Overview:
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The Office of the Comptroller of the Currency (OCC) serves as the fiscal watchdog for much of the banking industry. As part of the Treasury Department, OCC supervises national banks and enforces federal banking laws. It rules on new charter and merger applications for national banks and conducts basic research on banking and the economy. Approximately two-thirds of all banking assets in the United States come under the supervision of the OCC. During the current banking crisis brought on by the collapse of the mortgage industry, the OCC has had to step in and take control of banks on the verge of failure. It also has been accused of helping to create the problem with the mortgage crisis.
History:
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After the Bank of the United States’ congressional charter expired in 1811, a second Bank of the United States was created in 1816 and operated until 1832. During this era, bankers tended to be cautious about their lending to make sure they had enough cash available to meet unexpected demands from depositors. Most loans were only for thirty to sixty days.
When the second Bank of the United States went out of business in 1832, state governments again took over the job of supervising banks—a system that didn’t always work well. In those days banks made loans by issuing their own currency. These bank notes were supposed to be fully backed by gold or silver reserves. It was the job of state bank examiners to visit banks and certify that institutions had enough gold or silver on hand to redeem its outstanding currency. Because this was not always done, many bank note holders found themselves stuck with worthless paper. Because of their staggering variety, it was sometimes difficult or impossible to detect which notes were sound and which were not.
By 1860, more than 10,000 different bank notes circulated throughout the country. This system created financial havoc for the economy, as counterfeiting became epidemic and hundreds of banks failed. Calls for a uniform national currency grew as time went on. In response, Congress passed the National Currency Act in 1863. In 1864, President Abraham Lincoln signed a revision of that law, the National Bank Act. These laws established a new system of national banks and a new government agency headed by a Comptroller of the Currency. The comptroller’s job was to organize and supervise the new banking system through regulations and periodic examinations.
Under this new system, national banks bought US government securities, deposited them with the comptroller and received national bank notes in return. By being lent to borrowers, the notes gradually entered circulation. On the rare occasion that a national bank failed, the government sold the securities held on deposit and reimbursed the note holders.
National bank notes were engraved and printed (at first by private printers and later by the US Bureau of Engraving and Printing), then the notes were entered on the books of the Office of the Comptroller of the Currency (OCC), and again returned to the printer, where the seal of the Treasury Department was stamped on each. Next, the notes were shipped to the bank whose name appeared on them, where they were signed by two senior bank officers. The notes were then ready for circulation. National bank notes were the mainstay of the nation’s money supply until Federal Reserve notes appeared in 1914.
The Great Depression hit in 1929, creating complete turmoil for the American banking system. In the last quarter of 1931 alone, more than 1,000 US banks failed, as borrowers defaulted and bank assets declined in value. This led to scenes of panic throughout the country, with long lines of customers queuing up before dawn in hopes of withdrawing cash before the bank had no more to pay out. The banking crisis was the first order of business for President Franklin D. Roosevelt. The day after taking office, on March 5, 1933, he declared a bank holiday, closing all the country’s banks until they could be examined and either be allowed to reopen or be subjected to orderly liquidation. The bulk of this work fell to the Office of the Comptroller of the Currency.
Three months later, Congress approved the Glass-Steagall Act, which created the Federal Deposit Insurance Corporation (FDIC). Under the FDIC system, bank accounts were covered up to $2,500 per depositor (now $100,000). Other laws were passed regulating bank activities and competition, with the objective of limiting risks to banks and reassuring the public that banks were, and would remain, safe and sound.
This lasted until the late 1980s, when savings and loans (or “thrifts”) across the country collapsed in the wake of federal deregulation. The so-called S&L crisis resulted in 747 savings and loan associations going out of business at a total of $160.1 billion. Among the many S&L’s that failed was Silverado Savings and Loan, which was run by Neil Bush, brother of President George W. Bush, and son of then-President George H. W. Bush. Another prominent Republican implicated in the scandal was Sen. John McCain (R-AZ), who was part of the “Keating Five”—a group of lawmakers who pressured federal regulators on behalf of savings and loan mogul Charles Keating.
In 1999, the OCC was slammed in an internal report by the Treasury Department for not keeping a better watch for possible money laundering by banks. The report criticized the agency for a lack of independence when examining how well banks comply with federal laws prohibiting money laundering. The report stated that the comptroller’s “examiners relied on bank management and/or the bank’s internal audit function instead of performing their own reviews.”
In 2008, the country was rocked by one of the largest housing crises in US history, which threatened to bring down numerous banks. By the summer, the OCC had stepped in and closed several national banks, including First National Bank of Nevada and First Heritage Bank of Newport Beach, CA. Some banking experts predicted that approximately 100 banks would fail by the time the crisis was over. Others, however, described such an estimate as wishful thinking, arguing the final number would be much higher.
What it Does:
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A national bank is a financial institution chartered by the OCC. National banks can usually be identified because they have the words “national” or “national association” in their titles or the letters NA or NT&SA following their titles.
For example, Bank of America is a national bank (its legal name is Bank of America, NA). Other prominent banks that are national banks include Wells Fargo, Citigroup and JP Morgan Chase. National banks total more than 1,800 in the country today, representing about 23% of all insured commercial banks in the United States and holding 68% of the total assets of the banking system (or $6.6 trillion).
