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The OCC, What Is It?

The Office of the Comptroller of the Currency, or OCC, is an independent bureau of the U.S. Department of the Treasury whose mission, according to the bureau’s Web site, is to “charter, regulate, and supervise all national banks and federal savings associations.” It also supervises the federal branches and agencies of foreign banks in the U.S., and seeks to ensure that borrowers have fair access to credit.

The bureau is charged with conducting examinations of banks and savings associations, which includes tasks like evaluating their loan portfolios, as well as banks’ internal controls and vulnerability to market risks. It approves applications for bank charters and new branches. And it deals with banks that are not in compliance with regulations or that engage in unsound practices, and has the power to remove directors and officers, negotiate agreements to change the practices of wayward banks, and issue cease and desist orders and/or fines.

The President, with the approval of the Senate, appoints a comptroller (since April, 2012, Thomas J. Curry) for a five-year term. The bureau is based in Washington, D.C., and has four district offices in the United States (in Chicago, Dallas, Denver, and New York), and one in London.

The OCC’s funding comes from semiannual assessments on banks instead of appropriations by Congress. This aims to reduce the possibility that political considerations will influence OCC decisions, although it should be noted that in the past, presidents generally have appointed OCC comptrollers who share their political party affiliation. Banks also pay the OCC for their examinations and for processing applications, and the OCC earns some income on the Treasury securities it holds.

Its Origins

The nation’s banking system apparently looked very different prior to the Civil War. Banking systems and regulations differed from state to state. Individual banks issued paper notes that sometimes were not adequately backed by precious metals, like gold and silver, and were not accepted as legal tender nationwide.

To address these problems, The National Currency Act of 1863 was signed into law by President Lincoln and revised a year later as the National Bank Act, following changes proposed by Hugh McCulloch, who served as the OCC’s first comptroller. The law created the OCC and a system of federally chartered banks. The OCC was charged with writing bank regulation and conducting bank examinations. The law also created a national currency since it allowed banks to issue bank notes, requiring them to purchase government bonds that would serve as backing for the notes should the bank fail. The legislation, passed at the mid-point of the 1861-1865 Civil War, aimed as well to help finance the war though sales of government bonds.

Its name notwithstanding, the OCC gave up responsibility for issuing currency after the passage of the Federal Reserve Act of 1933. The U.S. Treasury Department now performs that function.

The OCC Today

In the past, the OCC has played a major role in times of financial crisis, and it continues to do so. In 1933, following the 1929 stock market crash and in the midst of the Great Depression, President Franklin Roosevelt declared a bank holiday during which the banks were closed for one day to allow the OCC to review the condition of individual banks and decide whether each was healthy enough to reopen.

More recently, in the aftermath of the 2007-2009 financial downturn, the OCC has helped carry out numerous initiatives under the Dodd-Frank Wall Street Reform & Consumer Protection Act of 2010. It has a seat on the Financial Stability Oversight Council created by Dodd-Frank to identify risks to the wellbeing of the financial system. And in 2011, it took on responsibility for national savings institutions when The Office Of Thrift Supervision was folded into the OCC.

The OCC provides a wealth of information that investors may want to tap. Although the agency is prohibited from releasing the results of bank examinations, the banks are required to submit reports of their financial condition and earnings, which the OCC makes available to the public on its Web site, occ.gov.  Another OCC Web site, HelpWithMyBank.gov, enables consumers to file complaints concerning their banks and answers typical consumer queries. And the OCC turns out numerous publications concerning the economy and the banking industry, like its Semiannual Risk Perspective, which in the latest edition discussed the recent loosening of lending standards and increase in covenant-lite leveraged loans, among other topics.       

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.