Bank-Friendly Regulator Shifts to Revamp Reputation

U.S. Bank Regulator Curry Distances OCC from Bank-Friendly Past
Thomas Curry arrived at the Office of the Comptroller of the Currency in March after eight years on the board of the Federal Deposit Insurance Corp. -- two banking agencies that have often been at odds. Photographer: Jonathan Ernst/Bloomberg

In a stately hearing room stuffed with senators and bankers, Thomas Curry began his apologies. His agency should have stopped a major bank from helping drug cartels launder cash. The violations went on for years while his agency was overly passive.

“I deeply regret we did not act sooner,” he said.

Curry had been on the job for just over three months on that day in July, so the mistakes hadn’t been made on his watch. His apologies were less a confession than a signal the Office of the Comptroller of the Currency -- long seen as the most bank-friendly of U.S. regulators -- was changing course.

“I’m not interested in what people thought about in the past,” he said in an interview. “My focus is going forward.”

Since Curry took over in March, at least two key staff members closely associated with the agency’s pro-industry stance have departed, notably chief counsel Julie Williams. A 19-year OCC veteran, Williams was known for helping nationally chartered banks resist state regulation by arguing they were pre-empted by often less-stringent federal rules.

Curry has also raised the profile of consumer protection and shifted focus toward “operational risk” -- the idea that bank practices and management can pose as much of a threat to safety and soundness as external forces.

Change in Culture

“We’ve seen some change under his leadership,” said Chris Cole, senior vice president and regulatory counsel for the Independent Community Bankers of America in Washington, particularly Williams’s departure. “I think that’s probably evidence of a change in culture.”

Curry arrived at the OCC in March after eight years on the board of the Federal Deposit Insurance Corp., a bank regulator with a different history and mission. The FDIC, founded during the Great Depression, was created to protect depositors from bank runs and other threats. The OCC, on the other hand, was established during the Civil War to create a uniform currency and a system of national banks.

The OCC has long been tagged by critics as a collaborator with U.S. financial giants, including those running the largest national banks: JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co.

Curry’s four predecessors all became advisers to the banking industry after they left the job -- three as lawyers in financial-services practices and Eugene Ludwig as founder and chief executive officer of Promontory Financial Group LLC, a Washington-based consulting firm.

FDIC Influence

A number of Curry’s changes have the result of making the OCC look more like the FDIC. Retiring chief of staff John Walsh, who served as acting comptroller before Curry, was replaced by Paul Nash -- a top deputy to former FDIC Chairman Sheila Bair who previously worked for Senator Tim Johnson, now head of the Senate Banking Committee. He also tapped Ken Kilber, his FDIC aide who is at the OCC on temporary assignment.

Bair has criticized the OCC for failing to keep proper independence from banks it oversees and called for the agency’s dissolution in her financial-crisis memoir published last week.

She says Curry is working to make the OCC “a regulator for the public, not a regulator that views itself as protecting banks,”

“I absolutely think he’s trying to change the culture,” Bair said in an interview.

Curry, 55, got his start in Massachusetts, working as a lawyer for the secretary of state and rising to serve two stints as the state’s banking commissioner. He also served as chairman of the Conference of State Bank Supervisors in 2000 and 2001.

State Focus

Michael Stevens, senior executive vice president for the state regulators’ group, said he looked forward to working with a comptroller more in tune with the states.

“He clearly understands our process in terms of how we approach issues, and he knows many of the players,” he said.

Under Curry, consumer protection has already gained new prominence at the OCC. John Dugan, who served as comptroller before joining Covington & Burling LLP in 2010, said bank stability should be a higher priority for the agency than consumer protection. The Dodd-Frank Act enacted that year transferred some OCC duties and staff into a separate bureau with an explicit mission to protect consumers.

The OCC worked alongside the Consumer Financial Protection Bureau on a $210 million settlement with Capital One Financial Corp. in July and another this week with American Express Co.

Curry said his relationship with CFPB Chief Richard Cordray -- with whom he sits on the FDIC board -- is as important as his ties to Federal Reserve and FDIC officials.

The OCC and CFPB are “kind of in the dating stage now,” he said.

Community Banks

Although headline-grabbing events at big firms drew Curry’s initial attention -- including a multibillion-dollar trading loss at JPMorgan and the July hearing on HSBC Holdings Plc’s anti-money-laundering lapses -- he said he plans to focus more on community banks, many of which hold national charters.

“People tend to think of the OCC as the large-bank regulator,” Curry said, even though almost two-thirds of his budget and staffing goes to supervising community banks. Only about one in 10 banks overseen by the OCC has more than $1 billion in assets. Curry wants to better tailor the supervision at community banks and will weigh their concerns about Basel III capital standards proposed by his and other agencies.

‘An Improvement’

“Before, some community banks felt like the OCC didn’t give them enough attention,” Cole said. “I think Tom Curry will be an improvement.”

Staffing changes may continue. The comptroller said he’s taken over a 3,600-person agency burdened by an aging staff with limited succession options. Many are experiencing a “burnout factor” from the 2008 financial crisis and the ensuing implementation of Dodd-Frank rules, he said.

Curry said he intends to recruit from outside the agency for the legal division while expecting the usual challenge of attracting financial experts to government work.

“It’s not like you can offer people huge signing bonuses and baseball-star salaries,” he said.

In another sign of a new era in banking regulation, Curry used one of his first speeches to say that credit risk -- the menace of the crisis -- is no longer the chief threat to the safety and soundness of banks. He said “operational risk” has taken over, leaving banks vulnerable to human errors such as flawed risk models and mortgage-servicing failures.

‘Tougher’ Climate

Arthur Wilmarth, a law professor specializing in banking and financial regulation at George Washington University in Washington, predicts a “tougher supervisory climate toward the largest banks” and said the industry would push back.

“They’re not used to having the OCC take an independent view toward them,” he said in an interview. The OCC’s “change in tone” includes Curry’s willingness, unlike some of his predecessors, to admit mistakes, Willmarth said.

Bair said the agency’s independence problems stem from structural factors, including its industry funding. Until Congress responds to the “steady drumbeat of criticism” of the OCC, Bair said she hopes Curry makes headway on his own.

“We all should wish him well,” she said.

Cornelius Hurley, director of the Boston University Center for Finance, Law & Policy, described Curry as “independent, low key and thoughtful” and said he’ll know when to push against Treasury Secretary Timothy F. Geithner.

“Look for Tom Curry to be the Sheila Bair of the next phase of the country’s banking crisis,” Hurley said.

(Corrects name of a Boston University school in last paragraph of a story published Oct 4.)
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