When Eugene A. Ludwig steps down as comptroller of the currency in April, he will leave behind a legacy of expanded bank powers, unprecedented industry strength, and record profits.
But despite the high praise he gets from bankers today, Mr. Ludwig initially was viewed as another Clinton administration do-gooder determined to foist greater community lending and regulatory burdens on the industry.
That early determination to increase lending to low-income communities and protect consumers, industry experts now say, gave the Office of the Comptroller of the Currency credibility as a strong regulator capable of overseeing new industry powers. With that moral authority, the OCC embarked on a string of regulatory, court, and legislative victories that bolstered Mr. Ludwig's drive to modernize the national banking system.
"His early effort generated considerable unhappiness in the industry," said Karen Shaw Petrou, president of ISD/Shaw Inc. "But he realized that he had to make the OCC a credible defender of consumers and underprivileged communities if he was to move on his modernization agenda."
Mr. Ludwig, who last week announced plans to resign when his five-year term expires April 4, agreed. "We've tried to emphasize balance. The notion that you can have safety and soundness without evolution is completely wrong," he said. "In addition, banks can't be successful if they are not tied to their local community."
He pointed to his first major initiatives as comptroller-revising Community Reinvestment Act regulations-as a perfect example of how the agency has tried to strike a balance between fulfilling its supervisory duties and eliminating unnecessary burdens.
"That was a good crucible for starting out," he said.
Despite increased lending requirements, banks have found it simpler to comply with CRA since the rules were revised, said James D. McLaughlin, director of regulatory and trust affairs at the American Bankers Association.
"For the vast majority of banks it reduced record keeping, exams went quicker, and banks now know what is required of them," he said.
Also during Mr. Ludwig's first year in office, the OCC won the first in a string of Supreme Court victories when the justices unanimously agreed that Congress did not accidentally repeal a 1918 law allowing banks to sell insurance from towns with fewer than 5,000 people. Next came the Valic case in 1995, in which the high court upheld the OCC's decision that banks may sell annuities. Bank insurance sales got another boost in March 1996 when the court said states may not block insurance sales from small towns by national banks.
The latest victory came in June 1996 when the Supreme Court said states may not cap late fees charged by out-of-state banks.
"He truly did his homework before taking any action. Consequently, the OCC has gained unprecedented respect from the entire judicial system," said Michael Crotty, ABA deputy general counsel.
Though Mr. Ludwig got mounting criticism from Congress, state officials, and executives in rival industries, the Supreme Court's backing helped deflect repeated legislative attempts to curtail the agency's authority. Furthermore, the comptroller said, the OCC's 30-mile rule, which lets national banks move their headquarters anywhere within a 30-mile radius (including across a state boundary), helped push Congress to enact full interstate branching in 1994.
Another legacy of Mr. Ludwig's efforts to expand the national bank charter is the "operating subsidiary" rule, which opened the door for units of national banks to offer new products and services.
The agency on Dec. 11 approved a bid by Zions First National Bank, the first bank to take advantage of the new rule, to underwrite municipal revenue bonds.
The so-called "op-sub" rule was arguably the most controversial part of Mr. Ludwig's campaign to rewrite the agency's rulebook, which he began early in his tenure.
By the time the OCC finished the project in December 1996, 29 of the agency rulebook's 35 parts had been rewritten. Among myriad changes, the agency simplified the rules governing national bank trust activities, liberalized the ways institutions may invest in securities, and wrote several important legal interpretations into the rulebook.
National bank examinations also were overhauled by Mr. Ludwig. The agency's "supervision by risk" program, unveiled in September 1995, shifted examiners' focus from loan-by-loan, "bean counting" analysis to a broader scrutiny of banks' riskiest activities.
With credit standards slipping in several areas, Mr. Ludwig in 1995 began to pepper the industry with warnings about syndicated loans, affordable mortgages, preapproved credit cards, commercial lending, and other underwriting problems.
