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From Banking and Finance Law Daily, May 29, 2014

OCC announces actions to respond to international peer review recommendations

By Stephanie K. Mann, J.D.

The Office of the Comptroller of the Currency has announced significant changes intended to strengthen both the supervisory process and the examining force supervising the nation’s largest and most complex financial institutions. In order to strengthen its supervisory process, the OCC has announced that it will expand the organization, functions, and responsibilities of its “large bank lead expert” program to improve horizontal perspective and analysis, systemic risk identification, quality control and assurance, and resource prioritization.

In addition, the OCC will establish a formal rotation program for all examiners to provide them with broader, fresh perspectives on a regular basis to strengthen the examining force. Formalizing an enterprise risk management framework that will involve developing a risk appetite statement, creating a decision-tree process, and enhancing the OCC’s existing National Risk Committee framework and processes are key objectives for the OCC.

Curry’s support. “The changes announced today will enhance the agency’s expert supervision of the nation’s largest and most complex financial institutions,” said Curry. “Facilitating the sharing of information and knowledge among examiners across institutions and rotating examiner assignments will allow us to provide a fresh and broader perspective to the examination of each large institution.”

Curry, along with senior management, has pledged the full resources and time of the OCC necessary to implement all announced initiatives, even those requiring longer-term execution. Ongoing self-assessment and review will be crucial in ensuring the success of these new initiatives, emphasized Curry. Implementation will begin in the next several months and the implementation periods will vary depending upon the nature of the change.

Peer review. The announced changes stem from an international peer review of the OCC’s supervision of large banks and thrifts, initiated at the direction of Comptroller of the Currency Thomas J. Curry. Two separate teams representing a cross section of OCC employees reviewed the peer review recommendations and are developing plans for adopting them.

The OCC Bank Supervision Peer Review Initiative began in 2013 when Curry commissioned a review by senior financial supervisors from Australia, Canada, and Singapore. The international peer review team assessed OCC’s policies and procedures related to the agency’s large- and midsize-bank supervision programs. The group submitted recommendations in December 2013 (see Dec. 6, 2013, issue of Banking and Finance Law Daily). Following those submissions, Curry identified OCC teams to evaluate each recommendation and provide input on which recommendations would have the greatest benefit to the OCC mission and operations. The OCC then gave all employees the opportunity to provide comment and feedback on the suggested actions. The OCC teams used that input to refine the recommended actions and submit them to the OCC Executive Committee and the Comptroller for approval.

Summary of responses. Also released was a summary of OCC responses to the supervision peer review recommendations. Specific recommendations from the peer review relate to:

  • empowering the Large Bank Supervision (LBS) lead experts by moving more specialist resources to report directly to them;

  • embedding the lead experts’ inputs in the supervisory planning, risk assessment, and intervention processes for large institutions, that would include having their views reflected in annual examination planning, on-site review scoping, issuance of supervisory letters, and Matters Requiring Attention (MRA);

  • implementing a robust review process that includes both LBS executives in charge (EIC) as well as lead experts to scrutinize supervisory strategies and supervisory ratings of large banks;

  • establishing a formal rotation process for examination staff;

  • relocating examiners who are resident in commercial banks to common OCC premises;

  • developing a “risk appetite statement” to provide all OCC staff with a clear and consistent understanding of what the agency is all about—what is most important to the agency;

  • revising the OCC’s mission statement, vision statement, strategic plan, and goals to better align with making safety and soundness of institutions the primary objective of the OCC;

  • conducting a benchmarking review of the OCC’s supervisory framework in comparison to international peers;

  • including in the National Risk Committee radar screen, a list of the institutions most affected by the identified risks;

  • creating a formal policy development process with time lines, tracking, and accountability to address emerging risks to institutions when no policy exists;

  • developing a process to clarify when strategic supervisory issues (e.g., mergers and acquisitions, intervention actions) need to be escalated to senior agency management;

  • considering ways to incorporate more flexibility into CAMELS ratings;

  • undertaking an analysis of the effectiveness of the MRA process and consider developing controls to manage the MRA follow-up process more effectively to promote more timely and consistent resolution of identified deficiencies by the institutions;

  • ensuring ongoing focus on the staffing and human resource strategies set out in the strategic plan;

  • expanding the use of employment programs to retain qualified retirement-eligible staff on a part-time basis as mentors for incoming staff and to supplement temporary staff shortages;

  • considering alternative career development and examination structures for a new work force environment in which the OCC may not have the benefit of lifetime career examiners because of changing demographics and a tendency of more recent college graduates to change employers more routinely;

  • coordinating EIC turnover with that of lead experts;

  • completing LBS’ Lean Six Sigma process; and

  • commencing work by the OCC’s Enterprise Governance unit on documentation as soon as possible to identify current practices and allow the OCC to determine the standard and consistency of practices it wishes to put in place across the agency.

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