The Office of the Comptroller of the Currency (OCC) is the federal agency responsible for chartering, regulating, and supervising all national banks, federal savings associations, and agencies of foreign banks. It primarily regulates the risk that banks can take on, delineates what is considered “banking,” and investigates banks’ balance sheets.
Budget and Staffing
The OCC is a relatively unusual case amongst the federal financial regulators in that its resourcing has long been robust and stable, owing to its self-financing capabilities through its fee authority over the banks under its purview. In 2011, the OCC boasted an $877 million budget, and staffed 3717 full-time employees (FTE). That year, it supervised around $9.701 trillion in U.S. national banking assets. In 2019, the OCC operated with a $1.086 billion budget and oversaw $12.8 trillion in supervised assets. Over the decade, the OCC’s budget and market responsibility have increased relatively proportionately, with its market responsibility increasing by approximately 32% from 2011 to 2019, and its budgetary authority increasing by approximately 24% over the same period.
However, the disparity between the OCC’s self-dictated budget authority and its supervised assets has been growing in recent years. Curiously, the agency has repeatedly cut its own budget and fees since 2018, citing increases in efficiency. This justification, however, could do with a critical second look. These cuts came amid a broader push across the Trump administration to reduce regulators’ capacity to enforce the law. Further, they coincided with a period of significant staffing loss at the agency. Just under 500 FTEs disappeared from the OCC between 2017 and 2020, while the agency’s supervised assets continue to increase (and even grew by an irregularly high 10% from 2019 to 2020). These downward trends coupled with continuing increases in the OCC’s market responsibility are extremely concerning, and the OCC should revisit recent changes and evaluate if its current budget and fee policies are sufficient to service the agency’s mandate, including new climate responsibilities.
These recent trends aside, it’s clear that the OCC’s self-financing capacity has allowed it to avoid the chronic under-resourcing that plagues other regulators. However, this institutional design feature has also created a host of other issues.
The OCC only regulates, and only has fee authority over, national banks, meaning banks that are chartered federally and not on a state level. Banks have the ability to choose where they are chartered, and to change their charter (from national to state and vice versa), should one or the other prove more favorable to that bank’s interest. Because the OCC derives the majority of its funding from the fee collection of its regulated entities, this means that it has a defined financial interest in courting banks to national charters and to ensuring they stay federally registered. Historically, this has led the OCC to undercut stricter state regulations in order to attract the business and associated fees of big banks. These practices have created an OCC that functions as less of a watch-dog and regulator and more of a “big-bank trade association embedded in the federal government — a lobby with the power to write its own rules,” as described in Washington Monthly. In other words, the OCC has long been a “classic captured agency” that views the banks it ostensibly regulates more as customers than as charges, to the benefit of big banks and the detriment of the American public. A report from the Government Accountability Office in 2019 explained that the OCC was extremely vulnerable to regulatory capture, and that it had done little to address these risks. The OCC “disagreed” that it was at risk of regulatory capture relating to its large bank supervision responsibilities in particular, and as of 2021, the Office had no stated intention, or plan, to implement five of the GAO’S nine recommendations for mitigating this risk. The OCC did implement four of GAO’s recommendations — including the implementation of periodic self-assessments of the agency’s ethics program and its inclusion of expanded “risk factors” relating to regulatory capture. However, it ultimately left some of the most significant recommendations such as implementing a policy to check for employees’ active conflicts of interest and the documentation of all regulatory communications, completely unaddressed.
The OCC’s coziness with industry is all the more concerning because of the scale of its responsibilities. Wells Fargo, Bank of America, JPMorgan Chase, and Citigroup (banks that hold 38% of all deposits nationwide) are all chartered with the OCC. Altogether, the Office currently oversees over 65% of U.S. commercial banking assets overall. In other words, when OCC regulation is lax, it endangers a huge portion of the U.S. banking system and consumers.
Regulatory capture has material consequences for the rest of the country. For example, the OCC has been Wells Fargo’s primary regulator throughout its slate of scandals over the past five years, including while Wells created and charged consumers for fake credit card, insurance, and checking accounts, engaged in racketeering on foreclosed homes, falsely padded auto insurance rates, and more. The OCC’s negligence enabled this malfeasance, which has affected hundreds of thousands of Americans, and compromised hundreds of peoples’ credit scores, costing them their homes, livelihoods, cars, and more. In 2017, months after it was revealed that Wells was secretly adding insurance to auto loans, the OCC was still not sure if Wells had paid these padded loans back, something which had – and continues to have – real consequences for hundreds of thousands of people. As of August of 2021, Wells Fargo has still not satisfied its obligation to compensate all of its victims.
