WASHINGTON - John Reich is a proud man - not in the boastful sense of the word, but the kind of pride that comes from being convinced that your determination and hard work are paying off.
As the director of the Office of Thrift Supervision, the smallest of the four federal banking agencies, Mr. Reich is promoting its charter with an energy not seen in many years.
"Our goal is to make OTS the premier regulator of financial institutions and their holding companies," he said in an interview. "I see gains coming with organizations showing increased interest in the thrift charter."
The charter allows nationwide branching, has the strongest preemption powers, and streamlines oversight of an institution and its parent under one agency. But none of these things are new, so why is Mr. Reich so confident the charter is poised for growth?
"They are not new, but they haven't been widely marketed, for lack of a better word," he said. "In recent years the outreach activities that have been done by OTS have been, I think, somewhat limited."
Consolidation and conversions have thinned the ranks of thrifts to 850, but industry assets have risen steadily and now total $1.63 trillion.
The agency recently got a lift from Countrywide Financial Corp., which announced in November that it plans to move $90 billion of assets from a national bank charter to a federal thrift charter.
But rather than aiming for national-bank conversions or attracting more of the large, diversified financial services firms, Mr. Reich seems most interested in promoting the thrift charter to new institutions. The OTS built an information booth and, for the first time, is taking its story to trade shows.
"We're going to be all over the country this year," Mr. Reich said. "The groups and the advisers to those groups who are chartering new institutions need to know what their options are, and I think in recent years they haven't had complete knowledge of what the options are."
Among other moves, his agency has hired 80 people this year, including 67 examiners, and it plans to add another 40 to 50 examiners next year. Mr. Reich beefed up the unit that enforces consumer compliance regulations, and an OTS-hosted forum this week on the housing market was jammed with big-name speakers and attendees.
Part of being the premier regulatory agency is promising efficient oversight, particularly for small institutions. However, less onerous, does not mean easier, he said.
"Some people would interpret my views as resulting in a lower level of regulation than the other agencies. That could not be further from the truth," Mr. Reich said. "I want to be a tough but fair regulator."
He took the helm of the OTS in August of last year after four-plus years on the Federal Deposit Insurance Corp. board, mainly as its vice chairman. But he identifies most as a community banker, which he was in Illinois and Florida for 23 years.
Between his times as a banker and a regulator, Mr. Reich worked in the Senate for a close friend and fellow former community banker, Connie Mack.
"I came to Washington when I was 50 years old. I had not been politically active. I knew nothing about Capitol Hill or the legislative process," Mr. Reich said. "When I came here, I was a fish out of water, and I've continued to be for the last 17 years."
That's something else he is proud of; he considers himself an outsider, and he does not hide his impatience with insiders.
"Some of my colleagues have spent their entire careers inside the beltway, and their perception of the real world and how things are in the hinterlands, what it is like to be a community banker, a lot of people in this town have no conception," he explains. "If you want to know who John Reich is, I am a community banker in regulator's cloth."
That claim may be best illustrated by his tireless work to roll back the regulatory burden over the last few years, an effort that culminated in the Financial Services Regulatory Relief Act of 2006. Cutting red tape is a goal he says he will continue to pursue. "We expect so much from institutions. It never stops."
Mr. Reich is intrigued by the prospect of bifurcated regulation - two sets of rules, including a simpler, less-costly version for banks under $10 billion of assets.
"It is something I am very interested in," he said. "On the surface, I think it is an excellent idea.
"It could be a step which may stem the loss of community banks in this country."
But with record industry earnings this year, aren't community banks rolling in dough?
"Wrong," he said. "Not only wrong, but absolutely wrong. Let me tell you who makes the money in the banking industry."
The 120 largest banks account for nearly three-fourths of the industry's profits, he said, while the 4,000 banks with under $100 million of assets share in 1.6% of the industry's earnings. "So don't tell me that community banks make a jillion dollars."
Mr. Reich says a similar, bifurcated approach could work for new capital requirements. "I would like for the industry to be able to retain the flexibility to adopt the capital system that best suits their institution."
If that means three sets of rules, so be it.
"We could have the standardized version [of Basel II] for the largest banks, Basel IA for the intermediate-size institutions, and Basel I for the small," he said. "I don't think it's a problem for regulators to administer."
The Basel I standard dates to 1988; an updated version, Basel IA, was released for public comment last week. Basel II, the international standard being written for the largest banks, has been on the drawing board since 1998 and has undergone such significant changes in the last few years that many wonder if it will ever be completed.
Mr. Reich said it is possible that Basel IA will be adopted before Basel II is completed, or that perhaps the largest banks could adopt IA. He does not agree with the Federal Reserve Board that IA is not sophisticated enough for the largest banks. He also considers the standard version offered in the international accord sufficient, though the Fed has argued for a more advanced approach.
"The Fed is not thrilled by the notion of the standardized version for Basel II banks, but I think it is something they are going to have to think very seriously about," Mr. Reich said.
Any chance the United States could just chuck the Basel II standard? "We are pretty far down the road, and it would be very difficult for U.S. regulators to back off a version of Basel II."
