Dear banker: It ain’t easy being a regulator

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While banks are much better prepared to withstand adversity today than they were in 2007, the message regulators are sending now is: “Don’t get complacent.”

The worst loans are made in the best of times.

Delivering this message — and, even more, making sure it is heard — is a challenge. (Parents everywhere can probably relate.)

But as senior deputy comptroller for large banks supervision at the Office of the Comptroller of the Currency, I take seriously the responsibility to ensure that the biggest banks in the country operate in a safe, sound and fair manner. So do more than 800 individual regulators at the agency.

And let me tell you, it ain’t easy! Carrying out this important mission while navigating life as a working mother of four presented significant challenges, while also being the most rewarding experience in my life.

In 1991, when I began as a field examiner in Philadelphia, there were 12,000 U.S. commercial banks that held roughly $3.3 trillion in assets. Today, just the two dozen largest banks supervised by the OCC hold more than $10 trillion in assets. That change reflects the consolidation of the commercial banking industry, the increasing concentration of assets within the federal banking system and the growth of the national economy.

Robert Clarke, who was the Comptroller when I started my career at the OCC 30 years ago, concluded in a study of 1980s bank failures that what separates banks’ performance in mitigating risks is management and a healthy risk culture.

He did not call it “risk culture” then. But that is exactly what he meant in stating, “Deficiencies within boards of directors and management were the primary internal issues of problem and failed banks. The quality of a bank's board and management depends on the experience, capability, judgment, and integrity of its directors and senior officers.”

That enduring sentiment is why the “m” for management remains central to the Camels ratings used to examine banks.

The specific risks may evolve over time, but the solution is always sound leadership and effective risk management. How management responds to these risks differentiate success from failure.

A good economy can hide bad management and policies. To the contrary, a strong risk management culture focused on conservative business practices — even at the expense of growth at times — can help banks weather an economic storm.

Just look at the most recent financial crisis. In response, regulators raised the bar for risk management and the expectations on boards and senior executives to focus on establishing enterprisewide views of risk and comprehensive strategies for risk management.

Regularly reinforcing that message is what examiners do. But hearing it can be hard; delivering it can be too.

Walking into a male-dominated boardroom as a young female examiner sometimes made delivering bad news more difficult for me. I recall one experience in which the male board members at a rural Pennsylvania bank referred to me in the third-person as “that girl” when I discussed the bank's deteriorating asset quality.

I was fortunate in those times to be surrounded by team members who bolstered my confidence, valued merit, appreciated competence and based their decisions on the facts and circumstances in front of them.

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An examiner’s job is to call it like we see it, with an emphasis on being firm yet fair when arriving at these decisions. Firm and fair is also something I learned from other strong women who helped shape the OCC and the federal banking system, including Adelia M. Stewart, who joined the OCC in 1892 as a clerk-stenographer, eventually becoming the first female commissioned examiner in 1921 and later head of all OCC examinations.

And I always look to my ultimate role model, my mother, who worked as a banker for over 20 years. She was open, honest, direct and transparent in all of her professional and personal dealings.

As my responsibilities expanded, I found the best bankers appreciated hearing concerns early and directly. In those cases, supervision worked most successfully.

The OCC always retained a spectrum of supervisory and enforcement authorities to compel regulated institutions to correct deficiencies. But supervision works best as a guardrail to identify, communicate and help correct deficiencies before it grows into larger issues.

Clear communication continues to be a far better preventative medicine to cure the ills an examiner observes, whether that involves a bank on Main Street or Wall Street.

Unfortunately, it doesn’t always work. Supervision is not perfect, and examiners cannot substitute their judgment for the business decisions of bank executives.

But the best outcome always depends on communicating.

Of course, that doesn’t mean everyone has to agree all the time. There is a lot of value in airing different points of view. Banks recognize this too.

As head of large bank supervision, I am pleased to see more diversity in the boardroom. The very best CEOs I know seek diversity and dissenting voices to inform their views and decisions.

As the next generation takes hold in the workforce, making it even more diverse, and as banks explore emerging technology, keep in mind this advice from the very first comptroller, in the 1800s:

“Treat your customers liberally, bearing in mind the fact that a bank prospers as its customers prosper,” Hugh McCulloch said. “’Splendid financiering’ is not legitimate banking, and ‘splendid financiers’ in banking are generally humbugs or rascals.”

Maryann Kennedy's BankThink post is part of our annual Women in Banking series. Others featured in this series include Amy Friend, formerly of the OCC; Michael Corbat, Citigroup's chief executive, and Mary Ann Scully, Howard Bank's chairman and CEO.

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Law and regulation Risk management Risk analysis Diversity and equality Compliance Enforcement OCC Women in Banking