WASHINGTON — The Office of the Comptroller of the Currency is collecting data on the decision-making process of banks that detach themselves from certain business sectors or geographical regions to limit potential heightened scrutiny from regulators, a process often called "de-risking."
"Our goal is to identify current practices and possible gaps in existing policies and procedures for conducting periodic client risk evaluations and for making account termination decisions," Comptroller of the Currency Thomas Curry said during a speech Monday at the annual Institute of International Bankers conference.
The OCC is gathering information on the specific policies institutions have in place to evaluate their risk strategies, including "whether banks use oversight committees to review these decisions, whether the decisions are reported to the board of directors or senior management, and whether correspondents have an opportunity to address concerns before the relationship is terminated," Curry said.
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Banks are facing enhanced scrutiny from examiners, causing them to sever ties with businesses they view as high-risk, but regulators are also pressuring them not to close those accounts, fearing financial disenfranchisement.
November 17 -
While government officials acknowledge that so-called derisking, in which banks sever ties with businesses considered high risk, is a growing problem, it's increasingly clear they believe it's mostly up to the banks to solve it.
November 13 -
The pressure on banks to become less risky backfires when they respond by curtailing services that are vital in a functioning financial system.
February 10
Contrary to some industry complaints, regulators are not directly to blame for banks' decision to de-risk, Curry said. "We don't make those decisions. Banks make those decisions."
But once the OCC has analyzed the data, it may issue de-risking guidelines to financial institutions.
"A banking system that's truly safe and sound is also one that meets the legitimate needs of its customers and communities," Curry said.
Curry also noted that anti-money-laundering policies in place in foreign jurisdictions play a part in a bank's decision to de-risk.
"Strong national AML regimes may give OCC-supervised institutions a greater degree of confidence about retaining existing relationships with foreign correspondent banks," he said.
De-risking has been a growing problem in recent years as banks began to drop business lines they perceived as high in regulatory scrutiny due to the nature of the activity or where it was taking place. To some extent, regulators acknowledge the problem exists but also take no responsibility for it.
A top Treasury official told American Banker last year that resolving the problem will ultimately "require some investment on the sake of the institutions," suggesting the issue could be dealt with if banks bolstered their compliance systems.
Curry said Monday that banks have "legitimate concerns, but decisions to terminate relationships can have regrettable consequences."
"Long-standing business relationships may be disrupted," he said. "Transactions that would have taken place legally and transparently may be driven underground."
Curry cited both "hard and anecdotal data" that relationships are being severed.
"Preventing money laundering and terrorist financing is obviously an important goal. But it cannot be our only goal," he said.
