WASHINGTON — When veteran regulator Tim Long announced his retirement from the Office of the Comptroller of the Currency last year, the agency quickly replaced him with David Wilson, its deputy comptroller for credit risk.

To do so, however, officials had to work around the strict ethics rules governing federal employees because Wilson, who would oversee supervision policy for all national banks, is married to a high-level executive at Bank of America.

Wilson recused himself from certain matters directly involving the bank and received an all clear from OCC ethics officials, but barely four months later, he was belatedly reassigned after regulators realized the situation created the perception of a conflict of interest.

Although his objectivity and performance were never called into question, industry observers and ethics lawyers said placing Wilson in the position in the first place feeds the idea that the OCC is not only too close to big banks, but indifferent to the criticism.

"Even here where there is no allegation of any actual serving of a private interest over public interest, these conflict-of-interest rules are intended to serve a kind of prohibitive purpose," said Robert Walker, a government ethics lawyer at Wiley Rein LLP and a former chief counsel and staff director of both the Senate and House Ethics committees. "That is to avoid the possibility that the public could be concerned that private interest is being put above public interest."

The allegation that regulators are too close to the entities they supervise is not new, and certainly not unique to the OCC. But in the current political and cultural environment, the banking agencies — especially the OCC — remain at the center of a backlash against federal regulators.

Case in point: the $2 billion-plus trading losses suffered at JPMorgan Chase, a result of trades that even CEO Jamie Dimon admitted were sloppy and stupid.

Even as other regulators said they were investigating the trades, the OCC initially stayed mum, and at one point suggested that the trades would not have been prohibited by new restrictions on proprietary trading. (The agency has since backed away from those earlier statements.) But critics wasted no time pointing fingers at the OCC, raising questions about potentially lax supervision and calling on agency leadership to clean house.

The agency has also faced criticism for allowing the largest mortgage servicers to select their own auditors for an independent review of foreclosures required by consent orders signed last April. (The OCC approved their selections, but critics have charged the process was deeply flawed).

While Wilson's appointment isn't directly related to those issues, it still raised eyebrows among observers who said there should be a higher bar for concerns about objectivity and independence, as the sensitivity to potential conflicts of interest has escalated in recent years.

"The OCC in particular has been dealing with this perception that they're too close to the banks, and has been on defense somewhat," said one former senior OCC official. "And this kind of thing can feed that perception."

Government ethics lawyers said that, despite efforts to keep Wilson's work separate from issues involving Bank of America, it should have been obvious that there was a significant conflict of interest — specifically, his wife's compensation.

"This is a no brainer," said Richard Painter, the White House's chief ethics lawyer from 2005 to 2007 and a professor of corporate law at the University of Minnesota Law School. "If somebody is at OCC and their spouse works at a bank, you've got to make sure the spouse doesn't get paid in bank stock, bank stock options or any type of a bonus that's tied to profits. If they are, you run right into a problem in the statute."

Wilson's financial disclosure form for 2011 notes that his spouse collects a salary from Bank of America, but does not list the amount.

According to the form, however, Elizabeth Wilson has deferred compensation from Bank of America — including 401k and pension accounts — worth more than $1 million, on which she collected between $15,000 and $50,000 in dividends last year.

She was also granted between $15,000 and $50,000 in restricted stock that vested last year — an award that is typically tied to compensation. According to the form, at the end of 2011, she owned between $15,000 and $50,000 of restricted stock units in B of A, as well as additional Bank of America-Merrill Lynch stock worth between $15,000 and $50,000.

In his four months as chief national bank examiner and senior deputy comptroller for bank supervision policy, Wilson directed the formulation of policies and procedures for regulation and examination of national banks, chaired the agency's committee on bank supervision and served as member of the OCC's executive committee.

The agency's rules prohibit employees, or their spouses or minor children, from owning any securities in any national- or state-chartered bank. And they also state that employees may not participate in any matters that could affect their financial interest, or that of their spouse of minor child.

"Also, you may not participate in anything at the OCC that could give even the appearance of a financial conflict of interest," the agency says on its website.

The rules are based on regulations from the Office of Government Ethics, which requires federal employees to recuse themselves from any particular matters or situations in which a spouse's employer is a party — such as a bank exam, or an enforcement action.

The more serious rule, however, bars employees from participating in any matter in which they or their spouse has a "financial interest," including stock ownership or performance-based compensation.

In those situations, ethics officials have several options: the financial interest may be so minimal, an exception is made; the employee is required to recuse himself from certain situations; the employee must divest of the financial interest; or the employee is given a waiver, available only in specific and limited circumstances, from the ethics rules.

In Wilson's case, ethics lawyers said it seems obvious that a recusal would not have been enough.

"If he's ... setting the overall policy for bank exams, I think he's got a problem under the statute if he's doing that, and he can't take that job," Painter said. "I think it would be a real [mistake] over at the OCC's ethics shop. They should be spotting this."

Painter said the appointment raises "the same old questions" about regulators taking it easy on large institutions.

"If she had stock and stock options, it's very sloppy, and yeah, it makes the agency look like it's too close to the big banks," he added.

Wilson, who is now the examiner in charge at Citibank, said in an e-mail that he abided by the recusal at all times, even when it covered matters not obviously related to BofA.

"We were proactive in our actions to frame the scope of my recusal, and when it appeared that general policy matters (not related to B of A) may be covered, I immediately removed myself from those additional matters," he said.

