The Office of the Comptroller of the Currency is rethinking its strategy for how it supervises Wall Street banks and deploys the examiners who work on-site at those institutions. If the plan moves forward, the number of examiners at big banks would be reduced, with top experts reassigned to industry-wide risk reviews.

As quoted in the Wall Street Journal, Comptroller of the Currency Thomas Curry said “the trick” will be striking the right balance between site-specific expertise and more systemic reviews from a central location.

The OCC currently supervises approximately 1,800 institutions. The large bank supervision program has approximately 620 examiners, the midsize bank program has approximately 130 examiners, and the community bank program has 1,700. The reorganization under consideration would not affect community banks.

The catalyst for rethinking how examiners are deployed was an external report commissioned by the OCC and released in December 2013. It was prepared by a team of current and former senior supervisory personnel from Australia, Canada, Singapore, and the International Monetary Fund.

The report flagged numerous concerns with the current examination process at large and midsize financial institutions. Those issues include: a high proportion of OCC examiners are at or near retirement age; a significant number of new rules and policies need to be put in place because of the Dodd-Frank Act, Basel Committee on Bank Supervision, and the Financial Stability Board; and the OCC must navigate multiple federal and state regulatory agencies with overlapping responsibilities.

This report makes several recommendations, among them:

Revise strategic goals to make safety and soundness of institutions the OCC's primary objective, consistent with compliance with applicable laws and regulations.

Better integrate the systems for assigning supervisory ratings to institutions (CAMELS ratings) and the Risk Assessment System (RAS), make examination ratings more forward-looking, and devise a more flexible approach to the consequences of ratings downgrades.

Move examination teams and subject matter experts from individual bank locations to shared OCC offices in the field, where practicable, to improve internal communications, sharing of information among examination teams, and workforce flexibility. This will help to address staffing shortfalls, particularly in specialized skill areas, by allowing specialists to work on several institutions over a shorter period of time.

To help address staffing shortfalls, devise a program to use retirement-eligible staff as mentors and explore how to accelerate the integration of private sector experts into the examination force.

If the strategic shift comes to fruition, it is long overdue, says John Alan James, executive director of the Center for Global Governance, Reporting and Regulation at Pace University's Lubin School of Business. He views it as evidence that regulators “overly-burdened  financial institutions with a mountain of complex, sometimes contradictory, requests for data.”

Another concern is that the current workload for examiners, keeping them on-site, doesn't allow for necessary, ongoing training, James says. “If, for example, an agency has half of its examining staff on site daily, or most of a week at one bank, when does the agency provide training for their own personnel? There is evidence that unnecessary conflicts over interpretation of a particular regulation occur because in some cases the bank's own personnel are more up to date than the examining staff,” he says.

No timeline has been announced for the reorganization plan

Topics