OTS out, OCC in under the Financial Reform bill

Written by Biloxi

There has been little talks on the news about Office of Comptroller of the Currency [OCC] John Dugan, the regulator who oversees the nation's largest banks, leaving office on Aug. 14. President Obama has to find Dugan's successor. And whoever becomes the OCC head will be faces major changes as the role of OCC has been laid out in the financial reform bill which had passed by Congress a week ago. According to
Banktech website:

Under the legislation, the agency would absorb the Office of Thrift Supervision [OTS], a smaller regulator that largely oversees mortgage lenders. The reputation of the OTS, which supervised troubled insurer American International Group and a slew of failed subprime lenders, was significantly damaged during the financial crisis.


The next comptroller of the currency would also join the newly-formed Financial Stability Oversight Council to monitor risk in the financial system.

What is the Financial Stability Oversight Council role? From Zerohedge:

The Financial Stability Oversight Council

- Expert Members: A 9 member council of federal financial regulators and an independent member will be Chaired by the Treasury Secretary and made up of regulators including: Federal Reserve Board, SEC, CFTC, OCC, FDIC, FHFA, the new Consumer Financial Protection Bureau. The council will have the sole job to identify and respond to emerging risks throughout the financial system.

- Tough to Get Too Big: Makes recommendations to the Federal Reserve for increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity, with significant requirements on companies that pose risks to the financial system.

- Regulates Nonbank Financial Companies: Authorized to require, with a 2/3 vote, nonbank financial companies that would pose a risk to the financial stability of the US if they failed be regulated by the Federal Reserve. With this provision the next AIG would be regulated by the Federal Reserve.

- Break Up Large, Complex Companies: Able to approve, with a 2/3 vote, a Federal Reserve decision to require a large, complex company, to divest some of its holdings if it poses a grave threat to the financial stability of the United States - but only as a last resort.

- Technical Expertise: Creates a new Office of Financial Research within Treasury to be staffed with a highly sophisticated staff of economists, accountants, lawyers, former supervisors, and other specialists to support the council's work by collecting financial data and conducting economic analysis.

- Make Risks Transparent: Through the Office of Financial Research and member agencies the council will collect and analyze data to identify and monitor emerging risks to the economy and make this information public in periodic reports and testimony to Congress every year.

- Oversight of Important Market Utilities: Identifies systemically important clearing, payments, and settlements systems to be regulated by the Federal Reserve.

- No Evasion: Large bank holding companies that have received TARP funds will not be able to avoid Federal Reserve supervision by simply dropping their banks. (the Hotel California Provision).

Read more from Financial Stability website about the Financial Stability Oversight Council outlined in 2009.
Click here.

Why is the Office of Thrift Supervision being absorbed? Well, who can forget their little concern for the problem in Washington Mutual Bank which is now owned by JP Morgan Chase. According to a Senate investigation, serious problems and reckless practices at the Washington Mutual bank were uncovered by federal examiners at least five years before its collapse, but supervisors showed little concern of it.  Read more of my post in April. Click here.