John Bowman, the acting director of the Office of Thrift Supervision, lashed out Wednesday at the Dodd-Frank Act, arguing that it had made his agency the scapegoat for the financial crisis and could spell doom for the thrift charter.
In a speech in Tokyo, Bowman questioned the effectiveness of the regulatory reform law, suggesting it is overly burdensome and was the result of too many political compromises.
"Have we succeeded in designating a regulatory structure for the 21st century, or have we ended up with a system that is politically feasible, rather than truly optimal?" Bowman said. "My conclusion is that, like any result of compromise, the new structure is not necessarily the ideal structure, it is merely the structure that was able to muster enough votes to pass through the legislative process."
Bowman's speech was unusual for two reasons. For one, it is rare for a U.S. government official, particularly an agency's acting head, to criticize legislation on foreign soil. For another, agency heads often go out of their way to avoid criticizing Congress. Instead, Bowman used his speech to suggest that lawmakers had merely made the OTS the fall guy for the financial crisis and that its elimination next year would do nothing to make the system safer.
"The OTS is nearing its end for several reasons, including a desire by U.S. leaders to show a response to the economic crisis," he said.
In his speech, Bowman defended the agency, arguing it was not unique in seeing large institutions under its oversight fail.
"The OTS was not the only federal banking regulator to supervise financial institutions that failed during the crisis," he said. "Since the IndyMac failure, about 300 U.S. financial institutions have failed, including state-chartered banks and national banks."
The Office of the Comptroller of the Currency, which is to absorb the OTS' responsibilities and staff by July 21, 2011, also supervised large banks that needed bailouts, he noted.
"Institutions much larger than Washington Mutual — for example, Citigroup and Bank of America — collapsed," he said. "However, the federal government deemed these larger institutions 'too big to fail' and provided open-bank assistance to prevent their failures. As I have said in the past, the OTS did not regulate the largest banks that failed; the OTS regulated the largest banks that were allowed to fail."
Bowman also fueled fears that the elimination of the OTS would lead to the destruction of the thrift charter. He said that the Dodd-Frank law eliminate the charter's three main benefits — branching, preemption and consolidated supervisory authority — while retaining its limitations on commercial lending.
"The law provided uniform branching capability for banks as well as thrifts, weakened preemption authority and put an end to consolidated supervision by transferring responsibility for regulating thrift holding companies to the Federal Reserve," he said. "With the benefits of the thrift charter significantly decreased and its limitations retained, how attractive will the charter be for today's financial services enterprises? Again, only time will tell."
Bowman said many thrifts fear being regulated by the OCC.
"For the thrift industry in the U.S., there is an additional layer of anxiety and uncertainty about what the future will be like without a dedicated thrift industry regulator. … Will the thrift industry prosper under the supervision of the OCC?" Bowman asked.
State regulators are already targeting federal thrifts in an attempt to persuade them to change charters, he said.
"States are strongly … trying to persuade thrift managers to … become state-chartered banks," he said. "Only time will tell how many OTS-regulated thrifts chose state supervision over the OCC or decide to stay with the OCC but eventually abandon their thrift charters in favor of national bank charters."
Bowman's remarks come amid accusations from several sources that he is resisting merger with the OCC. Current and former officials of both agencies have cited disputes over management positions, regional offices, general counsel staff changes, examiner licensing and even the location of booths at industry trade shows.
Bowman has reportedly been one of the most vocal inside the OTS in expressing disdain for the merger.
But his comments on Wednesday were one of his first ventures into public with such concerns since Dodd-Frank's enactment.
Bowman critiqued the arguments for eliminating the OTS, including the suggestion that it would cut down on charter shopping by financial institutions. Lawmakers claimed that many institutions sought to be regulated by the OTS because it was perceived as a lax supervisor.
Bowman denied this had occurred, however.
"I and other OTS officials noted that banks were not flocking to OTS supervision," he said. "In fact, more financial institutions — and more assets — have converted away from OTS supervision in the last 10 years than have converted to OTS supervision."
He also said the remaining regulatory structure leaves ample opportunity for charter shopping. "Although the Dodd-Frank law eliminates one regulator — the OTS — [it] leaves plenty of opportunity for regulator shopping among 50 states and between federal and state banking charters," he said.
With the OTS' demise an approaching reality, Bowman said he understands the uncertainty and apprehension of thrifts about to be supervised by the OCC.
"The situation is a little bit like riding in a rowboat and trying to get into another rowboat without ending up in the water," Bowman said. "Right now, I feel like I have one foot in one boat and the other foot in the other boat."
This story has been reprinted with permission from American Banker.
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