How Thomas Curry Is Trying to Redeem the OCC

WASHINGTON — Thomas Curry is an unlikely turnaround artist.

When his nomination to head the Office of the Comptroller of the Currency was announced last year, most industry players saw him as a safe choice unlikely to alter the status quo. Some questioned whether he was the right pick to address the industry's problems and the agency's battered reputation.

Yet during this year, particularly the past few months, Curry has begun reasserting the OCC's role in banking regulation, giving candid speeches telling banks about the need to focus on operational risk and warning about dangers posed to institutions by a lack of attention to cybersecurity. Perhaps more important, he appears willing to directly confront some of the cultural problems facing his agency, including conducting an unprecedented public review of the OCC's supervisory processes by three foreign regulators.

In speeches and interviews, Curry appears distinctly more comfortable in his role. In a lengthy sit-down interview recently, he acknowledged that he has been taking his time in trying to reshape the OCC, wanting to ensure he understood its inner workings before engaging in a revamp. (It says something about Curry that he is one of the few top regulators in Washington willing to talk on-record without asking to review quotes before a story runs.)

"Coming here, besides from putting out some immediate fires, I needed to understand how the agency operated before you could actually effect change," he said. "My approach was let's see how this operates, see where the stresses are and then come up with a plan to build on the strengths and address some of the threats."

Since then, however, Curry has been making changes. The OCC has stepped up its enforcement efforts against the largest banks, helping to take JPMorgan Chase to task for its disastrous London Whale trades. He's also tried to boost the OCC's consumer protection credentials, joining the Federal Deposit Insurance Corp. in cracking down on deposit advance products that many say are too similar to payday loans. In light of criticism that bank consultants are not objective enough in their reviews of institutions that employ them, the OCC was also the first agency to issue new guidelines on the issue.

"There's a lot of very big changes being set into motion with both the safety and soundness and compliance risk management focus at the OCC," said Jo Ann Barefoot, co-chair at Treliant Risk Advisors and a former deputy comptroller of the currency. "The OCC supervises the largest and many of the smallest banks, and even though they're not supervising the largest ones on consumer protection, they're still in there. And they are watching very closely what those banks do with consumer products and services."

Those who've met Curry often call him "disarming" because of his soft-spoken demeanor. Curry characterizes himself as a "low-key" Irishman — which, he says, makes him "half-boring." That may have caused some in the industry to underestimate him initially.

"But that doesn't mean you're not tough when you have to be," Curry said.

Bankers and their representatives have noticed a change during Curry's tenure, saying the OCC's been tougher — but also fairer.

"He is low-key and can be very charming and disarming, but don't mistake that for softness," said Camden Fine, the president of the Independent Community Bankers of America. Curry "has a steel rod running down his backbone and when he feels strongly about something, he's going to get aggressive on it ... for those who underestimate him, you underestimate him at your own peril."

Observers said Curry's presence has been felt in several recent interagency rulemakings, including even the Consumer Financial Protection Bureau's "qualified mortgage" rule, over which the OCC has no official influence.

Curry would not disclose exactly how he weighed in on that or other rules, but said he supported further guidance to help ease banker concerns about making non-QM loans and possible litigation risks. The OCC recently released a clarification with other prudential regulators that said banks that only write QM loans would not necessarily endanger their Community Reinvestment Act rating. Curry said he's also committed to helping banks through the implementation process as the new mortgage rules go into effect.

"We've clarified in an interagency statement that from a supervisory perspective, non-QM loans should not be a problem if they're not a problem today," he said. "People need to know what state of play is, whether it's rulemaking or what the policymakers are thinking, and I think we addressed that in the statement."

Curry said it's important that CFPB and other regulators' examiners are working off the same playbook when it comes to QM and other new mortgage rules.

"What we're trying to do is make sure both the prudential regulators and the CFPB are working on the same platform in terms of training and materials so that they're not all applying different focuses to the same rule," he said. "I firmly believe that consistency and coordination and collaboration among the agencies is essential ... we've got to make sure we're in sync."

