Acting Comptroller of the Currency Keith Noreika has been the ultimate disruptor, bucking the conventional wisdom about "acting" chiefs of regulatory agencies. He has not been there just to keep his seat warm.
During just six months at the Office of the Comptroller of the Currency, Noreika has jabbed at fellow regulators, engaging in a tense back-and-forth with Consumer Financial Protection Bureau Director Richard Cordray and arguably playing a key role in the CFPB's arbitration rule getting rescinded. He also criticized the Federal Deposit Insurance Corp.'s handling of de novo bank applications.
Noreika has also waded into complex policy debates usually reserved for more veteran regulators, such as his call for re-examining the historic separation of banking and commerce, and his seeking to roll back the Volcker Rule.
Noreika, who will step down from the OCC following the Senate confirmation of Joseph Otting as comptroller, said he enjoys challenging assumptions.
Even though he joined the OCC relatively recently, Noreika has been heavily engaged with financial services policy as a private attorney. He described himself as "laboring in the vineyards of banking regulation," since 1991 as an undergraduate at The Wharton School.
After the financial crisis, he said, the pendulum swung too far in the direction of viewing more regulation as the answer to everything, and opposing points of view were stifled.
"I like to question my first principles all the time about why we regulate banks," he said in an interview Friday. "I think we need to get away from the attitude that everything in [the Dodd-Frank Act] is holy ground."
The following is an edited transcript of the interview.
Most acting heads of agencies are just there to maintain operations. Why did you approach the job differently?
KEITH NOREIKA: I wanted to sell newspapers [laughs]. I have a lot of ideas and a certain perspective on what is good for the country and for hardworking Americans. I did grow up in Pittsburgh at a time when there wasn't much prosperity. It wasn't a surprise when [President Trump] got elected, though I couldn't tell anyone because they would think I was crazy. I could see there was a lost opportunity there.
Did you accomplish what you wanted to at the OCC?
I had three specific goals: to re-empower the supervisory staff to use their judgment, to rightsize regulations and defend the federal charter. We've made a lot of progress on each of those. You're starting to see connections between empowering the staff and what happens when you don't, with the leveraged lending issue being brought up on Capitol Hill.
Guidance is guidance. But the problem with that guidance [on leveraged lending] as a test case is that by not trusting the examiners, and having a zero-tolerance approach, instead of letting local people use their judgment, [supervised entities] started getting written up. And then you get in a vicious cycle about repealing guidance.
The OCC began developing a federal fintech charter before your arrival. What do think of its future?
I think in many ways banking is becoming fintech and banking is evolving incredibly. You're going to see regular bank charters and regular banks vastly converting their businesses.
One of the biggest surprises I had when I came here was seeing the problem-bank portfolio. The most stunning thing was that a lot of banks in the problem-bank portfolio didn't have a plan to deal with a rapidly changing market.
I'm sort of open to it in the sense that I think [fintech] regulation is a valid regulation. The biggest problem is that fintech involves both financial and technology and it may be antithetical in terms of the way regulators chartered businesses historically for long-term success.
We have one publicly announced application from [the mobile-only financial firm] Varo Money that will be totally on the phone. And the question becomes whether someone can do it without deposit insurance, and can they do it legally?
Are Amazon or Google interested in obtaining a charter?
Not that I'm aware of. It doesn't mean they haven't talked to someone at the OCC at a conference or something, but it didn't rise to my level.
What was your objective in sparring with the CFPB's Richard Cordray over the arbitration rule?
Rich Cordray is from Ohio, I'm from western Pennsylvania. We aren't that different. We have a lot of the same concerns, it's just a matter of what works best.
Rich is a friend of mine. He's a very gifted lawyer. And what you saw with the arbitration rule were two very skilled lawyers making their case to the public and it couldn't have been closer. It was a coin toss. But to me that's the way the debate should be.
Do you think the CFPB has acted in a partisan manner?
I think it reflects the views of its director.
White House budget director Mick Mulvaney, who is rumored to be under consideration for acting director of the CFPB after Cordray leaves this month, has called the CFPB “one of the most offensive concepts” in the U.S. government and a “sad, sick joke.” What do you think of those comments?
I've always thought he was a little soft on the CFPB [laughs].
I don't know Mick Mulvaney personally, I have great respect for what he did in Congress. There's a change in administration. If you go run an agency, you may have a change in perspective, and his challenge is he's going to have to decide how he runs the agency. There will be a lot of opportunities. Even if you don't like the mission of the agency, there are a ton of possibilities for the CFPB to effectuate the purposes of consumer protection.
When the CFPB's payday lending rule came out, the OCC rescinded its guidance on deposit advance, a product offered by banks. What is the future of that product?
First, we had to do that because it ran up against the CFPB's rules. But there is an opportunity for some member of Congress to suggest the agency promulgate rules in the bank space. You almost need something that encourages banks.
The big question at the moment is the presence of the CFPB's [small-dollar lending] rule, and national banks have to decide can they offer this product in light of the CFPB's rule, and then it's a question of where they can fit the product into that. There's an opportunity for all the regulators to get together and be more standardized to encourage this product to be offered and have more competition to bring the price down.
At a hearing you suggested that the FDIC should not be handling de novo applications. Why?
You can count on one hand how many de novos have been [formed] in the last 10 years. Bankers and people who form banks have a limited pot of money. They could be stuck [in the process] for 14 months. The FDIC had become a little bit open-ended and unsure of the conclusion. There was a chilling effect of people not even pursuing de novos.
My preference would be you charter a national bank, you get deposit insurance. But I understand the other side. Maybe a middle ground is just to rightsize it where the FDIC takes input from the chartering regulator, but they would have to say "yes," or "no," in a certain amount of time. One of the things that disturbed me the most is when investors don't get any answer at all or they get to a point where they give up.
How do you see the continuing debate over the mixing of banking and commerce playing out?
It's hard to say. ... But we have this monolithic doctrine that everyone adheres to, and I like to question my first principles all the time about why we regulate banks. We have this big doctrine that props up large economies. It's counterintuitive to prevent diversification.
I felt we had gotten to the place after the financial crisis where we weren't even articulating the other side of the argument. You need both sides of the argument, especially in this doctrine that is pervasive over so many issues. Should we give Walmart an [industrial loan company]? It's a doctrine almost unique to our country and nobody else in the world. Even on its own, the answer should give rise to a debate.
What are you concerns about the Volcker Rule?
My issue with Volcker goes back to first principles, when you look at why are we regulating banks to prevent systemic risk. It may be overinclusive. There has to be a rightsizing of it.
With proprietary trading, we've gotten ourselves into a position where it's very hard to police, and it's had an effect on our financial markets. For example, if a customer only wanted 10 shares of stock and a bank unintentionally buys 100 shares and the bank sells the shares at a profit, regulators can't even agree that's not proprietary trading.
I think the Volcker Rule is here to stay. It's not going to be repealed, but we can manage it in a better way. I think we need to get away from the attitude that everything in Dodd-Frank is holy ground.