U.S. GOVERNMENT PUBLISHING OFFICE

31–583 PDF WASHINGTON : 2018

S. HRG. 115–340 

UPDATE FROM THE COMPTROLLER OF THE 

CURRENCY 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

ON 

EXAMINING THE EFFORTS, ACTIVITIES, OBJECTIVES, AND PLANS OF 

THE OFFICE OF THE COMPTROLLER OF THE CURRENCY WITH RESPECT TO THE CONDUCT OF SUPERVISION, REGULATION, AND ENFORCEMENT OF FINANCIAL FIRMS SUPERVISED BY THE OCC 

JUNE 14, 2018 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.govinfo.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

MIKE CRAPO, Idaho, Chairman 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

PATRICK J. TOOMEY, Pennsylvania 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

BEN SASSE, Nebraska 

TOM COTTON, Arkansas 

MIKE ROUNDS, South Dakota 

DAVID PERDUE, Georgia 

THOM TILLIS, North Carolina 

JOHN KENNEDY, Louisiana 

JERRY MORAN, Kansas 

SHERROD BROWN, Ohio 

JACK REED, Rhode Island 

ROBERT MENENDEZ, New Jersey 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

JOE DONNELLY, Indiana 

BRIAN SCHATZ, Hawaii 

CHRIS VAN HOLLEN, Maryland 

CATHERINE CORTEZ MASTO, Nevada 

DOUG JONES, Alabama 

GREGG RICHARD, Staff Director 

MARK POWDEN, Democratic Staff Director 

ELAD ROISMAN, Chief Counsel 

JOE CARAPIET, Senior Counsel 

ELISHA TUKU, Democratic Chief Counsel 

LAURA SWANSON, Democratic Deputy Staff Director 

AMANDA FISCHER, Democratic Professional Staff Member 

DAWN RATLIFF, Chief Clerk 

CAMERON RICKER, Deputy Clerk 

JAMES GUILIANO, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

THURSDAY, JUNE 14, 2018 

Page 

Opening statement of Chairman Crapo ................................................................. 1 

Prepared statement .......................................................................................... 36 

Opening statements, comments, or prepared statements of: 

Senator Brown .................................................................................................. 2 

WITNESS 

Joseph M. Otting, Comptroller, Office of the Comptroller of the Currency ........ 4 

Prepared statement .......................................................................................... 36 

Responses to written questions of: 

Senator Brown ........................................................................................... 47 

Senator Scott ............................................................................................. 57 

Senator Cotton ........................................................................................... 58 

Senator Tillis ............................................................................................. 60 

Senator Reed .............................................................................................. 62 

Senator Menendez ..................................................................................... 63 

Senator Warner ......................................................................................... 67 

Senator Heitkamp ..................................................................................... 71 

Senator Cortez Masto ................................................................................ 73 

Senator Jones ............................................................................................ 82 

(III)

(1) 

UPDATE FROM THE COMPTROLLER OF THE 

CURRENCY 

THURSDAY, JUNE 14, 2018 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee met at 10 a.m., in room SD–538, Dirksen Senate 

Office Building, Hon. Mike Crapo, Chairman of the Committee, 

presiding. 

OPENING STATEMENT OF CHAIRMAN MIKE CRAPO 

Chairman CRAPO. The Committee will come to order. 

Today we will hear from Comptroller of the Currency Joseph 

Otting. Since being sworn in last November, Comptroller Otting 

has been focused on rightsizing regulations and furthering the mission of the OCC. 

Recently the OCC, along with four other regulators, issued a proposal to make revisions to the Volcker Rule. In May, the OCC 

issued a bulletin related to short-term, small-dollar lending. The 

OCC has also been looking at modifying and modernizing how regulators apply the Community Reinvestment Act. 

Comptroller Otting has also identified reviewing compliance with 

anti–money-laundering laws as a priority of the OCC. In addition, 

the Comptroller has said he expects the OCC to announce in July 

a final decision on a specialty bank charter for FinTech companies. 

I look forward to hearing more about some of these important initiatives today. 

In addition, the OCC will need to implement a number of provisions from S. 2155, the bipartisan economic growth legislation that 

President Trump signed into law on May 24th. 

