OCC’s Otting out

The US Comptroller of the Currency, Joseph Otting, is stepping down midway through his five-year term, days after issuing new rules under the Community Reinvestment Act which have failed to gain FDIC or Federal Reserve support.

Otting will step down on 29 May, to be succeeded on an interim basis by the Office of the Comptroller of the Currency (OCC)’s Chief Operating Officer Brian Brooks.

The OCC's 21 May announcement of Otting's departure came after several days of media speculation about his future at the regulatory agency. He steps down less than three years into his five-year term in the position, to which he was appointed by US President Donald Trump in November 2017. He has not publicly given a reason for his early exit.

Otting said it had been his “distinct honour to serve” as Comptroller. “I am extremely proud of what the women and men of the agency have accomplished to promote economic opportunity, eliminate unnecessary regulatory burden, and operate the agency in a more effective and efficient manner.”

The OCC cited reforms to capital and liquidity rules, improvements in banks’ anti-money laundering activities, and revised rules for implementation of the Dodd-Frank Act as among the legacies of Otting’s truncated term.

The regulator also recently issued plans for over 2,000 amendments to bank licensing and merger rules – generating criticism from the Conference of the State Bank Supervisors, an association representing state-level banking regulators, for the timing of the announcement during the covid-19 pandemic and for the brevity of its consultation period.

Otting’s stated chief priority during his term was an overhaul of the Community Reinvestment Act (CRA), which gives banks credit for their lending to disadvantaged communities in the US. Under new rules announced on 20 May, a day before Otting announced his departure, the OCC will now give banks more flexibility over what counts for credit under the act.

The regulator says the changes will improve the transparency and timeliness of the CRA assessment process, and allow banks’ CRA performance to be evaluated more objectively.

The changes came in the wake of a joint proposal issued in December by the OCC and Federal Deposit Insurance Corporation (FDIC). The new rules’ consultation period, which ended in March, received over 7,500 responses despite a shortened 60-day timeline down from the usual 90.

But in a statement released on the day of the OCC announcement, FDIC chair Jelena McWilliams said her agency was “not prepared to finalise the CRA proposal at this time”, citing the covid-19 pandemic.

In January Federal Reserve governor Lael Brainard indicated he favoured a different approach to CRA reform to that offered by the OCC and FDIC, saying CRA ratings should be based on the number, rather than the dollar value, of CRA-eligible activities a bank engaged in.

The rule changes have also generated political criticism from Democratic members of the US House of Representatives and Senate banking committees. Maxine Waters, chair of the House Financial Services Committee, said the change undermined the CRA’s purpose of combating discrimination. “Gutting CRA has been Otting’s priority from day one,” she said. “Now that he’s done with this rule, it appears he will be resigning from the OCC.”

Otting joined the OCC after a 31-year banking career, including stints at Bank of America, Union Bank, and U.S. Bancorp subsidiary U.S. Bank. In 2010 he joined OneWest, a California-based bank established by future Trump administration Treasury secretary Steven Mnuchin out of the remains of failed bank IndyMac, and stayed on as co-president for several months when the bank merged with CIT Group in 2015.

That merger hit difficulties after the OCC and Federal Reserve announced hearings into OneWest's compliance with the CRA, after political lobbying and a letter-writing campaign organised by the California Reinvestment Coalition, which campaigns for banks to ramp up their CRA programmes. The merger was eventually approved after OneWest agreed to submit an updated CRA plan.

Brooks, Otting’s interim successor, joined the OCC as COO and first deputy comptroller just two months ago from San Francisco-based crypto exchange Coinbase. Prior to his time at Coinbase he, too, worked under Mnuchin at OneWest and then CIT Group.

“The agency and the nation are fortunate that the OCC has a deep bench,” Otting said about his unexplained departure. “Brian and the Executive Committee are extremely well suited to continue the agency’s important work and succeed in its mission of ensuring banks operate in a safe, sound and fair manner.” 

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