WASHINGTON — Despite the attempt in the Dodd-Frank Act to preserve thrift institutions, a recent report on the elimination of the Office of Thrift Supervision is bolstering the view that the charter will exist in name only.
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Many observers said that, though the thrift charter is retained, lawmakers knew that the new regulatory structure would make thrift regulation not much different from that of other institutions.
"It's inevitable that the savings and loans are going to be supervised more [as] banks have been," said Bob Clarke, a senior partner at Bracewell & Giuliani LLP and a former comptroller of the currency. "That has to be the end result of what they are going to do through training and assigning people around the country, and I think that's what Congress was trying to achieve."
Under the law, the OCC will assume oversight of the nation's 670 federal thrifts, the Federal Deposit Insurance Corp. will supervise the 61 state-chartered thrifts, and the Federal Reserve Board will oversee thrift holding companies. The transfer must be completed by July.
The report, which was required under the new law, details how the three agencies plan to fold in OTS employees, as well as the thrift regulator's supervisory and rulemaking responsibilities.
Last fall, the OCC announced the hiring of a deputy comptroller, Tim Ward, to focus on thrift supervision. In the report it says it is creating a "senior thrift adviser" post for each of its districts. But the report said the OCC has not created a separate arm to focus on thrift issues.
"The OCC's objective is to complete an orderly transfer of OTS authority and responsibilities by fully and quickly integrating OTS staff and functions into the current OCC organizational structure and supervisory model," the report said. "The functions relating to supervision of federal savings associations and the staff from the OTS who supervise these institutions will not constitute a separate reporting line of business in the organization."
The report also said that training may be needed for both transferred OTS employees and existing OCC workers to handle institutions with which they lack experience.
"The agencies are reviewing each of their training and certification programs to ensure that existing and transferred employees have the training and skills necessary to supervise both national banks and federal savings associations. … ," the report said. "While the legislation does not require additional certification for transferred OTS employees to continue supervising the types of institutions that they supervised prior to the transfer, additional training may be required before transferred employees may supervise other types of institutions."
Observers said that, as the OCC integrates thrift oversight into its overall structure, thrifts are likely to get more rigorous exams than they knew under the OTS.
"It's going to be tougher," said Chris Cole, regulatory counsel for the Independent Community Bankers of America. "The OCC is the toughest cop on the block. Generally in the exams I think you will see more of an emphasis on risk management. I think you are going to see more of an emphasis on concentration limits."
Though the FDIC similarly said it would integrate oversight of state thrifts into its broader structure, it was less concerned about retraining OTS employees.
"The FDIC has historically recognized and accepted professional examination credentials from other federal banking agencies, including the OTS," the report said. "Accordingly, the FDIC will treat as commissioned FDIC examiners all OTS examiners who transfer to the FDIC with OTS accreditation. The FDIC will address any individual training gaps that emerge after the transfer date through individual training and development plans."
The report also said the regulators, authorized to write rules regarding thrifts, would be reviewing which regulations under HOLA should be updated or dropped altogether and would phase out thrift financial reports to incorporate thrifts into the banks' call reporting template. (The agencies issued a proposal Thursday with a 60-day comment period to create a uniform reporting system for all depository institutions.)
To be sure, some said the agencies taking over the OTS' jobs would be sensitive to thrifts' uniqueness.
"The fact that a thrift looks different than a bank because they are focused on housing — I think the OCC understands that," said David Ansell, a partner at Dechert LLP.
But others took the declarations by the FDIC and OCC in the report to "ensure … no gaps in supervision" to mean that thrift oversight would be hard to distinguish from that of banks, further reducing the charter's attractiveness. The law removed other benefits for thrifts, including consolidated supervision for the holding company and its thrift subsidiary, as well as strong interstate branching and preemption rights.
"When you read Dodd-Frank" and the report, "the concept here is, thrifts are going to go out of business eventually," said Lawrence Kaplan, a lawyer at Paul, Hastings, Janofsky & Walker LLP. "It doesn't mean right away but over time and driven by the market. It's clear it's not a merger of equals."
Perhaps more significant is the Fed's statements in the report indicating it plans to regulate thrift holding companies as it does bank holding companies. Dodd-Frank said savings and loan companies could remain, but the central bank suggested its examiners may not see much difference. Indeed, Dodd-Frank, consistent with the Fed's wishes, does not require the agency to hire any former OTS employees.
The Fed "intends to the greatest extent possible, taking into account any unique characteristics of" savings and loan holding companies "and the requirements of [the Home Owners Loan Act], to carry out supervisory oversight of SLHCs on a comprehensive, consolidated basis, consistent with the FRB's established approach regarding BHC supervision," the report said.
Kip Weissman, a partner in Luse Gorman, said the statement confirms "there is no such thing as [a] savings and loan holding company anymore, and that actually is the end of an era. As the thrift and bank charters have gotten closer, there was this notion that the major advantage of a thrift … was the thrift holding company status."
Pat Doyle, a lawyer at Arnold & Porter, noted that the fading of the thrift holding company is more likely since the Fed, unlike the OCC or FDIC, is not accepting any OTS staff.
"The precedents the OTS has established over the years could arguably be lost without OTS personnel there," he said.
