At a recent speech to the National Bankers Association, Comptroller John Dugan announced that OCC will implement new initiatives to strengthen its support of minority-owned institutions (http://www.occ.gov/ftp/release/2006-112a.pdf). 

Comptroller Dugan noted that the OCC is launching a minority banking Web site, enhancing the content on its BankNet site to make it more useful to minority bankers, and initiating an internal review process to assess the effectiveness of its efforts to support minority banks.   

The OCC has long recognized that minority banks face difficult challenges as they seek to serve customers who often are unbanked, underserved, or unable to meet conventional creditworthiness criteria. It is recognized that minority-owned banks are important community and national assets, and the OCC strives to provide high-quality regulatory supervision and support.

Mutual Goals

Just as minority-owned banks are committed to addressing the financial services needs of the communities they serve, the OCC is dedicated to ensuring that a safe and sound national banking system is available to all Americans. Consistent with these complimentary missions, the OCC’s examiners communicate regularly with minority bankers to identify risks and discuss methods of addressing supervisory issues.

For example, in one instance, a minority-owned bank’s management team and our examiners had some fundamental differences of opinion about loan review practices and credit risk ratings. It would have been easy for both sides to “dig in their heels” but that wouldn’t have advanced our mutual goal of strengthening the bank’s risk management systems.  Instead, our examiner-in-charge arranged for one of our experienced examiners to hold a one-day session for bank management, covering OCC’s approach to evaluating loan review and credit risk ratings.

By thoroughly explaining what we seek in bank systems, and offering to share the best practices and knowledge we have gained from examining a host of community banks, we could provide this bank with convincing insights for modifying its processes. That most likely would not have happened if both sides hadn’t made an extra effort to communicate.

Compliance is another challenging area for minority institutions, as it is for all banks. We recently encountered a situation in which the board of directors of a minority-owned bank consisted of prominent business people and leaders in their community, but none were bankers. Consequently, the directors were not familiar with the numerous compliance laws with which the bank needed to comply. The bank’s president enlisted our examiners’ help in providing training for the board on crucial topics, including Bank Secrecy Act and anti-money laundering requirements.  It was important to us – and to the bank – to ensure that the board fully understood the various regulatory requirements and could more effectively oversee the bank’s compliance systems.

We Learn Too 

Education is a two-way street, and we often learn from the banks we supervise.  For example, a particular minority-owned bank has developed a niche in a specialized loan product — one that many other institutions avoid because of its inherently high risks. Our examiners quickly realized that, to be able to evaluate the quality of the bank’s portfolio and its risk controls, they needed to better understand the product and the bank’s underwriting practices.

Our examiners met with the bank’s senior credit officers and explained that the higher past dues in this portfolio raised supervisory concerns. But the bank was able to show them that the portfolio was structured and managed in such a way that higher delinquencies did not translate into higher losses. With that insight, our examiners were better able to understand the product and the bank’s risk management controls.  

Appreciating Differences

At the OCC, just as we work to promote cultural diversity and awareness in our own workforce, we try hard to ensure that our examiners understand the cultures of the minority banks they supervise. We have found that our internal resources can help us extend our support of diversity to our relationships with minority-owned banks. 

As an illustration, many of the minority-owned banks OCC supervises serve Asian-American markets. There is a concentration of these banks in one of our field office areas. Realizing that OCC examiners could provide more effective oversight of these banks if they had a better general understanding of the Asian business culture, the Assistant Deputy Comptroller (ADC) responsible for that office organized a “Diversity in Action” training session for the examiners.

The ADC enlisted one of our OCC diversity consultants, who is also an experienced and respected bank examiner, to lead a discussion of the characteristics of Asian cultures and how to apply an understanding of those cultures to the examination process. The session was a success — improving the examining team’s understanding of how cultural considerations affect Asian banks’ lending practices.