WASHINGTON House Banking Committee Chairman Jim Leach on Monday unveiled evidence that he said proves the Office of the Comptroller of the Currency flouted federal law in a secret attempt to give national banks an advantage over their competitors.
Calling for an independent government investigation, Rep. Leach said that OCC documents showed the agency skirted the legal ban against bank investments in commercial activities by letting four national banks hold equity positions in public companies.
The agency acknowledged in a four-paragraph statement that it had permitted the holding of equities in some unique cases but that these approvals were not intended as precedents and that they were being misconstrued.
The statement said the decisions are not only fully consistent with the law, but they reflect the OCCs commitment to assuring the competitiveness of national banks, consistent with safety and soundness principles.
In a 17-report, committee staff cited internal e-mails suggesting that the agencys general counsel, Julie L. Williams, may have approved the practice without informing Comptroller John D. Hawke, Jr.
The charges come after a four-month House Banking probe.
In a scathing letter to Mr. Hawke, Rep. Leach said agency documents show that it was the OCCs clear intent to promulgate a major decision that skirts the law in a secretive manner purposefully designed to hide that act from the United States Congress.
Rep. Leach asked the Treasury Departments Inspector General and the General Accounting Office, the investigative arm of Congress, to examine the basis for the OCCs decision and its legality. He indicated that the action was so extraordinary that he would have personally sued the comptroller if the law allowed.
Particularly troublesome is the implication of an intent to advantage one type of bank i.e. national at the expense of another i.e. state-chartered and a small number of institutions to the competitive disadvantage of others, in this case both bank and nonbank, Rep. Leach wrote.
In an Aug. 4 e-mail to top agency supervisors, Mr. Hawke wrote, I want to make sure that each of you has seen the Law Department memo of July 13 concerning equity hedges. It concludes that a national bank can hold positions in equities as a hedge in a customer-driven, bank permissible equity derivative transaction I want to make sure that we have carefully considered the risks, if any, that might be involved in such transactions.
The report cited six instances where the agency allowed investments by national banks in commercial companies without specific statutory authorization.
Without identifying the institutions involved, the report described one as allowing an investment advisor subsidiary of a national bank to invest in the hedge funds that it advises, even when the funds are investing in corporate equities.
In another instance, the House Banking report said, the OCC allowed a national bank to own impermissible investments as a hedge to its employee compensation plan under the theory that such activity was incidental to the business of banking.
The agency insisted that these examples were being misconstrued.
The decisions at issue represent a handful of cases taken from decades of OCC precedents, the statement continued. In those cases in which a formal opinion was not published, either the activity involved unique facts, or the scope of the OCCs opinion was limited and it was not intended that the situations be viewed as precedents of general applicability.
Rep. Leach learned of the practice from the Federal Reserve Board, which during debate over financial reform last year, the Fed bested the OCC by persuading Congress to restrict many new activities to holding company subsidiaries. Gramm-Leach-Bliley bars banks from merchant banking, or investing in commercial companies, until at least 2004.
Internal [OCC] e-mails clearly disclose that the OCCs policy and its secret implementation were based in part on a desire to one up the Fed which believes that such policy violates the law, Rep. Leach said in his letter to Mr. Hawke.
Rep. Leach also charged that Mr. Hawke may not have been aware that OCC in-house supervisors granted such authority until almost three weeks after Ms. Williams gave initial approval.