Headquartered in Washington, DC, the OCC has four district offices, as well as an office in London to supervise the international activities of national banks. The OCC's staff of examiners conducts on-site reviews of national banks and provides sustained supervision of bank operations. The agency issues rules, legal interpretations and corporate decisions concerning banking, bank investments, bank community development activities and other aspects of bank operations. National bank examiners supervise domestic and international activities of national banks and perform corporate analyses. Examiners analyze a bank’s loan and investment portfolios, funds management, capital, earnings, liquidity, sensitivity to market risk and compliance with consumer banking laws, including the Community Reinvestment Act. They review the bank’s internal controls, internal and external audit, and compliance with law. They also evaluate bank management’s ability to identify and control risk.
The OCC has the power to examine national banks; approve or deny their applications for new charters, branches, capital or other changes in corporate or banking structure; take supervisory actions against national banks that do not comply with laws and regulations or that otherwise engage in unsound banking practices; remove officers and directors, negotiate agreements to change banking practices, and issue cease and desist orders, as well as civil money penalties.
The OCC does not receive any appropriations from Congress. Instead, its operations are funded primarily by assessments on national banks. National banks pay for their examinations, and they pay for the OCC's processing of their corporate applications. The OCC also receives revenue from its investment income, primarily from US Treasury securities.
By law, the OCC is prohibited from releasing information from its bank safety and soundness examinations to the public. National banks must, however, submit a Report of Condition and Income (call report) four times a year to the Federal Deposit Insurance Corporation. Call reports contain publicly available financial information about the bank. The FDIC makes these reports available upon request by phone (202-898-6570) and on the web.
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Where Does the Money Go:
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According to USAspending.gov, the Office of the Comptroller of the Currency spent approximately $604 million on private contractors from 2000-2008. A total of 1,679 contractors were paid by the OCC for services that included ADP and telecommunications services ($179.8 million), ADP systems analysis ($40.8 million), telecommunications network management services ($34.7 million) and architect-engineer services ($22.3 million).
The top 10 contractors for the OCC are:
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Primescape Solutions Inc.
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$85,334,844
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Paradigm Holdings, Inc.
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$66,243,303
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Stanley, Inc.
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$37,035,991
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Pragmatics, Inc.
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$32,545,773
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Cigna Corporation
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$29,182,273
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Domus Holdings Corp
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$21,975,605
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Group Goetz Architects, PC
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$21,417,600
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SI International, Inc.
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$15,327,847
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Dell Inc.
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$13,718,945
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RCM Technologies, Inc.
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$13,493,079
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Controversies:
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In June 2008, the OCC’s top official, John Dugan, publicly accused banks and mortgage firms of providing questionable information about the number of subprime mortgage borrowers they were helping and the rate at which homeowners were falling into foreclosure. The data was deemed crucial for regulators to gauge the severity of the housing crisis and evaluate the effectiveness of the steps lenders were taking to address the problems.
Dugan said his agency found “significant limitations with the mortgage performance data reported by other organizations and trade associations.” He added that he was referring to information provided by groups such as the Mortgage Bankers Association, which reports a foreclosure rate widely cited by regulators and the media. The Office of the Comptroller of the Currency calculated that the rate was higher based on raw data it collected from nine of the country’s largest banks.
Dugan’s comments also raised questions about the accuracy of the reporting from Hope Now, an alliance of mortgage firms and banks that was formed by the Bush administration to help financially troubled holders of subprime mortgages. Leaders of Hope Now have claimed to have helped more than 1 million homeowners, but those figures were self-reported by lenders in response to the kind of surveys Dugan had faulted.
Data on Housing Relief Questioned (by David Cho and Renae Merle. Washington Post)
OCC Accused of Helping Worsen Mortgage Crisis
In early 2008, as the nation wrestled with the mortgage and banking crisis, the OCC came under attack from then-New York Governor Eliot Spitzer, who claimed the agency had been part of the Bush administration’s efforts that had helped cause the banking fiasco.
In an Op-Ed published by the Washington Post, Spitzer wrote, “In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.”
Comptroller John Dugan responded in his own Op-Ed, “Nice try, governor. The facts tell a very different story. The overwhelming majority of the subprime loans causing so many problems today, including the most predatory loans, were originated by state-regulated mortgage brokers and lenders. That’s a fact, and here’s another: The OCC doesn’t regulate those brokers and lenders; that’s the job of the states. The national-bank preemption that Mr. Spitzer complained about—recently upheld by the U.S. Supreme Court—did nothing to handcuff state efforts to prevent lenders from making loans that borrowers had no reasonable prospect of repaying.”
Predatory Lenders' Partner in Crime (by Eliot Spitzer, Washington Post)
Misplaced Blame in the Loan Crisis (by John C. Dugan, Washington Post)
OCC Helps in War on Terrorism
In addition to monitoring national banks, the OCC has assisted the Bush administration’s Global War on Terrorism campaign. In 2005, the agency led an investigation with the Financial Crimes Enforcement Network to determine whether Arab Bank, a leading Middle Eastern financial institution, adequately implemented anti-money laundering laws. The investigation concluded that the bank failed to comply with the Bank Secrecy Act, resulting in a $24 million fine, the second-largest ever rendered under the act. Despite requests from Congress, the OCC refused to release the factual contents of its report to the public. The OCC’s acting comptroller, Julie Williams, testified before Congress that her agency had “compiled a list of individuals and entities with the same or similar names as reputed terrorists or terrorist organizations using publicly available information sources.”
Exposing Terror Financing: Who is Treasury Protecting Under Its Veil of Secrecy? (by Andrew Cochran, Counterterrorism Blog)
- Table of Contents
- Overview
- History
- What it Does
- Where Does the Money Go
- Controversies
- Suggested Reforms
- Comments
- Leave a comment
Founded: 1864
Annual Budget: $749 million
Employees: 3,000
Official Website: http://www.occ.treas.gov/
Office of the Comptroller of the Currency
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