An OCC spokesman said Wilson's supervisors have long been aware of his wife's employment status — she has worked at Bank of America for more than nine years and currently serves as senior vice president, senior credit products manager for commercial real estate banking in the Southeast region — and that Wilson had previously recused himself from any matters involving the bank, and continued to do so after he was promoted.

Roughly four months after the appointment, however, the OCC had a change of heart, although accounts differ on who raised the first objections. While some said the OCC eventually realized the implications of its decision by itself, others said the Treasury Department flagged the situation. Either way, it is clear that Treasury, which oversees the OCC's ethics office, at some point became aware of the situation and raised concerns to the OCC.

A Treasury spokesman declined to comment because it involves a personnel matter.

The OCC spokesman said the agency realized that the broad policy decisions for which Wilson was ultimately responsible would affect his wife's employer, the second-largest retail bank in the country.

"After his appointment as senior deputy comptroller, he continued to work with OCC ethics officials to frame the scope of his recusal with respect to his new duties," the spokesman said. "It soon became clear that some of the general policy matters he was involved in, while not specific to BofA, would fall within the scope of his recusal. He then recused himself from those activities and a collaborative decision was made for him to switch jobs with John Lyons."

The OCC announced in October that Wilson would switch jobs with Lyons, who had entered his fifth year as examiner-in-charge of Citibank and would be required, per OCC policy, to rotate out of the position at the end of that year. In a press release at the time, the OCC made it sound as if Lyons' tenure was the issue—and made no mention of conflict-of-interest concerns concerning Wilson's position.

As soon as the determination was made, an agency official said, Wilson recused himself from all activities associated with his job as senior deputy comptroller.

But it's unclear whether anyone at the OCC considered this before Wilson was selected for the job — or wondered, at the very least, how it would appear to outsiders. According to his financial disclosure form, ethics officials did not meet with Wilson to discuss his wife's BofA stock until June 23, 2011 — more than a month after the agency announced his appointment and seven days before it took effect.

The agency rejected a Freedom of Information Act request for any documents relating to Wilson's tenure- save for a routine personnel announcement and a series of emails from this reporter seeking information — citing a statute that protects materials related to personnel issues "where disclosure would constitute a clearly unwarranted invasion of personal privacy."

Wilson remains one of the agency's top regulators. He came to the job last July with nearly 30 years of supervision experience — most recently as deputy comptroller for credit and market risk — and is one of only a handful of people with the special title of "senior national bank examiner."

"Dave is well respected throughout the OCC," Acting Comptroller of the Currency John Walsh said in a press release issued at the time. "He has the skills and experience needed to continue the important work of policy formulation for the agency during this critical time when we are implementing the Dodd-Frank Act."

Although four months isn't an unusually long time for a federal agency to determine this sort of problem, Walker said, one wonders why agency officials didn't see an inherent problem to begin with.

"It may be that they really did think that they could somehow slice out the Bank of America concerns," Walker said. "It does seem that no matter how you slice the pie, that this would create a significant gap in one's ability to do that job."

Ronald Rotunda, a professor at Chapman University Law School in Orange, Calif., and an expert in government ethics rules, wondered if ethics officials considered how broad policy matters would be handled, and who would make those important decisions if Wilson needed to recuse himself.

"It's someone presumably lower on the totem pole, but that wasn't what Congress envisioned when it set up the totem pole," Rotunda said. "It is not surprising that this wasn't a workable solution or that it raised a lot of questions."

Former OCC officials were more forgiving of their previous employer, but still acknowledged that the appointment posed an appearance problem.

Some suggested that Long's relatively quick departure forced the agency to move too quickly to install Wilson without properly vetting the potential conflicts.

One former senior OCC official said examiners are often very sensitive to conflict-of-interest issues, and it seems they tried to take steps in this case to avoid an actual conflict.

"If they were comfortable putting him in the position with full understanding of all this and structuring it in such a way to set up ethical screens and protect against any possibility of a problem, that suggests to me that they were trying to deal with even the appearance issue," the former senior official said. But "sometimes maybe it's just better to not even have to deal with that and move on."

Jo Ann Barefoot, a co-chairman at Treliant Risk Advisors and a former deputy comptroller, said it has become more difficult for regulators to foresee potential conflicts in the current regulatory landscape.

"The problems are so big, the stakes are so high, the political environment is so complicated and highly charged, and so I think it's a challenge for the regulators to try to anticipate potential criticism," Barefoot said.

Others said the fact that Wilson was married to someone who works at a bank should not disqualify him from senior positions at the agency.

"My experience has been, people in positions like this go out of their way to avoid even the appearance of a conflict of interest," said Ron Glancz, a partner with the Venable law firm, and a former director of the OCC's litigation division. "It's unfair to say just because your spouse works at a large bank or institution that's regulated by the OCC that somehow that's going to taint you."

Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University, agreed, but said that doesn't change the perception problem.

"To the layman on the street, does it appear to raise a conflict? Sure," Hurley said. "And it probably does to the agency and to the bank as well. But I think that just puts the burden on them to do whatever is possible to minimize that, both in fact and appearance."

While the agency may always struggle with accusations that it is too lenient with certain regulated entities, Rotunda said the potential for spouse conflict is something that can be remedied with clearer guidelines.

"What have we learned from this — that's the real question," he said. "What happens in the future, if something similar to this is going to come up again? Will they just wait until they see a fire, or will they decide to have rules so we don't even get the kindling together?"

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