WASHINGTON — When veteran regulator Tim Long announced his retirement from the Office of the Comptroller of the Currency last year, the agency quickly replaced him with David Wilson, its deputy comptroller for credit risk.
To do so, however, officials had to work around the strict ethics rules governing federal employees because Wilson, who would oversee supervision policy for all national banks, is married to a high-level executive at Bank of America.
Wilson recused himself from certain matters directly involving the bank and received an all clear from OCC ethics officials, but barely four months later, he was belatedly reassigned after regulators realized the situation created the perception of a conflict of interest.
Although his objectivity and performance were never called into question, industry observers and ethics lawyers said placing Wilson in the position in the first place feeds the idea that the OCC is not only too close to big banks, but indifferent to the criticism.
"Even here where there is no allegation of any actual serving of a private interest over public interest, these conflict-of-interest rules are intended to serve a kind of prohibitive purpose," said Robert Walker, a government ethics lawyer at Wiley Rein LLP and a former chief counsel and staff director of both the Senate and House Ethics committees. "That is to avoid the possibility that the public could be concerned that private interest is being put above public interest."
The allegation that regulators are too close to the entities they supervise is not new, and certainly not unique to the OCC. But in the current political and cultural environment, the banking agencies — especially the OCC — remain at the center of a backlash against federal regulators.
Case in point: the $2 billion-plus trading losses suffered at JPMorgan Chase, a result of trades that even CEO Jamie Dimon admitted were sloppy and stupid.
Even as other regulators said they were investigating the trades, the OCC initially stayed mum, and at one point suggested that the trades would not have been prohibited by new restrictions on proprietary trading. (The agency has since backed away from those earlier statements.) But critics wasted no time pointing fingers at the OCC, raising questions about potentially lax supervision and calling on agency leadership to clean house.
The agency has also faced criticism for allowing the largest mortgage servicers to select their own auditors for an independent review of foreclosures required by consent orders signed last April. (The OCC approved their selections, but critics have charged the process was deeply flawed).
While Wilson's appointment isn't directly related to those issues, it still raised eyebrows among observers who said there should be a higher bar for concerns about objectivity and independence, as the sensitivity to potential conflicts of interest has escalated in recent years.
"The OCC in particular has been dealing with this perception that they're too close to the banks, and has been on defense somewhat," said one former senior OCC official. "And this kind of thing can feed that perception."
Government ethics lawyers said that, despite efforts to keep Wilson's work separate from issues involving Bank of America, it should have been obvious that there was a significant conflict of interest — specifically, his wife's compensation.
"This is a no brainer," said Richard Painter, the White House's chief ethics lawyer from 2005 to 2007 and a professor of corporate law at the University of Minnesota Law School. "If somebody is at OCC and their spouse works at a bank, you've got to make sure the spouse doesn't get paid in bank stock, bank stock options or any type of a bonus that's tied to profits. If they are, you run right into a problem in the statute."
Wilson's financial disclosure form for 2011 notes that his spouse collects a salary from Bank of America, but does not list the amount.
According to the form, however, Elizabeth Wilson has deferred compensation from Bank of America — including 401k and pension accounts — worth more than $1 million, on which she collected between $15,000 and $50,000 in dividends last year.
She was also granted between $15,000 and $50,000 in restricted stock that vested last year — an award that is typically tied to compensation. According to the form, at the end of 2011, she owned between $15,000 and $50,000 of restricted stock units in B of A, as well as additional Bank of America-Merrill Lynch stock worth between $15,000 and $50,000.
In his four months as chief national bank examiner and senior deputy comptroller for bank supervision policy, Wilson directed the formulation of policies and procedures for regulation and examination of national banks, chaired the agency's committee on bank supervision and served as member of the OCC's executive committee.
The agency's rules prohibit employees, or their spouses or minor children, from owning any securities in any national- or state-chartered bank. And they also state that employees may not participate in any matters that could affect their financial interest, or that of their spouse of minor child.
"Also, you may not participate in anything at the OCC that could give even the appearance of a financial conflict of interest," the agency says on its website.