WASHINGTON — Bank regulators traditionally avoid the level of partisan warfare playing out in other corners of the capital. But policy observers point to recent actions by the Office of the Comptroller of the Currency as a sign of politicization creeping into the government’s oversight of the industry.
The OCC has not only engaged in public fights with other agencies over policy differences, namely how each reforms the Community Reinvestment Act. But some moves by acting Comptroller Brian Brooks — most recently a proposal punishing banks that restrict lending to firearms and fossil fuel businesses — are seen crossing the line separating bank regulation from partisan issues.
Some worry that political influence in the workings of the OCC and the other regulators could reverberate long after the Trump administration, with President-elect Joe Biden potentially appointing officials set on going in the other direction and establishing a new, progressive regulatory agenda.
“If Biden’s team brought someone to tear down the OCC and reverse all previous rulings from the previous administration — that would be draconian,” said Richard Hunt, president and CEO of the Consumer Bankers Association. “Of all the agencies that can’t afford policy whiplash, the OCC is the biggest, because the reputation and traditions of the OCC are being pretty close to as apolitical as possible.”
After Biden’s victory in November, President Trump announced he would nominate Brooks for the permanent comptroller’s job. If confirmed, Brooks could serve in the role for five years.
However, it is doubtful the Senate will confirm him in the closing days of 2020, and regardless, many legal experts say Biden can choose his own acting comptroller after taking office. But Brooks’s nomination magnifies the political dynamics behind regulatory appointments. Whoever Biden nominates could face an uphill battle, especially if the GOP maintains Senate control after the Jan. 5 Georgia runoffs determine which party has the majority.
But a bigger question faces the Biden White House with far-reaching implications for the industry. Does the incoming administration select leaders for agencies like the OCC and Consumer Financial Protection Bureau that support policies swinging far to the left, or that will restore a more moderate, nonpolitical approach to regulatory policy?
“There are things you can do that a political party or ideology supports that also supports the mission of the OCC,” said Gregg Gelzinis, a senior policy analyst at the Center for American Progress. “I’d consider the OCC acting extremely partisan to mean that they put the needs of a political party above the mission of the agency.”
‘The most politicized comptroller in living memory’
Though his May hiring to run the OCC was just an interim appointment, Brooks has issued a flurry of dramatic proposals and proclamations — including several just within the last few weeks —that many say push the envelope of the OCC’s purview and in some cases have raised concerns in the industry.
A former chief legal officer of Coinbase, Brooks has won praise from fintech leaders over his
Other policy moves under Brooks’s leadership have indicated a clearer partisan influence.
“Brian Brooks is the most politicized comptroller in living memory,” said one senior industry official, who spoke on the condition of anonymity.
One of his first actions as acting comptroller was to send an open letter on June 1 to state and local leaders
Echoing tweets by President Trump to “REOPEN OUR COUNTRY!” and protests by nationalist groups opposing the public health restrictions, Brooks’s letter warned that the use of masks in bank branches could heighten the “very real risk of increases in bank robberies.” (That comment was repudiated by the nation’s largest bank trade association.)
"Your members should consider these risks carefully and weigh them against the scope and duration of continued lockdown orders in making your decisions, because certain aspects of these orders potentially threaten the stability and orderly functioning of the financial system the OCC is charged by law to protect," Brooks said in the letter to the National League of Cities, the U.S. Conference of Mayors and the National Association of Governors.
More recently, the OCC’s proposed “fair access” rulemaking in November has emerged as a political lightning rod.
The proposal aims to prevent banks broadly from making business decisions that could disadvantage politically controversial industries, but the text appears to focus on preserving the rights of certain maligned sectors such as fossil fuel and the firearms industry. In some notable cases, large banks have taken public stances to restrict lending to gun-related customers in the wake of mass shootings, as well as to business interests seen as threatening the climate.
Some say the proposal overlooks reputational risk and macroeconomic factors that banks should be able to weigh in deciding where to direct lending and investment resources.
“The fundamental assumption in the rule is that these decisions being made by banks are political decisions,” said Karen Petrou, managing partner at Federal Financial Analytics. “That’s very controversial.”
In an interview, Brooks disputed the notion that his tenure as acting comptroller had contributed to the politicization of the OCC.
“We live in incredibly polarizing times, where anything a Republican comptroller does will be called political,” Brooks said. “And believe me: If there’s a Democratic comptroller in the next few years, that person will be called political by Republicans.”
“The reason that the framers of the National Bank Act made the comptroller an independent regulator with a five-year term and certain limitations on approval is precisely because my job is to uphold the precedents of the agency,” Brooks continued. “We're trying to do what's right for the financial system. We're trying to do things based on precedent. We're trying to take guidance from expert career staff who've been here a lot longer than I have, who have supported all of these things.”
‘The decisions made in 2021’
Some observers say the politicization of bank regulation has been set in motion by the more generally partisan environment.
The 2008-9 financial crisis followed by the Dodd-Frank Act’s regulatory overhaul and then Trump’s deregulatory policies have led to a never-ending fight between the left and right about the correct balance in the regulatory system. Since the crisis, the pendulum has been subject to extreme shifts in both directions.
Meanwhile, crises like the coronavirus pandemic and protests over police killings of Black Americans have highlighted the outsized influence of the banking system to help those struggling to keep up in the economy.
“In 1863 and ever since, the OCC was established to be independent with neutral, objective bank supervision. That is not a partisan or political initiative,” said Petrou. “But because finance has become so important, and the U.S. is so economically unequal, the decisions made in 2021 by the comptroller will be inherently political, if not partisan.”
