’s advocacy for having the Federal Reserve take over US depository accounts, which would massively reshape retail banking.

OCC at a glance: The OCC presently regulates 1,141 financial institutions that, collectively, hold 67% of all commercial banking assets.

The regulator can affect people’s access to retail-banking products because of its authority over:

• Deciding on applications for charters and branches.
• Requiring that banks provide equal treatment and fair access to customers.

The radical idea: Omarova laid out her vision for a restructured Fed in a paper for the Vanderbilt Law Review, which was initially written in October 2020 and updated this month.

In her proposal, the professor explains how the central bank’s balance sheet would be reshaped—an approach that she calls a “People’s Ledger,” and that would include the creation of a digital dollar:

• On the liabilities side, she calls for a transfer of US demand deposits—which include checking and savings accounts—to the Fed, which would be called FedAccounts. These would be available to individuals, nonbanking companies, local governments, and nonbusiness entities.
• FedAccounts would pay interest, but also give depositors credits when the Fed aims to expand the money supply, which is a monetary policy action.
• In extraordinary cases where other tools the Fed uses to fight high inflation aren’t effective, it would need to shrink the money supply. This could lead to a scenario of it debiting funds from depositors. Omarova acknowledges that this scenario may be controversial.
• To avoid taking funds directly out of consumers’ accounts, the professor proposes splitting FedAccounts into two sub-accounts: one with a transfer function to move funds in and out, and another with an escrow mechanism with a reserve function for monetary policy. People below certain income and asset levels, local governments, and some businesses would be exempt.
• Private banks would continue to exist but operate differently. Omarova raised possibilities, such as providing due diligence for anti-money laundering (AML) and know your customer (KYC) rules, and continuing to offer non-checkable accounts and certificates of deposit—these could pay out higher interest than FedAccounts.

The bigger picture: Omarova’s radical FedAccounts proposal is part of a broader environment where every element in banking is now up for contention—either through government involvement or market-based disruption. Notable examples include:

• The U.S. Postal Service (USPS) rolled out a pilot in September that includes check cashing and ATM access, which echoes its former role in providing postal banking.
• US neobanks have decoupled official banking status from consumer interactions. For example, Chime relies on Stride Bank and The Bancorp Bank to power its accounts.
• Retail giant Walmart has jumped into retail banking with a demand deposit account (DDA) offered in partnership with Green Dot.

That said, even in an environment full of reassessments of how banking works, Omarova’s proposal is likely a step too far for a majority of senators, which could sink her OCC nomination.