WASHINGTON — Large national banks can no longer do the bare minimum to meet their regulatory responsibilities.

That was the central message of a speech Monday from Comptroller of the Currency Thomas Curry, who said his agency is following up its flurry of recent high-profile enforcement actions with formal enhanced supervisory standards for large banks that suggest institutions will have to go the extra mile to satisfy examiners' criteria.

Curry, speaking at American Banker's Regulatory Symposium, said the Office of the Comptroller of the Currency plans to issue new "heightened expectations" guidelines. Under the program, he said, just checking regulatory boxes is no longer good enough.

"As part of this 'heightened expectations' program, we are insisting that internal controls and audit be raised to the standard of 'strong' and we are making it clear that satisfactory ratings are not acceptable," said Curry. The OCC has "refined the program" following the financial crisis, but will "formalize" the standards soon under new guidance, he said.

"We expect boards of directors to be significantly engaged and to have the knowledge and focus to present a credible challenge to management," Curry said. "And we expect large institutions to have a rigorous process in place to ensure that they are attracting and retaining the kind of talent they need to manage their business in a safe and sound manner."

Just a few hours prior to Curry's speech, the OCC slapped Toronto-Dominion Bank's main U.S. unit with a $37.5 million fine for violating the Bank Secrecy Act. The news followed several enforcement actions the OCC took against JPMorgan Chase on Thursday for everything from the bank's actions related to the London Whale trading scandal to debt collection practices to add-on credit card products. "Whether the issue is Bank Secrecy Act violations or problems with derivatives trading, operational risk is eclipsing credit risk as a source of losses for national banks and federal savings associations, and it is a major source of reputation risk," Curry said.

But just as it forces banks to step up, Curry said the agency continues to assess its own performance as the OCC too has endured criticism for its role leading up to the crisis.

"Just as we are holding our banks to heightened expectations for governance, we have also subjected our own processes to intensive scrutiny and, where we find we have fallen short, we are taking steps to improve," Curry said. "The fact is, there is plenty of blame to go around for the problems we've seen in recent years, both in the run-up to the financial crisis and in its aftermath, and some of it falls squarely on the shoulders of the regulatory agencies, including the OCC."

Curry fully acknowledged that the OCC and other regulators flunked when it came to detecting risks in the system, such as in their enforcement of anti-money laundering laws.

"While it's true, for example, that a number of large banks failed to maintain adequate anti-money laundering programs, it's also true that supervisors didn't do as well as we should have in detecting problems and ensuring that they were effectively addressed," he said. "And while it's true that many of our large banks made a mess of foreclosure processing and mortgage servicing, it's also true that the regulatory agencies, including the OCC, did not recognize the significance or scope of those operational risk problems until we ramped up our supervision of foreclosure processing and mortgage servicing, which ultimately resulted in major enforcement actions."

Curry said the OCC's executive team has recently instituted an "enterprise governance" unit to review the effectiveness of its various functions. The agency is also digging into "material loss reviews" — inspector general reports following a bank failure that, among other things, identify past lapses in how the institution was supervised — to find ways to improve its examination process.

"Bringing the eye of an experienced examiner to bear on the supervisory history that ultimately led to a failure provides a different and very useful perspective," Curry said. "So every failure of a national bank or federal savings association is scrutinized closely by our Enterprise Governance unit, which includes seasoned examiners among its staff. The work Enterprise Governance does helps us identify ways to improve our supervision."

The OCC is also subjecting its supervisory program to independent evaluations by regulators in other countries.

"We have arranged for senior supervisory personnel from three countries that exhibited great resilience during the financial crisis—Australia, Singapore and Canada—to participate in an independent peer review of the process we use for the supervision of large banks and thrifts, including the very largest institutions in our midsize group," Curry said. "This initiative will involve a very broad review of how we go about the business of supervision. We'll be looking at everything from agency culture to our approach to risk identification, and we'll be looking for gaps in the system that might have led us to miss problems in the past."

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