With the Biden administration set to take control of the federal government in January, most observers expect selecting new leaders of the OCC and CFPB could be among the first tasks. Some are hopeful that that will mean a reversion to the mean for the national bank regulator.
Brooks is “the acting comptroller. He will no longer be comptroller in January,” said the industry official. “He’s more of a temporary aberration than secular shift — it’s cyclical. And he’s just focused on a couple of issues of high political note. But the general approach of the agency hasn’t started to shift.”
But some on the left see an opportunity for the agency — which unlike others is led by a single director and not a board — to play a starring role in enacting progressive policies.
“The next comptroller should and will aggressively execute the mission of the agency, which is to promote the safety and soundness of the system, and ensure the system is facilitating sustainable, equitable economic growth,” said Gelzinis.
“There is an increased awareness that the OCC can be an independent actor here. That’s important. This is a really powerful agency,” Gelzinis added. “And there’s a lot it can do to make sure we have a safe and sound banking system — making sure banks are meeting their obligations under [the Community Reinvestment Act], and making sure that engine of our economy, the financial system, is spurring broad-based sustainable growth.”
But a more progressive comptroller could lead to heartburn for the nation’s banks. A more assertive, politically conscious comptroller of the currency appointed by a Democratic president in 2021 would continue a cycle of drastic policy swings from one administration to the next.
“The OCC has always been perceived, and always been needed, as an agency that ensures the banking industry is well run, well capitalized and protects the integrity of institutions so they can work on the behalf of consumers,” Hunt of the CBA said.
“Regulators cannot act like congressional leaders. We understand that Congress changes every two years. But we’re not used to that in the regulatory arena.”
But Petrou says it may be difficult — or impossible — for the next comptroller of the currency to avoid politics.
“There are significant challenges facing the financial system that many feel cannot wait for congressional resolution,” Petrou said. “With digital finance policy, the world is changing, and Congress has been unable to deal with it. That means the comptroller or another regulator is going to have to deal with it.”
Make waves or keep the trains running?
Some note that Brooks is not the first acting comptroller who sought to make waves with a limited appointment.
Keith Noreika, now a private attorney, served in the role for seven months in 2017 before the confirmation of former Comptroller Joseph Otting. In that brief stint, Noreika publicly opposed the CFPB arbitration rule, advocated for the approval of more de novo banks, and sought changes to ease regulatory burden, among other things.
But policy observers say acting leaders often take a perfunctory, keep-the-trains-running-on-time approach.
Julie Williams, a former longtime OCC official, twice served as acting comptroller before retiring in 2012. During the Obama administration, John Walsh served as acting comptroller for nearly two years before the confirmation of Thomas Curry. Walsh’s tenure was relatively quiet.
But in an interview, Williams, now global head of strategy at Promontory Financial Group, disputed the idea that acting comptrollers should keep a low profile simply because they lack Senate confirmation.
“I approached the job without thinking about it being ‘acting,' " Williams said. “You’re it, whether you’re acting comptroller or confirmed. You’re running the agency. I took the responsibility that way.”
The authority of any comptroller, acting or Senate-confirmed, is greater in some respects than other agency principals since the OCC is not governed by a board or commission, as is the case with the Federal Reserve Board or the Federal Deposit Insurance Corp.
But Brooks argued that the comptroller of the currency was not disproportionately more powerful relative to other bank regulators. “There are some agencies which, because of their nature and mission, are appropriately headed by a single agency head,” Brooks said.
He added that the OCC’s structure allowed it to be particularly responsive in the early days of pandemic.
“In a case like this, where somebody needs to react quickly and deliver clarity … I think that’s something we’ve done amazingly well,” Brooks said. “If we’d had to wait until next quarter’s board meeting, I don’t think the country would have gotten by as well as it did.”
The industry craves stability
In the past, administrations have nominated comptrollers, later confirmed by the Senate, who came from political backgrounds but who did not stir partisan controversies.
Former Comptrollers Gene Ludwig and John. D “Jerry” Hawke "were political people, but they weren’t politicized comptrollers,” the senior industry official said.
While both Ludwig and Hawke oversaw certain notable fights at the OCC, such as over the expansion of national preemption, “that’s small ‘p’ political,” the official said. “It’s not hard politics, like trying to force banks to lend to oil and gas.”
Petrou agreed that appointing a person with a political background won’t necessarily doom the agency, saying that the background of the next comptroller will matter less than the actions taken in office.
“These are political appointees. That’s true of anyone appointed at the Federal Reserve or FDIC: they come into these positions with political office holders,” Petrou said. “It’s not because their wisdom makes them so admired that they must be put into office. Political people know political people, who may have substantive skills, and therefore could be nominated to financial regulatory positions. But they are, at heart, political appointees.”
Faced with the prospect of a more active OCC under Biden, bankers and their advocates say that more than any particular act of deregulation or relief, the industry craves stability.
“It’s hard for banks to plan down the road, to spend time and resources developing a product or practice, when they have a new administration that comes in and eliminates, through rules and regulation, a specific framework,” Hunt said.
But Petrou said the nation’s politics have simply become too polarized — and its economic challenges too vast — for banks to have the luxury of simple or mundane financial regulatory developments.
“Finance is structurally important today in a way that wasn’t the case 20 to 30 years ago,” Petrou said. “Banks feel themselves caught in the middle of this. They want to go back to the days where regulation was boring, and that’s not going to happen.”
