Palm Desert, CA
Comptroller of the Currency John C. Dugan said in a speech today that both
consumers and banks have benefited from the long fight to shed outdated laws and
regulations, and he expressed pride in the role he played in those efforts.
I worked hard
throughout my career on the Senate Banking Committee staff, at the Treasury
Department, and in private practice to enable banks to compete vigorously to
provide consumers with the broad range of financial products and services they
demand, wherever they demand it, he said in a speech before the annual
convention of the American Bankers Association.
Who would have thought
15 years ago that banks could offer the full range of banking, securities,
insurance, credit card, and mutual fund products to customers in any part of
the country? he added. And look at the results: by vigorously competing to
provide both new and traditional products and services, banks are stronger than
ever record profits; solid balance sheets; and high levels of capital.
National banks have
very often been at the forefront of that innovation, and the OCC has worked
hard to keep the national bank charter strong and vibrant to facilitate this
innovation, he said. This is a long, distinguished tradition that I warmly
embrace.
Mr. Dugan also recalled
the painful lesson of the late 1980s and early 1990s.
As a young staffer on
the Senate Banking Committee, the hearings on the savings and loan disaster,
begat by a failure of regulation and supervision that cost the taxpayer well
over a $100 billion, are seared in my brain, he said. Likewise, as a Treasury Department
official, I witnessed first hand the commercial real estate convulsion that hit
the banking industry with such violence, especially in Texas and New England,
but in other parts of the country as well.
The experiences of
those years had a lasting effect on his thinking, Mr. Dugan said.
Let me be clear about
my perspective from the experiences of the late 1980s and early 1990s: Im a
safety and soundness guy, and I believe in strong capital, he said The
banking systems comeback from those dark days to its present prosperity must
be counted as among the more stunning revivals of our lifetimeand I sure dont
want to go back.
While applauding the
bank industrys health, Mr. Dugan emphasized that the OCC will be watching
national banks closely, and the agency will not hesitate to act.
For example, Mr. Dugan
cited findings in the OCCs 2005 Underwriting Survey that showed a distinct
shift toward easing for commercial credit, most noticeable in residential real
estate. While easier availability of
first mortgages has helped marginal borrowers obtain loans, Mr. Dugan said that
looser underwriting standards and more widespread penetration of riskier
mortgage products have raised questions about how these loans will fare in the
event of a rise in interest rates of a softening in house prices. As a result, the OCC is currently leading an
interagency effort that is expected to result in appropriate guidance this
fall.
Mr. Dugan also
addressed the potential change to risk-based capital requirements that bank
regulators are now considering as part of the Basel II process. The Comptroller said the process was
worthwhile and expressed support for it. But he noted that the fourth
quantitative impact study (QIS-4) of the Basel II proposal forecast a
significant reduction in capital from Basel II across banks and significant
variations in capital levels among banks that appear to have similar exposures
to risk.
These troubling
results have quite rightly caused the regulators to take a time out to better
understand the QIS-4 submissions, Mr. Dugan said. As the OCC has reiterated
throughout the process, Basel II implementation efforts must be undertaken in a
prudent, reflective manner, consistent with safety and soundness and continued
competitive strength of the U.S. banking system.
While the bank
regulators continue to discuss the issue, Mr. Dugan made clear the perspective
of the OCC. First, there must be a
clear plan to address the concerns raised by QIS-4 as we move forward with the
implementation of Basel II. Second, the
QIS-4 results clearly highlight the value of other measures that backstop
risk-based capital, such as the role of the leverage ratio in prompt corrective
action. Third, there must be
substantial overlapping comment periods with respect to any proposed rule on
Basel II, which applies to the largest banks, and a proposed rule regarding
so-called Basel IA, which is the revised risk-based capital rule that would
apply domestically to other banks.
Mr. Dugan addressed the
new reporting requirements of the Home Mortgage Disclosure Act (HMDA) and the
importance of careful analysis of the new data. However, he pointed out that any final determination of unlawful
discrimination could only be made after additional examination, data
collection, and analysis relying on advanced quantitative modeling, field
investigations, and the combined skills of the agencys team of examiners,
Ph.D. economists, and attorneys.
We will continue to
pursue each suspected case of discrimination vigorously and objectively,
through the examination process or through legal means, as warranted by the
factsbut only by the facts, Mr. Dugan said.
Lets not ever forget that, just as we never encourage lenders to
discriminate unlawfully, we need to be very careful not to discourage them from
making credit available to anyone who can afford it.
Addressing the
challenge posed by those who would use the banking system to launder money and
finance terrorist activity, Mr. Dugan said that through determination,
resourcefulness, and vigilance, bankers and regulators can detect and deter
illegal activity if banks have reasonable anti-money laundering systems in
place and the resolve to make them work.
My goal is to make BSA a strong, consistent
part of our overall supervisory program, and to be as balanced as possible in
our supervisory judgments, Mr. Dugan told the bankers. That does not mean zero tolerance, and it
does not mean eliminating supervisory discretionbut it does mean more
effective communication to you of what we expect.
Mr. Dugan concluded his
remarks by acknowledging the costs and time for banks to implement regulations,
especially for community banks which operate on thin margins and lack the
specialized personnel to handle the mounting volume of paperwork, and that it
will be one of his priorities to try and alleviate unnecessary burden. He cited the two-tier approach in the new
CRA regulations that will significantly reduce data collection and reporting
requirements as the kind of regulatory relief that makes sense.
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The Office of the
Comptroller of the Currency was created by Congress to charter national banks,
to oversee a nationwide system of banking institutions, and to assure that
national banks are safe and sound, competitive and profitable, and capable of
serving in the best possible manner the banking needs of their customers.