GAO Recommendations to Improve OCC Accountability

GAO Recommendations to Improve OCC Accountability

A report from the Government Accountability Office (GAO) on preventing regulatory capture within the Office of the Comptroller of the Currency (OCC) lists a number of ways the OCC’s accountability measures are falling short, and how to fix them:

OCC has some policies that encourage transparency and accountability in its large bank supervision processes; however, weaknesses in documentation requirements may make large bank supervision more vulnerable to regulatory capture. For example, examination teams are not required to document internal deliberations or communications with banks that lead to consequential decisions for a bank, such as supervisory or enforcement actions. Further, examination teams are required to delete drafts of key documents that memorialize reviews that are part of the supervisory process. Maintaining a complete and transparent record of decision making and important communication with banks could improve OCC’s ability to mitigate capture-based decisions.

OCC also has some policies to mitigate conflicts of interest, but implementation is hindered by issues related to collection and use of data and lack of program assessments. For example, when staffing a bank examination team, OCC does not have a policy to verify that employees do not have active conflicts of interest by checking employee data. OCC also does not periodically assess the implementation of its ethics program, including policies and procedures intended to help the agency meet ethics laws and regulations. Improving data collection and assessing policies, controls, and guidance that identify and address conflicts of interest could help OCC ensure that its ethics program is operating effectively.

It’s a long report, but here are a few troubling excerpts. On the matter of keeping previous drafts of recommended actions and findings of bank examiners:

[N]one of the workpapers for the three examinations we reviewed contained drafts of conclusion memorandums and supervisory letters that showed the results of the various supervisory reviews because these versions had been permanently deleted. In one of the examinations we reviewed, file names indicated that the final conclusion memorandum was the third draft of the document and the final supervisory letter was the ninth; however, the prior drafts—which could demonstrate changes that resulted from the supervisory review and how teams ultimately decided to pursue or not pursue a supervisory decision—had been deleted.

Additionally, communication between OCC regulators and the banks they regulated is poorly documented, opening the possibility for conflicts of interest to go unreported or cozy relationships unscrutinized:

OCC officials told us that the extent to which they document direct contact from the bank depends on what bank officials communicated to senior managers. In our review of three sets of examination workpapers, we did not observe documentation of any type of communication between OCC senior management and bank officials, other than required documents such as final supervisory letters. Because OCC does not require executive management to document communications with banks that involve supervisory issues, we were unable to discern from the workpapers whether or not such communication occurred during the examinations.

In some cases even common sense rules like preventing regulators from owning securities of banks they regulate (with a waiver process that comes with a recusal) are ineffectively enforced because there’s a failure to clearly document both:

In situations where a recusal is granted in conjunction with a waiver of Treasury supplemental standards, OCC does not record the recusal and waiver separately in its data, making it difficult for OCC to assess whether policies for granting waivers are being followed. For example, Treasury supplemental standards prohibit OCC employees from owning securities of any commercial bank. However, employees may seek a waiver of this prohibition. If employees obtain a waiver of the prohibition on owning bank securities, they must also be recused from working on an examination for that bank, and ethics officials are to record this recusal in their database. However, the ethics office does not document this recusal separately from its approval to waive the prohibition.

The report reads like a rather dry document on bureaucratic procedure because that’s exactly what it is. But the main takeaway is that basic accountability measures aren’t being properly enforced or implemented, and the OCC must hold its employees to the standards necessary to minimize the chance of capture.

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By |2019-03-06T08:26:40-08:00March 6th, 2019|Blog, Financial Regulation|