Industry coziness has long reached all the way to the OCC’s top spot. For example, Trump’s Comptroller from 2017-2020, Joseph Otting, was a banking executive prior to his appointment, serving as President of CIT Bank and Co-President of CIT Group from August 2015 to December 2015. Prior to that, Otting was President, CEO, and a Board Member of OneWest Bank, N.A., Vice Chairman of U.S. Bancorp, and “a member of U.S. Bank’s main subsidiary banks’ Board of Directors.” Following his resignation in 2020, Otting almost immediately joined BlackKnight, a fintech firm, after he worked to privilege fintech platforms through chartering them under the OCC’s authority. This move was heavily opposed by multiple consumer advocacy groups, because it “risk[ed] an expansion of predatory lending across the country.”
Loose ethics standards in the OCC’s top spot have already demonstrably harmed the public, and imperiled the domestic and global economy. John C. Dugan, for example, was an OCC Comptroller from 2005 to 2010. Prior to that, Dugan was a lobbyist for several Big Banks and an advisor to the American Bankers Association, JPMorgan Chase, Brown Brothers Harriman & Co., and more. During his OCC tenure, Dugan was continuously criticized for his bank-friendly attitudes and policies, including his reticence to levy serious penalties against banks and his opposition to any regulatory redress of abusive banking practices at the state level. Of course, Dugan is also considered one of the major architects of the “too big to fail” economy and, through his gutting of consumer protections, the 2008 financial crisis that resulted from it. After orchestrating massive public bailouts for banks such as Citigroup and JPMorgan, Dugan quickly returned to lobbying for these same banks and associations, and in 2017 was tapped as a board member for Citigroup. Finally, in 2019, Dugan was named chair of the Citigroup board, the position he currently occupies.
Dugan and Otting demonstrate how the Comptroller of the Currency has long been a friend and partner of the banking industry. Saule Omarova, Biden’s original nominee to the position, seemed poised to break that tradition as a proven advocate of strong regulatory regimes in the public interest. However, the vitriolic smear campaign conducted against Omarova by the Big Bank lobby, fossil fuel titans, and their Republican allies has shed light on just how difficult industry influence is to unsettle within the agency and amongst its leaders. Omarova’s confirmation hearing highlights how these industries will go to extreme lengths to protect their existing privilege within the agency, regardless of the consequences for the stability of the financial system. Unfortunately, this deeply personal, racist, sexist, and xenophobic campaign proved successful, and culminated in Omarova’s withdrawal from consideration on December 7th.
The agency’s revolving door, and the privileged position industry holds within the OCC, has historically undermined the agency’s mission to maintain the safety and soundness of the banking system, and to make sure banks treat consumers fairly and in accordance with the law. Further, these historical failures cast doubt over the agency’s willingness to carry out its emerging responsibilities to respond to climate-related financial risk within the banking industry.
The OCC is integral to the fight against climate change because, as Lorne Stockman of Oil Change International has said, “our future goes where the money flows, and in 2020 [big banks] have ploughed billions into locking us into further climate chaos.” The OCC has the authority and the responsibility to regulate against big banks’ reckless investments in fossil fuels, yet it has chosen not to. Even since the passage of the Paris Accords, something that many big banks superficially support, the banking industry has continued to dump trillions of dollars into the financing of fossil fuels. In fact, fossil fuel financing “from the world’s 60 largest commercial and investment banks was higher in 2020 than it was in 2016.” Notably, the three banks that did the most fossil fuel financing in 2020 were JPMorgan Chase ($51.3 billion), Citigroup ($48.4 billion), and Bank of America ($42.1 billion) all of which are chartered under the OCC. The troubling reality is that nationally chartered banks are indisputably fueling climate disaster and, in the process, threatening financial stability. This terminal threat to our collective financial security firmly situates climate concerns, and the regulation that must address them, within the OCC’s responsibility to the public.
While there is significant work left to be done, the OCC has made important progress on climate issues. For example, the OCC has already joined the Network for Greening the Financial System, a move which Public Citizen has stated is essential for all financial regulators in its “Climate Roadmap for U.S. Financial Regulation” report. The OCC has also already appointed a climate change risk officer to oversee the agency’s climate activities, and released first-of-its-kind climate guidance in December of 2021. The December guidance is particularly laudable in the fact that it “[recognizes] that managers may need to limit bank activities to mitigate climate-related risk and [instructs] bank managers to consider disproportionate impacts on disadvantaged households and communities,” in their crafting of climate policies. The release complements additional climate guidelines the agency published in November laying out detailed climate-centered questions the agency now expects large bank boards to pose in conversations with bank management. Both sets of guidance, while incomplete, highlight the kind of regulation that is likely forthcoming from the office this year, including the demand that banks evaluate exposure to climate change overall, extreme weather events, and other transitional and physical risks. This guidance also requires the development of internal infrastructure for evaluating these risks using both qualitative and quantitative methodologies in order to accurately contextualize the climate risk each bank faces. These moves, which have been applauded by Americans for Financial Reform, amongst other advocates, represent important steps towards implementing a comprehensive regulatory regime that accounts for, and responds to, climate-related financial risk. However, the OCC still has significant work left to do.
