With the enactment of the regulatory reform law last month, most of the focus has been on how much power regulators acquired as a result of the statute.
But at least one banking agency — the Office of the Comptroller of the Currency — appears to have lost more than it gained from passage of reform.
For the past 10 years, the law has encouraged the Federal Reserve Board to defer to the OCC on issues related to units of large national banks. But the Dodd-Frank law has upended that relationship, and specifically tasks the central bank with watching all parts of a large bank holding company, including the bank itself.
Many are wondering whether that new authority, even if it is seldom used, will come at the expense of the OCC's power and influence.
"It sounds like conceptually this is a backup supervisory power," said Rick Carnell, associate professor of law at Fordham University and a former Treasury assistant secretary for financial institutions. "Powers like that — even if rarely used — can really change the balance and dynamics."
To be sure, the Fed has always had some oversight role of individual banks, but the Gramm-Leach-Bliley Act of 1999 required it to largely defer to the OCC on matters involving the biggest institutions. By anointing the Fed as systemic-risk regulator and charging it with heading off the next crisis, the Dodd-Frank law reversed course.
"The whole idea here was to create noisy regulation instead of something being kept confidential by the initial regulator," said Joseph Lynyak, a partner at Venable LLP. "They've extended the ability to gather information by diminishing primary regulation by allowing people to look over others' shoulders."
How the relationship between the Fed and OCC plays out is still unclear, but several observers said the comptroller's office is concerned.
"The bottom line is the OCC has no choice in the matter, because it's the law," said Frank Bonaventure, a principal at Ober, Kaler, Grimes & Shriver and a former senior counsel for the OCC. "Historically the OCC has been opposed to other agencies coming in. This is just going along the trend where it's a spread of knowledge among the regulators, so they all have a need-to-know basis."
While the Fed is unlikely to interfere on a day-to-day basis, the central bank may assert its authority in the event of a crisis.
"They can go in when they want to, but maybe that will be reserved for when the bank gets in trouble," said Ernest Patrikis, a partner at White & Case LLP and a former lawyer at the New York Fed.
Others said that while its role has been reduced, the comptroller's office retains significant power.
"The OCC is still going to be the operating regulator for the national banks," said Christopher Whalen, managing director at Lord, Whalen LLC's Institutional Risk Analytics.
"The Fed doesn't have the people or the inclination to get involved in the operating units. … Don't underestimate the OCC. It will continue to be very, very powerful day to day."
John D. Hawke Jr., a partner at Arnold & Porter and a former comptroller, said the Fed and OCC have a good working relationship.
"There's always been a high degree of cooperation between the Fed and OCC," Hawke said. "There's certainly been instances where there have been difference of views and awkward moments, but overall the agencies have cooperated and they share a common interest in ensuring the safety and soundness."
But it's also clear power has shifted toward the Fed. Carnell said the central bank will have to be careful not to overdo it.
"If the Fed can find an acceptable solution working with or through the OCC, it has some incentive to do that," he said. "If the Fed were to use its power in a heavy-handed way vis-a-vis the national banks, it risks alienating the OCC and national banks."
Although the OCC could lose clout as a result, some observers said it has at least one advantage. During the financial crisis, the Fed implicitly blamed the OCC for its failure to rein in risk at individual bank units, while the OCC argued most of the problems were at the holding company level.
Under the new system, the Fed can no longer pin much of the blame on the OCC. "There can be no finger-pointing, except the comptroller can point to the Fed," Patrikis said.
Still, it isn't just the Fed that will be looking over the OCC's shoulder. The new systemic-risk council, which includes the OCC and Fed as members, will also evaluate the risks of banks and their holding companies. While it does not have examination power — that is delegated to the Fed — it may still weigh in with recommendations on how to treat a large bank.
"There are potential conflicts all over the place," Oliver Ireland, a partner at Morrison & Foerster LLP, said. "It's not just here, it's all over the bill."
The Federal Deposit Insurance Corp., too, will continue to have some say over national banks. It previously held backup exam authority for all banks and has had an examiner on site for the largest institutions. Gil Schwartz, a partner at Schwartz & Ballen LLP, said the FDIC's experience with backup authority may prove a model for the OCC and Fed.
"The FDIC has examiners on site and I suspect the Fed will play a similar role, so you will essentially have more people to deal with," he said.
The OCC does have some limited powers to push back against the central bank. Under the law, the OCC or another primary regulator can point the Fed to a risky activity in a bank holding company and may act if the central bank fails to do so.
Overall, observers said the OCC and Fed will have to forge a new working relationship.
"The OCC and the Fed are going to have sit down and sort out what kind of information the Fed is going to want as part of its systemic-risk authority," said Bob Clarke, a senior partner at Bracewell & Giuliani LLP and a former comptroller of the currency.
Aside from the extra sets of eyes on its institutions, it is unclear overall what the OCC gained in the Dodd-Frank law compared to the other regulators.
The Treasury Department became the chairman of the systemic-risk council, the Fed is now the systemic-risk regulator and the FDIC gained resolution authority for bank holding companies and systemically important nonbanks.
The OCC, meanwhile, has less preemption authority, and it gained regulation of the thrifts only after the abolition of the Office of Thrift Supervision.
"Overall in relative terms their position's gone down," Ireland said. "They certainly rank above OTS, but it's hard to see them as a big winner coming out of this."