Headline: What does the Comptroller of the Currency Do?


Body:    Comptroller?    Currency?   What is this?  This is actually a really powerful figure in the federal government.

What does the Comptroller of the Currency do?

The Comptroller of the Currency oversees all of the banks within the nation.   Interestingly, it also oversees the domestic locations of foreign banks too.  This person is appointed by the President and approved by the Senate.  Interestingly, the banks must pay for all administration fees and the taxpayers do not pay a cent.

How the Office of the Comptroller of the Currency (OCC) Works

Founded through the National Currency Act of 1863, the OCC monitors banks to guarantee they operate safely and meet all requirements. The OCC oversees several areas including capital, asset quality, management, earnings, liquidity, sensitivity to market risk, information technology, compliance, and community reinvestment.  The OCC is an independent bureau within the Department of Treasury. Its mission statement verifies it is to “ensure that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations.”     For their 5-year term, the Comptroller also serves as director of the FDIC.  The OCC has satellite offices all over the country and an office in London.

Wow, that’s a powerful agency!

It is a powerful agency and I didn’t realize how powerful.   They have the power to approve or disapprove any proposed changes in bank capital structures, and if found to be noncompliant with regulation, they can sanction the bank, up to an including removing officers or directors.  Following the Dodd-Frank Act, the Office of the Comptroller assumed the responsibility for the ongoing examination, supervision, and regulation of federal savings associations and took over many of the functions of the Office of Thrift Supervision. 

How did such an innocuous sounding Office become so important?

In a word, the banks are creating this currency, so to regulate, the currency, the OCC had to be granted very broad powers over banks. 

If the bank approves your application, it is going to trade for your promissory note for cash, cash in an account or instructions to another party to pay you.

History in the microscope

Prior to the Civil War, the banking system within the young nation was not systematic at all.  The National Currency Act was a response to the mishmash of local banks, local money, and conflicting regulatory standards that prevailed before the Civil War.  Prior to this, some states required an Act of legislation before a bank could be chartered, other simply demanded that a certain set of conditions had been met.  In this early system, the idea was that once presented with a bank note, a set amount of precious metal could be withdrawn.  But, when presented with different notes that were treated differently, fear ran rampant and bank runs were not unusual. In addition to this lack of faith, the fragmented system required that a traveler change his or her money at each boundary.

The National Currency Act of 1863 created the national banking system and the Office of the Comptroller of the Currency.    The immediate challenge was the paying for the Civil War, now ongoing.   Congress raised taxes, and they tried to sell war bonds, which was a radically new idea in this nation.  But, the Currency Act would hopefully restore faith in the banks of the nation, and encourage bond sales.  As a result of these new experiences and the force of personality of the first Comptroller, the Currency Act was superseded by the National Banking Act of 1864.  In related regulation, the banks that demanded to remain state-chartered were hit with an additional 10% in tax.   This encouraged the primacy of the National banks.  This struggle between state-chartered and National Banks went on until the Federal Reserve Act in 1913 was passed.

Then came the Great Depression, and in the midst of it, the President declared a “banking holiday” wherein most banking functions would be frozen.  But, behind the scenes, the OCC examiners were VERY busy, involved in a national triage exercise for the remaining banks.  The ones deemed “not bankable” were placed in a book for OCC to equitably dissolve.  WWII demanded an almost insatiable appetite for munitions and other supplies, and the Depression was over.  After WWII, the country was stabilized, as was banking.  Life, for some, was good.   As happens, in this environment, some creative people find ways around the law, and many portions of the “shadow banking” system came of age at this point.   As they were not banks, they were not regulated by Glass-Steagall restrictions on commercial lending.  Banking became more complex.   In response, the OCC changed and began to require a college degree for bank examiners and an international group within the OCC was formed.  Then, in 1999, the final protections afforded by Glass-Steagall were eviscerated, allowing for a bank to seamlessly be a commercial bank and retail bank.

In the Great Recession of 2009, too, the OCC was deeply involved.   After the crisis, the OCC was heavily involved with distribution of TARP funds, and assisted the Federal Reserve in administering the stress tests to the banks.  The Dodd-Frank Act passed and OCC lost many of its’ compliance functions to the new CFPB.  In the most recent period, OCC has been working with Banks and other federal agencies to setup better policies for the use of technology in finance.

 The Verdict

The OCC remains a very powerful office within the Federal Government.  They have a history suggesting an on-going grappling with timely issues in banking and finance.   By partnering with Banks and other federal agencies to work on technology, they appear to be taking the bull by the horns.  But, quite by design, I think, this is a rodeo that most people will not see.  Just be aware that it is on-going.





Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

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