Government Report: Recommendations for OCC to Reduce Regulatory Capture

There are nine ways that the Office of the Comptroller of the Currency (OCC) can reduce the risk of regulatory capture, according to the Government Accountability Office (GAO). The OCC, led by the Comptroller of the Currency Joseph Otting, agreed with one of the recommendations, rejected five of them, and neither agreed nor disagreed with the other three.

Regulatory capture refers to a regulatory agency acting in the interest of the regulated industry at the expense of the public interest. The GAO argues that “OCC leadership has taken some steps to demonstrate support for supervisory independence, but its approach to mitigating regulatory capture is narrow.”

GAO criticized the OCC for not analyzing relevant factors such as employee movement from the regulatory agency to the regulated industry or vice versa. Instead, the “OCC only considers two factors when assessing the risk of capture: the tone of its media coverage and the extent to which examination staff rotate among banks.”

The OCC largely disagreed with GAO’s recommendations, with the only exception being that the agency revise its instructions for doing the examination workpaper review, which is already in the process of being revised.

The OCC disagreed with many of the recommendations that centered on the federal regulator having more documentation and data on the internal deliberations between examiners and banks.

“Retaining early drafts of conclusion memos and supervisory letters that might not have fully informed conclusions serves little purpose,” said the OCC. “Additionally it is very important that OCC staff be able to efficiently and effectively retrieve pertinent supervisory information. Keeping extraneous information is counterproductive in that regard.”

GAO’s recommendations are below:

1. Examination teams be required to document key deliberations that lead to consequential
   decisions for an examined bank (OCC disagreed).
   
2. Revise Large Bank Supervision’s policy to require that examination teams retain drafts of key documents that record the supervisory review process (OCC disagreed).

3. Require examination teams and management to document key communications with banks that inform supervisory decisions (OCC disagreed).

4. Track and monitor use of informal recommendations (OCC disagreed).

5. Consistently record explanations of changes to scopes of recusals and record waivers separately from recusals, but it described actions that, if fully implemented, would meet the intent of our recommendation (OCC neither agreed nor disagreed).

6. Develop a policy to check for active conflicts of interests when staffing examinations and
   other supervisory activities (OCC disagreed).

7. Revise instructions for conducting examination workpaper reviews and communicate the
   revisions to employees (OCC agreed).

8. Conduct periodic self-assessments of the ethics program and document the results, but it described actions that, if fully implemented, would meet the intent of our recommendation (OCC neither agreed nor disagreed).

9. Expand its approach to addressing the risk of regulatory capture, but it stated that it would assess whether to implement an aspect of our recommendation (OCC neither agreed nor disagreed).