Most Americans probably rarely, if ever, think about the Office of the Comptroller of the Currency, an independent bureau within the Treasury Dept. In fact, most people aside from real policy wonks have likely never heard of the group, which is sometimes shortened to OCC, or its acting Comptroller Michael Hsu.
That might be a mistake, because Hsu and his organization play a major role in how banks operate in the United States.
"The OCC charters, regulates, and supervises all national banks and federal savings associations as well as federal branches and agencies of foreign banks," the group shares on its website.
But the real reason consumers should know about Hsu and the OCC is in its stated mission:
"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."
Basically, it's Hsu and his team's job to decide if banks are doing the right thing by the American people. At the "Too Big to Manage" conference held by the Brookings Institute Jan. 17, Hsu was the featured guest and he did not hold back.
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Hsu Calls for Potentially Breaking Up Some U.S. Banks
The OCC has a specific framework for judging when banks have gotten too big to manage. Hsu was clear that once a bank hits a certain size, making senior management changes, increasing remediation budgets, developing better plans, and hiring more risk personnel will have a limited impact, if any, BankingDive says.
"It is the size and complexity of the bank that is the core problem that needs to be solved, not the weaknesses of its systems and processes or the unwillingness or incompetence of its senior leaders," Hsu said.
The acting comptroller made it clear that sometimes when a bank grows "too big to manage," that can only be fixed by simplifying its operations "by divesting businesses, curtailing operations, and reducing complexity."
Hsu and the OCC use a four-level escalation framework that decides whether a bank should be broken up.
- Issue a non-public supervisory finding.
- Issuing public "enforcement actions, such as a consent order, which, depending on the infraction, could be paired with a civil money penalty," Hsu said.
- Put a growth limit on the bank.
- Breaking up the bank.
Hsu was clear that steps 3 and 4 are not taken lightly, and breaking up a bank, he shared, would only happen if its leadership repeatedly failed to address its problems.
"The design logic of an escalation framework is to use the credible threat of restrictions and divestitures guided by and consistent with due process to force banks to prove that they are manageable," he said. "And then to let the effectiveness or ineffectiveness of their actions speak for themselves."
Wells Fargo Meets the "Repeat Offender" Standard
Wells Fargo (WFC) reached a $3.7 billion settlement with the Consumer Financial Protection Bureau in December. The company is also operating under an asset cap under a deal it reached with the Federal Reserve in 2018.
That's multiple federal regulators having issues with the bank and Hsu believes there needs to be cooperation between those organizations.
"Greater clarity about the process and standards of review would support due process and fairness and bolster the credibility of supervisory actions taken. I see significant value in working collaboratively with the other federal banking agencies as we refine our thinking," he said.
U.S. Rep Maxine Waters (D-California), the highest-ranking Democrat on the House Financial Services Committee, echoed the sentiment for regulation.
"After a string of abusive practices, years of breaking the law, and another public enforcement action announced by the CFPB last month, I am not surprised that Wells Fargo has finally come to the conclusion that I arrived at long ago: Wells Fargo is too big to manage and as a result, incapable of complying with the law," she said in a letter posted last week.
She continued by suggesting that she was in favor of larger penalties.
"I was pleased when Director Chopra urged banking regulators last month to work with him to consider imposing additional limitations on the bank beyond the fines already paid and the limitations the Fed and OCC have imposed on Wells Fargo to date. These escalating penalties do have an impact, as we’ve seen with Wells Fargo’s announcement to downsize its activities. I continue to urge regulators to use the full extent of their authorities to hold all repeat offenders accountable for harming consumers," she shared.
