‘We were willing to shock historical norms’: Otting on OCC’s makeover
WASHINGTON — For a year and a half, Comptroller of the Currency Joseph Otting has conducted an overhaul of key processes — reforming bank supervision, changing certain aspects of the comptroller's role at the agency and aiming to cut $20 million in expenses by the end of 2019.
Those efforts, which Otting acknowledges took time for OCC staff to embrace, are related to his larger goal to create a “single supervisory platform” for all banks by next year.
“Anything that touches the examination process ... we put that under one umbrella because we think that gives us the ability to look holistically at how will examinations be done in the future,” Otting said in a recent interview with American Banker.
The OCC currently has two platforms to conduct exams: one for large-bank supervision and the other for midsize and community banks. Otting said that exams will still be tailored to each institution but that the process will feed onto one platform. All supervision leaders will report to a single person or “umbrella.”
The agency took the first step in the process last year when it reduced offices, vendors and paperwork in an effort to slash expenses. The downsizing did not go smoothly at first, Otting said.
In early 2017, “a lot of people came into my office at that point in time and said there was no way we could get there and I was being unreasonable in my demands and requests,” he said. “I needed to be able to demonstrate to people ... that we were willing to shock some of the historical norms.”
Otting also defended his decision for examiners-in-charge to return to being on-site at large banks, a reversal from his predecessor who started removing resident examiners over concerns of regulatory coziness with banks. He also acknowledged he has become the “deadline” regulator among the heads of the federal banking agencies, leading the push for them to complete joint reforms of the Community Reinvestment Act. He hopes to release a CRA proposal this summer.
Below is a discussion with Otting about the OCC's policy agenda, including changes to the supervisory process, the CRA reform effort and the agency's attempt to create a national bank charter for fintech firms. The responses are excerpted and edited for length.
Since becoming comptroller, you have often talked about making the OCC's operation more efficient. How is that going?
JOSEPH OTTING: What I needed to be able to demonstrate to people when I got here was that we were willing to shock some of the historical norms. And that would spur thinking amongst people on how to participate in that.
Some examples was the photocopying. This isn't an overstatement. Virtually every meeting, everybody had a three-ring binder and most of that data had to be produced two days in advance. And when anybody wanted to change one page in the presentation, you had to go find all those three-ring binders and get another new page put in. So we cut that and we do 3 million less pieces of paper.
I also requested of the executive management team to get together and actually flat-line the expenses last year. A lot of people came into my office at that point in time and said there was no way we could get there and I was being unreasonable in my demands and requests.
I wasn't saying, shrink your expenses. I was basically saying, let's get to flat. And at the end of the day, we actually shrunk a couple percent. What that did for me was it set in place a transformation of the way that people could look at the agency and what they do. In this year, our expectation is to be down $20 million. And I do believe we will exceed that goal also.
We've also gone through all of our real estate in the agency. We gave up a second building [in Washington] and consolidated all our contractors into this [headquarters] building and I think the savings on that is roughly $5 million a year. We're re-evaluating this building and restacking for modern times and looking at whether we could offer up to another tenant some of the headquarters space.
We've looked at our vendors and quite frankly just cut out some vendors that were providing services to the agency that we didn't think were critical or we had duplications.
Also, it used to be about 90% of most decisions came to the top, the comptroller. So I spent my first year in the agency looking at where we could delegate authority. We're probably down to less than half of those decisions that now have to come up to the agency head.
For anything that touches the examination process, we put that under one leader. And that includes large bank, midsized, community banks, the economics department and our policy activities. So we put that under one umbrella because we think that gives us the ability to look holistically at how will examinations be done in the future.
And then lastly, shortly after I arrived, we took a hard look at the role of the EIC [examiners-in-charge] and regional examiners in the community and midsize bank groups, and really focused on what authority that they had leading the examinations. In some regards they felt like most of the decision making had gone to Washington. We've actually turned that around and pushed it back out into their markets.
How does the bank examination and supervision process play into your efforts to bring greater efficiency?
We have a big project underway that we call the single supervisory platform where we're taking the two platforms that we use today — one for large banks and one for midsize and small banks — and by the end of next year, have one supervisory platform in the organization.
What we find today the way banks give us their data, is often our people are data aggregators and pulling data out for the examination. And we'd like to be able to get to the point where we're much more consistent in the way the data arrives to the OCC.
Are there defects with the preexisting examination process?
No. Here's what I always tell people: I think the end product that the OCC produces is a fantastic end product. But the process to get there is highly complex for our examiners. You know, pulling data they gather in, ultimately writing the report and circulating that report within the institution for review. It's all the mechanisms that it takes to get to that final product.
If you can streamline a lot of those respective activities, you can make that process more efficient.
Why is it necessary to put examiners-in-charge back on-site at banks?
The most important point is, if you do a thorough analysis [of the Government Accountability Office report], you can't come up with any instance of regulatory capture. People will always come in and analyze our processes and systems and then come up with recommendations. It doesn't mean we always have to take those recommendations. There was a bit of a push to move examiners off-site, and I think that was a bad decision. So when I got here, I stopped that process.
You say there are no real instances of regulatory capture at the OCC, but can it occur?
I think anything can occur. I used to believe in the Easter Bunny.
But you have to realize is, not only is there a five-year time limit for EICs, but there is connectivity by the next level up in the organizations with the management and boards of those organizations. And there's generally independent review of the work with people in other parts of the organization who are evaluating it. So it would be very difficult if one person decided to be rogue and not adhere to regulations or policies, or if there was discovery that they tried to suppress it. I think it would be very difficult.
The heads of all the prudential bank regulators met in April to discuss reforms to CRA. What came out of that meeting and what are the next steps?
It is our hope that some time mid-to-late summer that we could be in a place where we all can agree on all the fundamentals of CRA. I do think there is a vast majority of agreement today.
Everybody has the same goal in mind about how do we quantify this for the banks so they feel better about what they're doing and where they're doing it. And that there's a mechanism for them to accurately know where they are in CRA credits throughout the year. And then give them the flexibility to do more in markets other than their assessment areas, once they meet certain levels in their assessment areas.
Our plan is to have a list that institutions, community groups and civil rights organizations can see: these are the things that qualify for CRA, subject to us doing an exam and validating that it serves a low-to-moderate-income neighborhood. And then we want to give people like a 1-800 number where they can call their primary regulator and get a read on something.
FDIC Chairman Jelena McWilliams referred to you as the regulator who sets deadlines. How do you feel about that label?
It’s really about taking risk and being willing to put a stake in the ground about where you're trying to go and what you're working towards. It’s not a frequent thing that's exercised in Washington, D.C. Coming from the corporate world saying, "Here's where we're going, here's what we want to get done" and then holding both yourself and your team accountable to those dates and times is a normal process.
A judge recently said the New York State Department of Financial Services can proceed with its suit challenging the OCC's fintech charter. How did you react to that news?
It annoys me. Here's what I would say to this: Respect the judge who made the decision. You know what I mean. I think you have to respect any person in that capacity. However, we still feel we have the legal authority to do this. The great legal minds that I have spoken to both before and after this decision still feel that way. There is ambiguity and you know the national banking laws. If you apply his principle then you know every bank would have to have an active deposit to do anything in the banking industry. And you know we intend to defend ... what we think is our legal right to do that.