First, the OCC must immediately disavow the misleading and heavily protested “Fair Access to Financial Services” rule that pressures and at times requires banks to lend to fossil fuel companies. Biden’s OCC has thankfully paused publication of the rule that was improperly forced through the OCC’s policy making processes by Trump era officials, but the rule remains in review, and an encompassing rejection of its contents is still necessary to fully renounce the policy. The rule encourages banks to fund climate devastation, and even penalizes those that act on overwhelming evidence that fossil investments are not only a planetary risk, but ill-conceived long term investments. It has no place within a truly climate-facing regulatory framework.
To meaningfully fulfill its responsibilities, the OCC must also re-work its capital requirements to fully account for the physical and transitional risks that climate change creates. Climate change poses a lethal threat to the financial system, and virtually all large banks are financially enmeshed in risk-laden carbon-heavy industries, but the financial risk inherent to these industries is chronically underestimated. These investments, while financially unstable due to the transitional and physical risks these industries face because of climate change, are not presently evaluated as “risky.” This means that the capital requirements for banks with these investments are critically underestimated, leaving financial institutions vulnerable to the dangerous shocks that will increasingly reverberate through, and eventually destroy, these industries. Capital requirements should be updated so that banks that are heavily invested in fossil fuel interests are required to have adequate funds to back the risks posed by these investments. This can be addressed in several ways, including through lowering the amount of debt held relationally to the size of risk within each investment and also in requiring increased equity capital to fully account for all of the risks contained within it.
Further, as RDP’s Dorothy Slater has detailed previously, the OCC could threaten to revoke charters from banks that continue to invest in carbon-heavy and climate-devastating activities, or to fine banks whose financing contributes to climate devastation. “As long as charter revocations and fines [are] tied directly to a clear financial or systemic risk (and climate change should be designated a systemic risk,) the OCC has clear power in this jurisdiction,” and the responsibility to act upon it. The OCC has the power to hold banks accountable to, and financially liable for, the material consequences of their dangerous short-term profiteering. By prohibiting direct fossil fuel holdings by banks, the OCC would be regulating banks into a more sustainable and financially stable future.
In order to aid its implementation of these climate responsibilities the OCC should also re-evaluate its recent staffing trends to ensure that its losses are not hindering its implementation of existing, or of future, oversight policies. Further, the OCC should establish, and quickly staff, a new subdivision dedicated to climate-related risks and regulation, and whose senior officer must report directly to the Comptroller. Establishing such an office would ensure that the OCC operates at its full capacity in the desperately needed implementation of climate focused regulations, and would firmly center climate-costs as key in the oversight and supervision activities of the regulatory body. Placing its senior officer high in the reporting hierarchy would also help to legitimize the office and to ensure that the financial dangers of climate change are consistently considered at the highest levels of the OCC’s leadership structure.
In order to institutionalize any real action that will account for and help mitigate climate change’s destabilizing effects, however, the OCC must finally acknowledge — and work to address — its longstanding industry coziness and to regulate against its own revolving door. To do so, the OCC must finally accept and immediately work to implement suggestions made in the 2019 GAO report, including to require documentation of all communications between large banks and their regulators and to check employees’ active conflicts of interests during the staffing process. Collusion between regulators and banks inherently undermines the regulatory process, prevents regulations that are on the books from being fully enforced, and detracts from the centering of the public in the innovation of new and necessary policies. As such, the OCC must de-center corporate banks and re-center the public in its actions and decisions.
Regulating against the revolving door also means committing, and enforcing, more robust ethics guidelines both prior to, and following, public service in the agency. The OCC should consider following the lead of the Consumer Financial Protection Bureau which recently issued guidance instructing employees “to report suspicious communications and activity by former employees to agency officials.” This policy is designed to improve detection of “behind the scenes” assistance from CFPB alumni and the enforcement of existing ethics laws.
Implementing the necessary changes will require bold leadership as reforms will undoubtedly be met with resistance from those who stand to benefit from the status quo. Reform efforts would also likely stand to benefit from greater certainty surrounding OCC leadership — almost a year after taking office, the Biden administration still has an acting official leading the Office and, after the withdrawal of Saule Omarova’s nomination for the permanent role, no clear plans to change that. Installing a permanent leader, one who preferably comes from outside the agency, should be an urgent priority for this administration.
Big banks have proven that they have no interest in altering their collusive participation in climate devastation. To meaningfully mitigate climate change, then, banks must be made responsible for the irresponsible levels of risk (financial and otherwise) that they currently pursue. To do so requires immediate and encompassing action from regulatory bodies, and the OCC must be at the forefront of this charge.
Image: “Climate Emergency – Families facing Climate Change” by John Englart (Takver) is licensed under CC BY-SA 2.0