To sharpen oversight of the largest financial firms, the U.S. regulator of national banks said it will regularly rotate examiners working inside the companies and shift others to a program that identifies industry risks.
The Office of the Comptroller of the Currency, criticized for missing some high-profile problems such as JPMorgan Chase & Co.’s London Whale losses, will institute a five-year rotation schedule for in-bank examiners, the agency said today in response to a review of its practices by non-U.S. regulators. The agency also said transfers to the risk-analysis group would reduce the number of on-site examiners.
“Facilitating the sharing of information and knowledge among examiners across institutions and rotating examiner assignments will allow us to provide a fresh and broader perspective to the examination of each large institution,” said Comptroller of the Currency Thomas Curry, in a statement.
Curry, whose agency has drawn accusations that it missed JPMorgan’s massive trading losses, money-laundering violations at HSBC Holdings Plc and other big-bank missteps, took the unusual step of inviting regulators from other countries -- Canada, Australia and Singapore -- to review its approach to supervision. The OCC announced the changes today in response to a series of recommendations from the review.
Lawmakers have accused the regulator of missing early evidence the financial system was under threat before the 2008 credit crisis. A key recommendation from the foreign regulators was to beef up the agency’s stable of experts that looks for emerging risks in the banking system. The examiners being pulled from institutions, along with other staff members who focus on policy, will increase the program from 21 employees to 100, the OCC said.
“This is the most significant structural change any of the agencies has made in the wake of the crisis,” said Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc. She said Curry is turning the OCC -- which she said was “remarkably sleepy before the crisis” -- into a more aggressive supervisor.
She said rotating examiners will mean fresh eyes on each institution, even if the banks that were comfortable with the officials they knew may find it disruptive.
“I think a five-year rotation makes sense,” said Marcus Stanley, policy director at Americans for Financial Reform, adding that it will combat concerns that examiners could become overly sympathetic with a firm over time. He said he was less confident about withdrawing examiners from the big banks, saying the details of how the team of experts is used will be important.
“You definitely don’t want to do anything where you’re losing the supervisory intensity on the large banks,” he said.
In addition to the outside look, Curry said in September he had instructed his enterprise-governance deputy to run regular internal reviews of each division at the agency, “structured very much like a bank exam.”