CBAI Attends OCC Central District Office - Trade Association Executives Meeting

April 4, 2013

CBAI’s David Schroeder, Vice President Federal Governmental Relations, participated in an Office of Comptroller of the Currency’s (OCC) Central District Office - Trade Association Executives Meeting. This day-long meeting was the second in a series where the OCC Central District banking trade association executives had the opportunity to discuss a variety of banking industry issues and concerns.

Representatives from the OCC included –

    Bert Otto – District Deputy Comptroller (Chicago)

    Dan McKee – Associate Deputy Comptroller (Chicago)

    Jennifer Kelly – Senior Deputy Comptroller for Midsize and Community Bank Supervision (Washington D.C.)

    Larry Hattix – Senior Deputy Comptroller for Enterprise Governance and Ombudsman (Washington D.C.)

    Gregg Golembe – Director of Banking Relations (Washington D.C.)

    Cheryl Petty – Acting Senior Thrift Advisor (Chicago)
The OCC addressed the topics of cross certification of examiners (bank/thrift), exam timeliness, consumer complaints, a Central District profile, Matters Requiring Attention (MRAs), problem bank review, their Risk Committee Radar Screen, the OCC’s appeals process, and regulations including the Dodd-Frank (cumulative regulatory burden, mortgage rules (QM and QRM).

Schroeder raised several issues of importance for Illinois’ community banks.

    Our strong opposition to Basel III capital and risk-weight requirement even being applicable to community banks. A discussion ensued regarding tiered regulation, the expected rule release date, and an assessment of the necessary regulatory relief community banks can expect in the final rules.

    The United States Attorney General Eric Holder, in a refreshing but disturbing moment of candor, admitted that Equal Justice Under the Law does not apply when it comes to the largest too-big-to-fail banks and that the U.S. apparently has a two-tier system of justice. CBAI registered strong objection to this preferential treatment of too-big-to-fail banks which is made even more egregious by their steady stream of misdeeds including: massive screw-ups in mortgage origination and servicing, securities fraud, anti-money laundering lapses, manipulation of LIBOR, JPMorgan Chase’s London Whale trading losses, and excessive executive pay packages.

    There is tension between community banks and the intangibles they consider in their lending decisions on the one hand, and regulators considering only documented evidence on the other. A discussion ensued regarding the regulators giving the proper weight these intangibles deserve in the community bank lending process. If this does not happen there will be no difference between the community bank lending model and that of the large banks who put purely quantitative information into one end of the a decision matrix and a decision comes out the other.

    As a result of the closing of 450+ community banks since 2008, industry consolidation, and virtually no new banking charters being approved since then, the number of community banks has been on the decline. This is not a healthy situation. There has been finger pointing at the regulators for not approving new banking charters. CBAI urged that there be a necessary new wave of de novo charters.
Schroeder also discussed several issues of particular importance to CBAI’s thrift members. These issues included the following.

    There are concerns about the level of understanding the OCC has for mutual chartered institutions. Specifically, the OCC needs to better understand that smaller thrifts are much simpler operations than the OCC has been accustomed to.

    The lack of understanding of the mutual charter comes into play particularly at this point in time, when many mutual executives are treading water, or living off healthy capital, which is actually a bona fide strategy given today’s environment. Yet, the OCC has an earnings mantra which may force mutuals to either exit the business or engage in riskier practices to seek yield at this dangerous point in time.

    There is a concern that the imposition of accounting concepts of commercial lending into the residential lending arena is questionable and often without true FASB or GAAP guidance. This exacerbates residential woes without commensurate benefit. Commercial versus residential lending has many distinctions. The commercial template is often not applicable to residential, where time truly does heal matters.
CBAI appreciates these Central District outreach meetings as well as individual association meetings to discuss issues of importance to Illinois community banks and thrifts.