Otting's legacy at OCC? It's complicated

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The ink had barely dried on one of the biggest rulemakings in recent memory from the Office of the Comptroller of the Currency as word circulated that the head of the agency was poised to wave goodbye.

Joseph Otting's decision to step down next week may seem surprising given that he was just halfway through his term and the economy has a long way to go to recover from a public health catastrophe.

Yet Otting and his lieutenants were fond of saying that the former banker came to the job with three main priorities: Community Reinvestment Act reform, providing banks a clearer path to safe small-dollar lending and industrywide improvement in Bank Secrecy Act compliance. His supporters say he accomplished all three, and in fact two of them happened Wednesday — a rule overhauling CRA issued by the OCC, and interagency guidance on small-dollar lending.

Joseph Otting, comptroller of the currency
Joseph Otting "was mindful of giving banks a lot of value, of rejuvenating the vibrancy of the [national bank] charter and making the agency work better,” a predecessor says. But a critic says his goal all along was "to dismantle" the Community Reinvestment Act.

Certainly, the CRA rule, which the agency moved ahead without support from the Federal Reserve or the Federal Deposit Insurance Corp., will be the subject of debate for a long time. But it was characteristic of a leader who, like him or not, was willing to take nontraditional and sometimes unpopular actions.

Otting sought to make changes to the DNA of the agency in charge of regulating national banks, his backers say. He coached the OCC’s 4,000 federal employees on how they could be more efficient and do their jobs better.

During his roughly two years at the OCC, Otting cut $156 million out of a $1.5 billion budget, which is funded by assessments on banks. He cut assessments by 20% in two years without layoffs.

Some suggest that he was able to reset the OCC’s relationships with the financial institutions it regulates by teaching examiners that they could be tough on banks but still collegial, rather than adversarial.

Otting also was praised for punishing misconduct by former Wells Fargo executives who engaged in illegal sales practices. Former Chairman and CEO John Stumpf agreed to pay $17.5 million to settle civil charges and was banned from the banking industry for life while four others face civil charges for failing to perform their duties.

“He has done so much work internally on making the agency itself run better, making it more efficient and accountable,” said Keith Noreika, the acting comptroller who immediately preceded Otting and was also known for challenging the status quo.

“He has an amazing mind and business sense and, from a banker’s perspective, he was mindful of giving banks a lot of value, of rejuvenating the vibrancy of the [national bank] charter and making the agency work better,” said Noreika, now a partner at Simpson Thacher.

Otting officially announced his resignation plans Thursday; he will step aside May 29, and Brian Brooks will become acting comptroller. Brooks, the agency’s chief operating officer and first deputy comptroller, had been on the job for just seven weeks. The two had worked together at OneWest Bank in Pasadena, Calif.

On Wednesday Otting was making calls and speaking with others as word circulated that he might be leaving. Brooks, not Otting, fielded questions from reporters on a conference call about the CRA rule.

Otting’s next stop is unclear, but speculation immediately began about whether he was headed back to the private sector or might be tapped for another public service role.

President Trump picked Otting to head the OCC in 2017. While serving as comptroller in late 2018, Otting was also selected by the Trump administration as the acting director of the Federal Housing Finance Agency until Mark Calabria was confirmed in April 2019.

Before joining government, Otting had been the president of CIT Bank and co-president of CIT Group but was fired in late 2015 along with more than a dozen other executives by CIT’s chief executive at the time, John Thain.

Otting had been the CEO of OneWest, the former subprime lender IndyMac Bank, when it was chaired by Steven Mnuchin, now the Treasury secretary.

Mnuchin led an investor group that bought IndyMac in 2009 for $1.5 billion in an FDIC auction. IndyMac was the costliest bank collapse in history.

Otting was both praised and criticized by community groups when he and Mnuchin sought approval from the Federal Reserve to sell OneWest to CIT Group for $3.4 billion in 2015. It was a hugely profitable deal for the private-equity and hedge-fund investors who owned the bank for six years.

Paulina Gonzalez-Brito, executive director of the California Reinvestment Coalition, said OneWest was one of the most strongly opposed bank mergers in history, in part because of OneWest’s lack of commitment to investing in the community.

“The bank was set up to do a private-equity deal,” said Gonzalez-Brito. “When we first started the whole engagement with the bank we thought he was a CEO we could engage with, but that was dispelled pretty quickly. After [Otting] left and we began to look under the hood, it became pretty clear that the bank was a shell of a bank that hadn’t been doing small-business lending.”

The experience of having to gain approval for the merger from community groups shaped Otting’s view of the CRA, he told The Wall Street Journal in 2018.

“CRA was something he really concentrated his whole time on,” Noreika said.

The OCC delivered a final CRA rule in just 41 days after receiving 7,500 comments, an astonishing speed for a banking agency.

Otting wrote in a BankThink piece published Wednesday by American Banker that the new rule will ensure the 1977 law enacted to address redlining can boost investment in low- and moderate-income communities and increase support for small businesses.

Some observers suggest that by casting CRA to focus more broadly on deposits outside a designated service area, more low- and moderate-income people including, including Indian tribes, will benefit.

“The CRA changes that Comptroller Otting put into place will enable banks to reach more people,” said Walter Mix, who was a California banking regulator.

Otting’s detractors paint a completely different picture.

“When I think about him at the OCC, and CRA, he had one job that he went in there to do, which was to dismantle this really important anti-redlining law,” Gonzalez-Brito said.

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