WASHINGTON Comptroller of the Currency Thomas Curry told a room full of state commissioners Wednesday that regulators need to "step up their game" rather than get caught up in competition between state and federal agencies.
In an unusually candid speech, Curry told state examiners that he was concerned about their lack of financial resources, arguing it could cause them to become too dependent on shared examinations with the Federal Deposit Insurance Corp. and the Federal Reserve Board. He also stoked renewed fears about competition over charters since examination fees are a main revenue driver for many regulators.
"It's one thing to share examination responsibilities, as was the intent of the federal/state partnerships established 25 years or so ago, and quite another to lose a banking department's identity as a supervisor, or worse yet, to cede that responsibility to the federal agencies. A joint bank examination needs to be a joint product and not just the affixing of a department's name to a report," Curry said in prepared remarks before a Conference of State Bank Supervisors meeting in Chicago. "In today's perhaps even more challenging environment, all of us the states, the OCC, and our sister federal agencies have a vested interest in making sure the dual banking system is truly dual, with effective supervision regardless of charter."
Curry, a former Massachusetts state commissioner, emphasized the importance of separate federal and state financial systems, which some observers argue fosters unhealthy competition among regulators and confusion for institutions in complying with various regulations.
"I believe firmly that the nation has been better served by the two systems that provide institutions with a choice of charters than it ever could have been served by one system alone," Curry said. "And while our systems are different, they are also complementary. None of us has a monopoly on best practices, and we can all learn from each other."
Still, Curry also criticized state and federal regulators for dropping the ball during the financial crisis, noting that agencies still needed to ramp up oversight, particularly on themselves in avoiding "regulatory capture" with the institutions they examine. He also urged state supervisors to closely watch the shadow banking system as mortgage servicing rights shift from banks to nonbanks due to new capital rules.
"One of the clear lessons of the financial crisis is that we all have to step up our game. And I mean all of us, not just the industry, but regulators as well, both state and federal," Curry said. "We have accomplished much since the dark days of the crisis, but we can do better. In fact, we must do better. And to do that, we have to be honest in evaluating ourselves and in questioning past practices and standard ways of doing business."
He cited two recent actions by the OCC as part of this effort: one in which it proposed heightened expectations for risk management at large banks and another when it had international examiners conduct a peer review of the OCC last year.
"I would suggest to you that this peer review report has lessons that each of you will find helpful, and I encourage you to give it a read," he said.
Curry gave credit to state regulators when it comes to understanding "where the breakdowns occurred" in the financial crisis and necessary improvements. He said regulators should compete more in that area.
"So, if we are going to compete, we should do so on the basis of who is best at identifying weaknesses early, when they can be most easily cured, and who can provide the kind of expertise and support that enhances bank and system resilience," he said. "That kind of competition can lead to a stronger banking system, and I am familiar enough with state agencies to know that you can compete quite well on that basis. If there is going to be a race, let it be a race to the top."
Curry's speech did offer a competitive flair as he compared his experience as a state commissioner with his previous role on the FDIC's board and now as comptroller.
"I've benefitted even more from the experience I've gained at the OCC," he said. "If you'll forgive my obvious bias and pride I regard the OCC as a standard setter for bank supervision, if not the nation's preeminent bank supervisory agency."
Curry ended his speech by saying state commissioners should be "equally blunt in return."