WASHINGTON — Comptroller of the Currency Joseph Otting laid out an ambitious regulatory reform agenda Monday, telling a group of community bankers that he is committed to upgrades for the Community Reinvestment Act, new flexibility in Bank Secrecy Act compliance and other measures.
Otting, who spoke at a meeting of the Independent Community Bankers of America, has come to the regulatory forefront like other Trump administration appointees pledging to take financial services policy in a different direction compared with the Obama era.
In addition to reforms related to CRA and BSA, Otting also articulated the Office of the Comptroller of the Currency's new openness to small-dollar lending, and said the agency wants to give more decision-making authority to examiners in the field.
Here are some highlights from his remarks.
Getting anti-money-laundering costs under control
Otting said the OCC was looking into how to cut the costs of complying with the Bank Secrecy Act and anti-money-laundering regulations, known as BSA/AML. The bank regulators work with the Financial Crimes Enforcement Network to examine financial institutions for compliance with BSA/AML, but Otting said it has become “incredibly expensive and very difficult” to be in compliance.
In response, the OCC will be presenting to Fincen in the coming weeks a list of areas where regulators can “allow more flexibility” to banks without introducing more risk into the system, Otting said.
“This is a highly complicated issue because we all want to protect the banking system so that bad money can’t come into the system,” he said. “The whole question is: how do you eat an elephant? It’s kind of one bite at a time.”
CRA getting a face-lift
The first policy that Otting said the agency is seeking to revamp is CRA enforcement, which both bankers and consumer groups argue has become outdated with a grading system for banks that is inconsistent and unclear.
Otting said the agency is looking to create a uniform grading system for banks of all sizes that will take a bank’s community reinvestment lending activities and “divide it by one item on the balance sheet, whether that’s deposits, Tier 1 capital or total assets.”
“There’d be no magic,” he said. “And so every three years, when the CRA exam occurs, you’d know where you were so you wouldn’t have any questions.”
The OCC is also looking at broadening the categories for which a bank can get CRA credit. In recent years, the scoring has been more heavily focused on low- to moderate-income residential lending, but Otting said he wants to expand the credits to small business and student lending, for example. He also advocated for more “real-time” exam results on CRA because the process from when an exam occurs to when a grade is given can take up to a year or more in some cases.
During an exam cycle, if a bank wants “to open a branch, close a branch or make an acquisition, certain community groups know how to . . . hold you hostage during that process and they use your lack of compliance in between the reviews in order to be able to do that,” Otting said. The OCC “will have real-time data every quarter, where we can basically certify that you’re in compliance with CRA."
Regulators plan to put out an advance notice of proposed rulemaking in the coming weeks to ask for comments on how to change CRA. The other two bank regulators — the Federal Reserve Board and the Federal Deposit Insurance Corp. — are largely expected to join the proposal but have not yet confirmed whether they will work with the OCC or independently.
“I am hopeful and confident that they will join us in this journey,” Otting said in speaking about the FDIC and Fed. He said the OCC believes “in the next two to four weeks, we will be able to release a joint agency document that will go out for advance notice for comments . . . to try to put forth a rule later in the year.”
The OCC now welcomes small-dollar lending
In a reversal from post-crisis regulatory policy under the Obama administration, Otting said the OCC now sees no problem with banks getting back into small-dollar consumer lending, specifically for loans between $500 and $5,000.
“We forced banks out of that small-ticket and consumer lending” space, where some rules required “full underwriting for a $500 loan that just don’t make sense,” he said. “We really want more banks back in that space because you will do it at a fairer, cheaper and with better rates issued than anybody else.”
Shifting power to examiners in the field
Another significant change for the OCC under Otting will be shifting the decision-making authority from Washington back to the examiners in charge, called EICs, at the banks.
“Over the last five years we really feel like the examination staff that are out in the field interacting with banks, they really kind of had most of their decision-making authority pulled back to Washington,” said Otting, who received applause from the bankers in attendance. “We’re really on a mission now to re-decentralize the decision-making process with our EICs in the market.”
OCC is still uncertain about fintechs entering the banking system
One area that Otting said the OCC has not yet made a decision on is whether to allow fintech firms to obtain federal charters to operate more like banks. Former Comptroller Thomas Curry was considering whether to create a special-purpose charter for fintech firms.
Many bankers have said they would be open to such a charter so long as the fintech firm was required to comply with all of the same regulations as banks. Otting said he would take a position on whether to charter fintechs within the next 60 to 90 days.
“We haven’t concluded on a position,” Otting said, but “if we did allow a fintech, they would be subject to the same rules and regulations as other banks” on areas like capital, liquidity and CRA activities.