Gould focuses on OCC role in debanking fracas

• Key insight: Comptroller of the Currency Jonathan Gould said his agency is looking into whether its own supervisory priorities have led banks to overcorrect in their diligence, potentially leading to unlawful "debanking" of customers.
• Expert quote: "We're very aware of the challenges that [Bank Secrecy Act] and [Anti-money-laundering] compliance may have posed to banks trying to do the right thing, where they are concerned about how their examiner might react or legal liability." — Comptroller of the Currency Jonathan Gould.
• Forward look: Gould's comments come as banking regulators are moving to eliminate reputational risk from their supervisory tool kits and root out instances of politically motivated debanking.

CHARLOTTE — Comptroller of the Currency Jonathan Gould said his agency is examining whether its own actions helped fuel debanking as it prepares new rules and examiner training aimed at unlawful account closures. 

In an interview with American Banker Monday, Gould said the OCC's review will look not only at banks' debanking decisions — that is, when a bank unilaterally ceases business ties with a customer — but also at how examiners and supervisors may have discouraged certain customer relationships. 

"There are clear and, to some, notorious instances of regulators having put their finger on the scale," he said, citing excesses of the Operation Choke Point-era and what he called the more recent "Choke Point 2.0" efforts that pressured banks to distance themselves from cryptocurrency firms.

Gould, who was sworn in as comptroller in July, said the OCC is now trying to draw a sharper line between legitimate risk management and political or religious discrimination. 

"We're not trying to micromanage how banks make decisions," Gould said. "Our focus is on situations where those decisions appear to be driven by non-business considerations."

As part of the effort, Gould said the OCC is consulting with state regulators in Florida, Tennessee and other states that have adopted fair-access laws to assess how those measures are working in practice.

Gould, visiting Charlotte as part of the American Bankers Association's annual meeting, noted that some large banks have revised policies once viewed as politically motivated, though he said the agency will probe whether those changes are having any real effect on access to services.

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He noted the OCC is moving ahead with a joint rulemaking on reputational risk with the FDIC, designed to prevent examiners from citing reputational concerns as a pretext for limiting lawful activities. In parallel, the agency is working with the Treasury Department and other regulators to simplify compliance under the Bank Secrecy Act and anti-money-laundering rules, which Gould said have sometimes led banks to drop clients out of fear of regulatory backlash.

Gould said the OCC is also working with the Treasury Department and other federal banking agencies to modernize Bank Secrecy Act and anti-money-laundering compliance rules. He said the current framework has at times prompted banks to end relationships with legitimate customers out of fear of regulatory reaction or liability.

"We're very aware of the challenges that BSA and AML compliance may have posed to banks trying to do the right thing, where they are concerned about how their examiner might react or legal liability," Gould said.

While BSA/AML oversight remains a "very important and foundational public policy role," he said there are better ways to meet that goal "without all the kind of collateral damage and the debanking that it has caused." He noted that while an interagency process proceeds, the OCC is also reviewing how it approaches BSA/AML supervision internally, calling that "a work in progress." 

Inside the agency, he said, the OCC is retraining examiners to focus on material risks and reduce what he called the "cite everything" culture that developed after the 2008 financial crisis. 

"There's a real cost to examining the kitchen sink," he said, adding that the OCC is tracking how examiners allocate their time and emphasizing holistic judgment rather than box-checking.

Gould reiterated that the debanking problem remains largely concentrated at the biggest, nationwide banks, a focus that reflects the scope of their operations and public statements. He said smaller institutions should not be concerned. "To the extent they've been affected," he said, "it's usually because of broader government or regulatory pressures, not their own policies."

In response to a question about how the OCC views investor and proxy-advisor pressure that has prodded some banks to cut ties with certain clients, Gould said those entities are outside the OCC's jurisdiction. But their influence, he said, does not alter banks' obligations under existing law.

"We don't have any kind of legal authority or jurisdiction to address directly what some of those proxy advisory firms may or may not be doing," Gould said, noting that the Securities and Exchange Commission has that authority. He added that recommendations from firms such as Institutional Shareholder Services and Glass Lewis "are purely precatory, meaning it's neither here nor there." He emphasized banks remain bound by regulatory obligations to provide fair access to financial services. 

"Whatever advice proxy firms give, banks are still expected to make their own decisions consistent with law and safety-and-soundness principles," he said.

Under President Trump's Aug. 7 executive order on "fair banking," federal banking regulators must, by Dec. 5, identify any supervised institutions whose policies or practices that may have encouraged or required unlawful debanking and begin taking remedial action. By Feb. 3, agencies are directed to remove references to "reputation risk" and similar concepts from supervisory manuals and guidance, and to help the Treasury Department develop a coordinated strategy to prevent politicized or discriminatory denial of banking services.