Banking and Finance Law Daily Wrap Up, BANKING OPERATIONS—OCC releases peer review of large and midsize institutions, (Dec 6, 2013)

By Colleen M. Svelnis, J.D.

The Office of the Comptroller of the Currency has released a report prepared by a team of international regulators that had been tasked with providing an independent perspective on the OCC’s approach to the supervision of large and midsize banks and thrifts. Comptroller of the Currency Thomas J. Curry said in a release that the document has “a number of important recommendations that we can use to position the OCC to meet the challenges of the future.”

The report, released on Dec. 4, 2013, is titled “An International Review of OCC’s Supervision of Large and Midsize Institutions: Recommendations to Improve Supervisory Effectiveness” and it evaluates and includes recommendations covering six broad areas: mission; vision; strategic goals; risk identification; ratings systems; staffing; the scope and consistency of supervisory strategies; and enterprise governance.

Recommendations. The report made the following recommendations:

1. Revise the mission and vision statements and the strategic goals to make safety and soundness of institutions the OCC’s primary objective, consistent with compliance with applicable laws and regulations, including those regarding fair access and fair treatment of customers.

2. Enhance risk identification by expanding the role of Lead Experts, and ensuring that they have the capacity to provide meaningful input into the supervision of large institutions through review of examination papers and through the initiation of horizontal reviews.

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

4. 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 facilitate horizontal supervisory reviews and help to address staffing shortfalls, particularly in specialized skill areas, by allowing specialists to work on several institutions over a shorter period of time.

5. To further 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.

6. Enhance the scope and consistency of supervisory planning, risk assessment, and intervention by enhancing the existing peer review process to involve all relevant Examiners-in-Charge and Lead Experts, and by elevating key supervisory decisions such as material acquisitions to the Committee on Bank Supervision and/or Major Matters Supervisory Review Committee.

7. Ensure that the Enterprise Governance function commences its proposed work on documentation of quality management practices as soon as possible and that the OCC utilizes this to determine the standard and consistency of practices it wishes to put in place across the agency.

Letter to Curry. In a letter  to Comptroller Curry, Jonathon Fiechter explained the submitted report that his team put together and assessment of the OCC’s approach to the supervision of large banks and thrift institutions. The regulators undertook a broad review of the OCC’s supervisory processes, risk identification and follow-up, and the supervisory culture of the OCC. Fiechter stated, “Since the 2007 crisis, the OCC has embarked on several initiatives designed to improve operations. In the enclosed report, we have endorsed these initiatives and emphasized the importance of their effective implementation across the agency. We have also made recommendations related to the OCC’s mandate and strategic goals, the resident examiner program, and the role of specialists in the supervisory process.”

Comptroller response to report. In his acceptance of the report, Curry responded by thanking Fiechter and his panel of international regulators for the peer review. He acknowledged the recommendations and set forth a plan to put together internal cross-functional teams to review these recommendations and decide how to implement them. He stated his goal to have the implementation plans in place within 120 days. The Comptroller noted that some of the recommendations validate initiatives the OCC has underway, including eight current strategic initiatives. Curry said it appears that some of the recommendations can be evaluated and implemented fairly quickly, while others will require more study, planning, and preparation. “I believe it is vital that the people who will be most affected by the report’s recommendations be fully involved in their implementation, and I will appoint a number of cross-functional teams to evaluate the recommendations and make some decisions about how they should be implemented,” he said. “I will expect to see initial conclusions within 60 days and an implementation plan 60 days after that.”

Curry said he hopes the report will generate much discussion within the OCC, and serve as “one more catalyst for the kind of continual change that is a hallmark of a healthy organization.”

RegulatoryActivity: BankingOperations FinancialStability