WASHINGTON — The Office of the Comptroller of the Currency is poised to make its first reduction in national bank exam fees in more than a decade, sources said Wednesday.
Though it was unclear how steep the cuts would be, observers offered several potential reasons for the change, including excessive revenue, recent conversions to national banks, and a symbolic gesture from the OCC in the wake of the ongoing credit crisis.
Industry officials and former regulators welcomed the move, which is expected to be announced next month.
"It's a responsible move to lower the fees," said Eugene Ludwig, a former comptroller and now the chief executive officer of Promontory Financial Group LLC. "The OCC is not meant to be a profit-making enterprise; it's meant to provide a public service. I commend them for doing this. I think it's very responsive, and it's good government."
The fee decrease is the first since Mr. Ludwig lowered fees by 12% for 600 national banks in 1996. The agency makes an annual decision on the rate of exam fees, which are its principle source of revenue.
Fees were significantly raised in 2000 but have crept upward annually as they are adjusted for inflation. That has helped the agency build up a significant surplus. In fiscal 2007, the agency's revenue was $24 million more than its $671 million budget.
For fiscal 2008, it has been projected to collect $757 million in revenue, with a budget of $749 million.
The rate cut is likely because of a need to better align revenues with the agency's budget, observers said. But many also saw other issues at play.
John D. Hawke Jr., another former comptroller who implemented the existing rate structure and is now a partner at Arnold & Porter LLP, said the move probably indicates that the agency has accumulated a significant reserve. Mr. Hawke said he never lowered exam fees during his tenure, because he wanted the agency to build up a reserve for use in emergencies. An OCC spokesman, who would not comment on whether an exam fee cut was in the works, said the agency's reserve was $355 million at Sept. 30, equivalent to 46% of its budget.
"The whole idea [of the reserve] was we needed to be prudent and protect the agency from an unexpected demand for additional resources," Mr. Hawke said. "I expect if they are saying they are lowering assessments they are comfortable with what the reserve levels are."
Other former agency officials agreed.
"They must feel they have plenty in their budget and surplus that they can sustain their operation," said Robert Serino, a former OCC deputy chief counsel and now a counsel at Buckley Kolar LLP. "They have a significant surplus there."
Others said it was probably no coincidence that the agency was cutting assessment rates at a time when bank earnings have slumped because of the housing crisis.
"It may be symbolic to show the OCC is sensitive to the fact that earnings are under strain," said another former agency official, who spoke on condition of anonymity.
Even if the reduction is small, bankers would welcome any help right now, some said.
"If that's happening, I think the industry would be viewing it as a positive development at a time when you have companies under pressure," one bank official said.
The OCC has also seen a boost in its revenue because of recent charter conversions.
Seven banks converted to a national charter in 2007, netting an additional $486,000 in assessments.