His stance so squarely in community banks' corner leads observers to assume Mr. Reich opposes efforts by Wal-Mart Stores Inc. to enter the banking business, but he is not biting. The question gets a swift reply: "I can't talk about that."
Mr. Reich is happy to discuss the commercial real estate guidelines the four agencies issued last week after nearly a year's worth of debate.
In his view, the guidelines are another example of regulators' burdening banks unnecessarily. The agencies already have power to order a bank to scale back loan concentrations or to force an increase in capital reserves, he said. "We already have the authority we need without the guidance."
While the FDIC, Fed, and the Office of the Comptroller of the Currency issued one version of the guidelines, the OTS issued its own. Thrifts will not face the concentration thresholds: loans for construction, land, and land development at 100% of capital and total commercial real estate loans topping 300% of capital.
(The Home Owners Loan Act restricts a thrift from making nonresidential mortgages exceeding 400% of its capital.)
"I thought the guidance was too prescriptive, that the numbers would be interpreted by bank examiners across the country as ceilings, not screens or thresholds for further examination," he said on the day the guidelines were released. "I was, and am, quite confident and fearful as to how the guidance will be administered, but I need to emphasize that over 95% of the guidance is identical."
So why not go the extra 5%, for consistency's sake?
"Why bother to be different? Well, for me, it's principle. It's not only principle; it's fear of the impact on the industry," he said. "I did what I thought was the right thing to do."
That sort of independence leads some to conclude Mr. Reich is a bit of a maverick, but in his book, being right trumps being popular. "I'm not that hard to figure out. I think it says a lot about me when I say I am a community banker at heart."
And he is popular with many bankers.
"John Reich in my experience is unique: he understands banking; he understands regulation; and he understands Washington," said F. Weller Meyer, the chairman, president, and chief executive office of Acacia Federal Savings Bank in Falls Church, Va. "He is, in my opinion, the best regulator in my 20 years as a CEO.
"I think it's tragic that those who would die on the cross of community banking don't understand that regulatory burden is driving community bankers out of business."
Though Mr. Reich identifies as a community banker, that was not his first career choice. As a kid growing up in Mattoon, a small town in central Illinois, he had another dream.
"I was destined to be a special agent with the FBI," he said in the interview. "It was my intention from the age of 12 to 24."
When he graduated with an accounting degree from Southern Illinois University, he was 21 and too young for the Federal Bureau of Investigation, which hired only people who were at least 25. So Mr. Reich decided to "bide my time with another division of the government," and went to work for the Internal Revenue Service. A colleague there urged him to apply to the FBI a year early, saying the agency often took 24-year-olds. When the FBI did not waive its age requirement, "I thought they were giving me the polite brush-off."
So Mr. Reich accepted a job as the auditor at Busey Bank, a tiny state-chartered bank in Urbana, Ill. (Today it has nearly $2 billion of assets).
After six months he was Busey's chief cashier. When the FBI finally came calling, Mr. Reich and his wife were building a house and expecting their first child. At that point, life as an agent just didn't seem as appealing, so he stuck with banking, but after about three years, the CEO started talking about bringing his son into the bank.
"I saw the handwriting on the wall, and I started looking around," Mr. Reich said. "I looked in Illinois, but we were going on vacation to southwest Florida," so he decided to look for a job there. "I arranged two interviews, and I got two job offers."
In January 1968 he became the controller of National Bank of Sarasota, where he eventually became the president and CEO. "I was with the same organization for 22 years."
The move to Florida also led to his second career - in politics. Sen. Mack was "one of the first people I met when I moved to Fort Myers," Mr. Reich recalled.
"I went to a cocktail party, and my wife and I met Connie and Priscilla Mack. We hit it off instantly."
Mr. Mack was a community banker, too, and eventually he joined First National. The two men were roommates at Louisiana State University's Graduate School of Banking. Mr. Mack went on to open his own bank, but as Mr. Reich recalls it, "in 1982 he got fed up with regulatory burden and decided he was going to do something about it."
Mr. Mack ran for Congress and served three terms in the House. The two remained friends, with Rep. Mack operating one of his district offices in a First National building.
But First National was bought, and gradually Mr. Reich saw his responsibilities dwindle. After 18 months he knew it was time for something new.
"I didn't want to be a small fish in a big pond," he said. "I decided to resign and go back to school full time."
He was 47. When he was winding up his MBA program at the University of South Florida, Mr. Mack - who by then had been elected to the Senate - asked his old friend to be his deputy chief of staff. Mr. Reich took the job and held it for nine years. He was the senator's chief of staff from 1998 to 2000.
Mr. Reich's term runs through August 2010, and the 67-year-old intends to complete it, but he knows that the next presidential election could change his plans.
"That is my intention, to serve out my term," he said. "It will be interesting to see how the 2008 election plays out."
What will he do when he leaves government?
"There are a lot of things that I want to do personally that I have not had the time to do," including finishing a memoir of his life for his four kids and his seven grandchildren. Though he does not envision working full time at that point, he said he would be interested in sitting on the board of a community bank.