The relationship between the OCC and the CFPB was tense when Curry took office. That stems in part from the perception that the OCC paid little attention to consumer protection issues in the run-up to the crisis, and arguably made the situation worse by preempting several state laws. When the Dodd-Frank Act passed in 2010, it stripped the federal banking regulators of many rule-writing powers over consumer issues and gave them to the CFPB, along with compliance supervision over banks with more than $10 billion of assets.

When Curry arrived in April of last year, he acknowledged the OCC was still working out some "bumps" in the transition process. It's still not a perfect relationship. Curry put it this way: "we're dating," but "it's been good and it's getting better."

"When I came here it was like this head-butting" with the CFPB, Curry said. "Richard and I talked and ... I said this is what we absolutely need and he said this is what I need. And we both said we could live with it and that broke the logjam."

He now meets at least once a month with CFPB Director Richard Cordray and has each head of supervision and enforcement meet with the corresponding heads at the CFPB regularly as well.

Curry has also openly encouraged examiners on the ground to share information with the CFPB's examiners. It may additionally help that the CFPB's new No. 2, Steven Antonakes, was once Curry's deputy director when he was banking commissioner in Massachusetts.

"Our work history has been advantageous as the bureau and OCC's working relationship continues to mature," said Antonakes in an emailed response. "My regulatory philosophy was greatly shaped through [the 13] years working alongside him. His commitment to tough-minded but ultimately fair and reasonable supervision has been evident during his tenure at the OCC."

Curry said the two agencies have made significant strides in working together.

"My philosophy is — and I think Rich shares this — is that we do a disservice to the American people and to the industries we supervise if we don't collaborate," he said. "And I've told our examiners from the beginning that the worst thing we can do is put our institutions at a regulatory crossfire. If you serve one master and you can't serve the other, then nothing will be achieved."

In general, the banking and securities regulators have appeared to have a tough time working together, at least when it comes to certain inter-agency regulations. It took more than two years for five agencies to finalize the Volcker Rule, which bans banks from proprietary trading. The OCC is now taking the lead on an interagency basis in developing supervisory guidance for Volcker. Other key Dodd-Frank rules remain outstanding.

"There's multiple agencies involved. I think each have their advantages, each have their perspective and their knowledge of the industries, but it makes it that much more difficult to find a consensus," Curry said with regard to the Volcker Rule shortly before its finalization on Dec. 10. "But we're making some really great progress. ... There really is a need for certainty. We need to get the [Dodd-Frank Act] rules done."

During Curry's tenure, the OCC has also stepped up its enforcement activity. The agency took multiple actions against JPMorgan in recent months for its disastrous London Whale trades.

And despite the controversy surrounding the independent foreclosure review settlement, the OCC did manage to get out $3.6 billion in payments made by the nation's top 13 servicers to millions of consumers. The agency also ramped up its fines against banks that violate anti-money-laundering laws. In January it issued a $10 million civil money penalty against TCF National Bank in South Dakota for violating the Bank Secrecy Act; in April it issued $7.5 million in fines and restitution against RBS Citizens; and in late September it slapped Toronto-Dominion Bank with a hefty $37.5 million fine for anti-laundering violations.

Hours after the TD Bank announcement, Curry gave a speech warning large banks that "satisfactory ratings are not acceptable" anymore.

Such talk has helped diminish the perception by small banks that the OCC gives the largest banks an easier ride when it comes to enforcement.

"He may be beating up on me about something, but he's beating up on the big boys too," said C.R. "Rusty" Cloutier, president and chief executive of MidSouth Bancorp in Lafayette, La., whose bank is regulated by the OCC. "My gut is that community bankers feel it's been a fair environment in terms of what all banks have to deal with."

Curry's extensive background as a state banking commissioner in Massachusetts, where he dealt firsthand with the operations of community banks in various government roles for 20 years, may help explain the perception that he plays fair. Most of the previous comptrollers were recognized for their legal and political experience.

"There are few comptrollers who have come from a career in state bank regulation," said Ed Kramer, executive vice president of regulatory affairs at Wolters Kluwer Financial Services and a former deputy superintendent of the New York State Banking Department. "He's someone who's different to the agency. He takes a very pragmatic approach that I believe the industry appreciates and I have to believe you're likely to see more changes at the OCC."

Before he became comptroller, Curry also spent nearly nine years on the board at the Federal Deposit Insurance Corp., which many observers believe gives him an upper hand in working with his fellow regulators.

