WASHINGTON — Comptroller of the Currency Thomas Curry's unexpected March 7 announcement that his agency may craft new guidance to deal with de-risking is generating concerns from bankers instead of putting them at ease.
Curry acknowledged that the issue — in which banks cut off certain business lines or jurisdictions to avoid high compliance costs and heightened regulatory scrutiny — is a problem and pledged that his agency was gathering data on it.
But bankers fear that the agency could end up complicating the situation rather than resolving it.
Banks could "have to have a policy on de-risking," said Christopher Cole, the executive vice president and senior regulatory counsel for the Independent Community Bankers of America. "I'm not sure I'd want that to be part of the exam process."
In many ways, de-risking is a no-win scenario for regulators and banks they oversee. When regulators don't step in, they are seen as complicit in allowing de-risking to occur. But when the OCC says it may take action, bankers worry it will only make it worse.
At issue is a speech Curry gave Monday in which he said the Office of the Comptroller of the Currency is collecting data on banks' de-risking decision-making processes, including whether or not they require input from an oversight committee and confirmation from the board of directors or senior management.
"Our goal is to identify current practices and possible gaps in existing policies and procedures for conducting periodic client risk evaluations and for making account termination decisions," he said.
The initiative could lead to the issuance of new guidance from the OCC, he added.
A spokesman at the OCC emphasized that the agency is not seeking to impose new requirements on banks, but is contemplating something like best practices.
"At the end of the day, banks still have to make these decisions themselves. We're not telling them who to bank and who not to bank with," the spokesman said.
Regulators have been focused on the problems associated with de-risking — including a lack of banking access for certain businesses and in particular regions — for several years now. Two years ago, Curry called for a risk-based approach for financial institutions considering shutting off their correspondent banking relationships, rather than a wholesale exit of certain regions.
"[I]f the risk posed by a business or an individual is too great to be managed successfully, then you have to turn that customer away," he said in prepared remarks for a 2014 speech at the Association of Certified Anti-Money Laundering Specialists. "But you should only make those decisions after appropriate due diligence."
A year ago, the Federal Deposit Insurance Corp. also advised financial institutions to pursue a "risk-based" approach to managing their customer relationships. "Follow[ing] existing guidance and establish[ing] and maintains an appropriate risk-based program" should be enough to satisfy regulators, the statement said.
But that has failed to stem the problem, bankers say. Many argue it's not worth it to keep certain businesses as clients when they know regulators will demand added compliance steps.
There is a "tension that you're seeing there," said Eric Lorber, a senior associate at the Financial Integrity Network. "The de-risking component is very closely tied to the compliance component."
Lorber said he expects the OCC's potential guidance to include more regulatory restrictions on how banks manage their relationships with certain businesses. For example, the agency might ask banks to conduct enhanced due diligence tests before breaking ties with a foreign correspondent.
"The regulators are saying, 'OK, don't de-risk. ... But at the same time, do enhance due diligence and if you find a problem, you won't necessarily be penalized,'" he said. "That's a very expensive proposition."
Lorber added that such a requirement could be difficult to implement, given that banks' decisions to de-risk are often closely tied with government policies and regulations.
"There are components of this which seem to cut against other regulatory stances," said Lorber, noting that the Treasury Department's Financial Crimes Enforcement Network has the authority under Section 311 of the Patriot Act to effectively shut out foreign institutions from the U.S. banking system with little to no recourse.
In his speech on March 7, Curry noted that the OCC was also gathering information on whether correspondent banks were given the "opportunity to address concerns" about their risk profiles "before the relationship is terminated."
Above all, industry representatives bristled at the idea of additional requirements, rather than less.
"If new guidelines impose new restrictions, the outcome is likely to be more, not less, de-risking," said Rob Rowe, vice president and senior counsel at the American Bankers Association. "What is needed is clear and well-defined boundaries that change the existing standards."
Rowe added that regulatory requirements issued in the form of guidance might fail to accommodate industry concerns. "An advance notice of proposed rulemaking that solicits industry input might be the most appropriate way to ensure industry concerns are reflected," he said.
Still, many see the OCC's initiative as a sign that regulators are increasingly willing to openly discuss de-risking and its causes — possibly in a bid to avoid Operation Choke Point-type scrutiny from lawmakers.
"There has been a lot of talk and a lot of finger pointing at the regulatory agencies," said David Schwartz, the chief executive of the Florida-based International Bankers Association. "It's a very good move on their part to get to the heart of it."