Bankers quickly swarm Larry Hattix at conferences, barely giving him time to stand before peppering him with questions about topics ranging from branch locations to bank examinations.
Hattix, who became the ombudsman for the Office of the Comptroller of the Currency in January 2008, is the primary mediator between the OCC and national banks. Since the financial crisis, bankers and politicians alike have questioned if mediators at the OCC and other regulatory agencies are truly independent.
Congress is considering a bill that would create a new appeals process with an outside ombudsman for all federal banking regulators. Last week, Hattix addressed this issue as part of a wide-ranging interview with American Banker. The following is an excerpt.
What is the role of the ombudsman?
LARRY HATTIX: The Office of the Ombudsman was set up to operate independently from the bank supervision division and to report directly to the Comptroller. The ombudsman has binding authority on the agency, including the power to overrule supervisory office decisions. The ombudsman's office is staffed with seasoned examiners with access to subject matter experts, policy-makers, accountants and legal staff.
How does your office make clear to bankers that the ombudsman is independent?
We hold outreach meetings with banks and savings associations under our jurisdiction to provide information on the appeals process. In addition, our Web site provides more resources and information about our dispute resolution process.
Regulators have expressed concern with a proposal to reform the appeals process. What is your opinion?
Our concern is that creating an outside bureaucracy to hear appeals will significantly delay exam processing. [It would also] delay corrective actions that our supervisory process determines are necessary for the safe and sound operation of that bank or savings association.
The current proposal allows the proposed ombudsman to take up to six months to respond to an appeal. While the appeal is being processed, regulators' inability to take corrective action could lead to significant deterioration in an institution's financial condition.
What effect could this have on bankers?
If decisions are delayed because of an extended appeals period, bankers may be precluded from conducting certain activities until the appeal is resolved and a final decision rendered. While we expect appeals to be the exception rather than the rule, the creation of an outside ombudsman may have a chilling effect on the everyday communication that is critical to effective supervision.
Have you seen a pick-up in informal appeal inquiries or exam concerns from bankers?
We have not seen an increase in informal appeal activity. Each year, we receive a number of calls from bankers inquiring about the appeal process. Once the process is explained, bankers often choose to continue to work through their local supervisory office, knowing it does not preclude them from filing a formal appeal later. When bankers request assistance in an informal capacity, the ombudsman acts as a liaison between the affected parties to promote active communication.
Is there a commonality among their concerns?
We publish a list of all appeal decisions since the program began that helps provide transparency and openness in our decision-making process. The most common appeal involves composite or component ratings of the bank's financial condition and violations of law, but there is no common theme within those broad categories.
What does the OCC do to follow up after an appeal decision is handed out?
I want to stress something about our process, and it is a process that the American Bankers Association recognizes as an industry leader. We spend a significant amount of resources gathering feedback, following up and ensuring retaliation does not occur. After each appeal, we follow up after six months and after the next examination cycle. That process provides an important and candid opportunity for feedback.
Are there ways you seek feedback and banker input beyond the appeals process?
Another important component of our program is the Examination Questionnaire. After every supervisory activity, banks are encouraged to use the questionnaire to comment on the quality of communication with the supervisory office and other aspects of the examination process.
The questionnaire is submitted directly to the ombudsman's office, where we analyze it and provide independent conclusions about the supervisory process. Information gathered from the questionnaire, as well as during the appeal process, is used to identify supervisory procedures or practices that need improvement.
Some believe that banks and thrifts are hesitant to speak up because of the relationship between the OCC and the ombudsman. How would you respond?
In my nearly 25 years of experience as a bank regulator, I assure you bankers are not shy and speak up all the time. I see no evidence that they are hesitant to use the appeals process for legitimate differences they have with the supervisory conclusions of their examiners.
At the OCC, we value such frank communication and promote it, which is why we have an informal process in addition to a formal appeals process. It is also why we host seminars and [provide] opportunities for bankers to interact with OCC leaders at all levels around the country and in Washington.
Have there been recent changes or enhancements to improve the appeals process or your office?
Recently, our focus has been on increasing banker awareness of our entire appeals program, both informal and formal appeals. That has been particularly important in light of the fact that the OCC recently became the supervisor of more 600 federal savings associations as a result of the Dodd-Frank Act.
To help get the word out, we now include information about the appeals process in bank director training that the OCC holds throughout the country. The training helps bank directors understand their responsibilities, and helps bank leadership better understand the role of the ombudsman and how the appeals process works.
Are there areas that you still need to improve or enhance?
We continually seek ways to improve our communication with bankers and to improve their understanding of the program. In response to feedback, we developed a brochure that explains our process, which is available on the OCC's Web site, and we included that information in personal letters that were sent to each of the CEOs of the banks and federal saving associations we supervise.