Still, his years in that role left observers with little sense of how he would run his own agency, particularly one that was facing rampant external and internal issues following the financial crisis.

Within a month of taking office, he faced accusations the OCC was asleep at the switch during the London Whale episode. The agency was also heavily criticized for HSBC's massive money laundering issues and the costly independent foreclosure reviews that Curry ended up scrapping in an effort to get money to affected borrowers more quickly.

Yet rather than shying away from the OCC's internal issues, Curry has attempted to wrestle with them in public. That includes hiring a former top OCC official, Jonathan Fiechter, to lead an evaluation of the agency's supervisory process by three foreign regulators.

That report, delivered earlier this month, recommended that examiners put safety and soundness issues first, arguing that some were spending too much time worried instead about banks' competitiveness. It also suggested the agency pull its resident examiners from the largest institutions so they could better ensure consistent supervision and combat the perception that some supervisors were captured by the very institutions they were there to oversee.

Curry said the report provided valuable feedback.

"My hope is through this process, we will be able to validate what we do right and have a road map for bringing us up to the next level," he said.

Curry said the report has been "a big sea change" at the OCC, "but it's with the idea that it's to move forward and not to record incrimination."

It remains unclear, however, how the OCC will put those suggestions into practice. Still, that Curry welcomed such an open assessment is revolutionary for a prudential regulator and will likely aid in revamping the culture of the agency as well as how examiners interact with banks on the field.

"Curry had to immediately take on external problems while doing his own internal review of the people and structure, and there's always issue of culture ... a culture takes a long time to change," Kramer said. "Some senior staff have departed, but I think it's become clear, as the initial problems have been dealt with, that he is clearly in charge of what is becoming a very different regulatory agency."

Indeed, many of the OCC's former senior staffers have left, including Julie Williams, the former No. 2. To replace her, Curry hired Amy Friend, the former Senate Banking Committee aide who helped to write the Dodd-Frank Act. He also brought in Donna Murphy to head the OCC's consumer law division after spending two decades at the Department of Justice, primarily in its civil rights division.

Many observers said Curry's hires were strategic in trying to make the agency more consumer-focused and spreading responsibilities across staff. Several former OCC officials also said the agency's morale has improved as a result.

"From a standpoint of morale, there is more decision-making process being done by staff, which is a good thing," said Robert Serino, of counsel at BuckleySandler. Serino spent nearly 30 years at the OCC, including heading its enforcement division. "They have some great people over there ... and while we may wonder why they're doing things a certain way, there's more ability to at least communicate our concerns. They may not accept it but at least they're listening."

Curry has also tried to tackle the disconnect between examiners in the field and their superiors in Washington, a long-standing complaint from banks when they seek guidance on certain issues.

He has also been more vocal about what he sees as future potential threats. Curry was the first regulator to sound worries about whether banks are paying enough attention to cyberthreats, an issue the Financial Stability Oversight Council sited as a concern earlier this month.

"It's important that we get early identification of emerging issues," Curry said. "We have a bully pulpit as the comptroller of the currency. And we want to have our supervisors deliver that message on the ground — where the risks are emerging. … That's why we've been talking about the operational risk, the importance of risk management, just anything that we've done. Cybersecurity, these are things where we think the message needs to get out."

The OCC is trying to do a better job communicating with banks about its expectations of them, Curry said.

"We have the inherent problem that what we do is confidential. That doesn't mean that everything we get has to be cloaked in secrecy," he said. "And that's the part I want to make with our own people: that you shouldn't keep a report secret from them [banks] that deals with the way we operate as an organization."

To help improve transparency, Curry meets with teams across the country at exam field sites and hosts lunch meetings with staff each week in an open forum where he mainly listens. (And eats. He joked that the meetings have caused him to gain weight, but he's now got a system: whoever finishes eating first must talk first.)

"It's always important that you have to treat people with respect, especially our colleagues. And I know my predecessors have but you can't do it from this office and you can't do it from a podium," Curry said. "You have to talk to people, engage with them and chat with them in the cafeteria line. ... It really helps. You need the deepest insight of the office and these are our colleagues, the people who have devoted their lives to this agency."