Acting comptroller's wish list echoes long-held demands by banks
WASHINGTON — In his first testimony to Congress, acting Comptroller of the Currency Keith Noreika is set to submit a laundry list of detailed proposals to loosen regulatory restrictions on financial institutions of all sizes — recommendations that appear to jibe with those made by the Treasury Department this month.
Noreika is offering 17 specific legislative proposals that echo the banking industry’s wish list for regulatory reform, according to his prepared remarks for a Senate Banking Committee hearing scheduled for Thursday.
He criticized the overlapping authorities of bank regulators and what he viewed as a size-based regulatory framework that does not take into account the differences among institutions.
“Our system sometimes deploys multiple regulators to solve the same problem,” he said. And it “sometimes covers more institutions or broader categories of activity than it needs to in order to contain or mitigate the risks it seeks to address.”
The contentious Volcker Rule illustrates the point, said Noreika, who had previously suggested the OCC could single-handedly reinterpret that rule.
“In recent years, many of the nation’s financial institutions have struggled to understand and comply with these regulations, devoting significant resources that could have been put to more productive uses,” Noreika said.
The acting comptroller added that among regulators who implement it — the OCC, Federal Reserve, Federal Deposit Insurance Corp., Securities and Exchange Commission and Commodity Futures Trading Commission — there is “near unanimous agreement” that the Volcker Rule should be “simplified and clarified.”
Noreika said it should be modified to apply to only a narrow set of financial institutions.
In his proposal, the rule — which limits banks' ability to use their own funds to trade in derivatives and other speculative, short-term securities — would not be imposed on banks that engage in low-risk or low-volume trading, as well as any community banks.
Noreika also proposed allowing national banks to follow the corporate governance requirements of the states they are based in, which would give them similar access to capital markets as bank holding companies. He added that any company in which the bank unit makes up 90% or more of the assets should only have one federal regulator.
"Most companies that own banks have at least two regulators," he said, "even if they are small and even when the depository institution subsidiary comprises the vast majority of the company’s assets."
In addition, Noreika proposed stripping the Consumer Financial Protection Bureau of its supervisory powers over institutions with more than $10 billion in assets. The bureau should supervise nondepository institutions and still set consumer protection standards and take enforcement actions against all financial institutions, he said. But large banks’ primary regulators should resume their examination and other supervisory authority involving compliance with consumer-protection rules.
The acting comptroller suggested that Congress commission a study on the CFPB’s use of its authority to justify such changes.
“It has been the OCC’s experience that the CFPB has focused its examination and supervisory resources primarily on the largest banks that serve the greatest number of consumers,” Noreika said. “If that observation is accurate, then returning supervisory responsibility to the primary regulator should result in a more appropriate level of oversight for midsize institutions.”
Tackling another hot-button issue, Noreika suggested simplifying de novo bank applications, allowing institutions to avoid the need for separate FDIC approval when obtaining a national bank charter from the OCC.
“I believe it is preferable to the current process which requires applicants for a bank charter to submit two applications covering the same proposal to two different federal agencies, each of which reviews the proposal for essentially the same issues,” he said.
This could significantly ease the application process for new depository institutions, as the FDIC has been notably reluctant to greenlight new banks since the crisis.
Noreika endorsed a requirement that the FDIC respond to de novo applications within 30 days.
Noreika also said he backed recommendations in the Treasury’s report such as raising to $50 billion from $10 billion the asset threshold at which banks are subject to certain kinds of stress testing.
He made other proposals to loosen requirements on community banks, such as exempting them from capital requirements in the Collins amendment in the Dodd-Frank Act.
Moreover, he urged Congress to reverse the May 2015 2nd U.S. Circuit Court of Appeals decision in Madden v. Midland Funding, by affirming that an interest rate on a loan made by a financial institution remains valid even after the loan has been transferred to a third party.
And in an apparent nod to his predecessor Thomas Curry's efforts to create a nondepository national bank charter for fintech companies, Noreika asked Congress to clarify the OCC’s receivership authority over uninsured national banks.
Or, he said, “an alternative proposal would be to amend the FDI Act to specify the FDIC as the entity to serve as the receiver for OCC-chartered banks and OCC-licensed branches, without distinction between insured and uninsured status.”
In another item that would help fintech companies, he asked for the repeal of Section 1071 of Dodd-Frank, which sought to close a reporting loophole that benefits small-business lenders. The provision requires financial institutions to obtain information on whether the lender is a woman-owned, minority-owned, or small business.
“It likely will be very difficult to come up with workable definitions for this type of data collection in the small-business lending context,” he said.
Noreika expressed a desire unify the OCC, which suffered a significant drop in morale under his predecessor.
“I have emphasized the importance of the OCC speaking with one voice,” he said. “The banks that we supervise must hear a clear and consistent message, regardless of whether it comes from Washington, D.C., or our field offices.”
The acting comptroller said he had sought input from the agency’s rank and file on how best to cut regulations and “improve efficiency” and received more than 400 suggestions.