Among the provisions that the OCC will need to write rules to 

implement are: the community bank leverage ratio, which exempts 

highly capitalized banks from the international Basel III risk-based 

capital requirements; the exemption from appraisal requirements 

for banks in rural areas that suffer from shortages of qualified appraisers; the requirement that certain acquisition, development, 

and construction loans not be subject to punitive capital requirements; reduced reporting requirements and extended exam cycles 

for certain small banks; the requirement to promulgate regulations 

to remove central bank deposits from the denominator of the supplementary leverage ratio for certain banks; the exemption from 

stress testing for certain financial institutions, including the immediate exemption for financial companies with less than $100 billion 

in assets; and the provision permitting certain Federal savings asVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
2 

sociations to elect to operate with the same powers and duties as 

national banks without going through the onerous charter conversion process. 

These provisions, and others in the legislation, rightsize regulations for community banks, credit unions, midsize banks, and regional banks, making it easier for consumers and small businesses 

to get mortgages and obtain credit. 

Absent excessive regulatory burden, local banks and credit 

unions will be able to focus more on lending, in turn propelling economic growth and creating jobs. 

I look forward to engaging with the OCC, and with other agencies charged with implementing S. 2155 over the coming months to 

ensure that their interpretations are consistent with the intent of 

the Members of Congress who voted for the legislation and with 

this Committee’s goal of promoting economic growth. 

Our economy is strengthening, and the positive effects of the 

banking bill and tax reform are just starting to be felt. Layered together, these policies and others are creating conditions in our 

country that enable growth. 

I look forward to building on this momentum moving forward. 

Senator Brown. 

OPENING STATEMENT OF SENATOR SHERROD BROWN 

Senator BROWN. Thank you, Mr. Chairman. Thank you, Comptroller Otting, for joining us today. 

In the more than 7 years since we passed Wall Street reform, our 

financial system is much stronger than it was at the outset of the 

Great Recession. 

Much of that hard-earned progress, however, has been threatened in the 7 months since Comptroller Otting took over at the 

OCC—an agency that is supposed to be a watchdog for our Nation’s 

largest banks. 

Comptroller Otting has said that the banks are, in his word, his 

agency’s ‘‘customers’’ and ‘‘partners.’’ That is the exact mindset that 

contributed to the crash. We thought we got rid of the Office of 

Thrift Supervision because it was an industry lapdog. Perhaps it 

has been reincarnated at the OCC. 

The real customers of the OCC are the Ohio families and people 

across the country who suffer when the people they pay to ensure 

the stability of our financial system do not do their jobs. 

Mr. Otting, if you have not heard me say this, certainly your 

staff has, and my colleagues in this Committee have heard it many 

times, but the Zip code my wife and I live in, in Cleveland, Ohio, 

44105, had more foreclosures in the first half of 2007 than any Zip 

code in the United States, and I see every day going to and from 

my house the results of those foreclosures and the results of that 

devastation. 

In one of his first acts as Comptroller, Mr. Otting reversed course 

on changes meant to prevent OCC from becoming too close to the 

banks it oversees. Comptroller Otting decided that examiners 

should continue to work out of the bank’s headquarters instead of 

the OCC to save money. Penny wise, pound foolish, but I guess befitting a partnership. 

It is not as if the banks have been suffering lately. 

3 

The FDIC released data last month showing that the industry increased its profits by 13 percent last year. Oh, but when you add 

the tax bill into account, their profits increased 28 percent. 

Rather than invest in their workers and communities, big banks 

are plowing profits into pushing up their stock price. The ten largest U.S. banks bought back $67 billion—$6,700 million—in stock in 

2017, an increase of 70 percent over 2016. They just do not seem 

to have enough, do they? 

The CEOs of the six largest banks, already making tens of millions of dollars a year, got an average 22 percent raise last year. 

For the CEO of Well Fargo, it was 36 percent last year. 

And, oh, yeah, the average bank teller in this country makes $26,000 a year. Twenty-six thousand dollars a year. Tens of millions for CEOs, $13 an hour for the average bank teller. 

When times are good, as they are in the ninth year of a recovery, 

banks should prepare for the tough times ahead. Instead, our 

watchdogs are loosening the rules that should be guarding us 

against the next crash. 

Right now, the OCC and the Fed are considering a proposal to weaken protections and give a $121 billion boost to the eight largest U.S. banks. 

Comptroller Otting announced that he wants banks to get back 

into the business of payday loans, something that had been prohibited since 2002. He has pulled back on guidance meant to protect 

the banking system from reckless corporate lending. 

And he has other plans—plans that deeply concern Members of 

this Committee, I think on both sides of the aisle, and deeply concern the civil rights community—to gut the Community Reinvestment Act, a 40-year-old law that pushes banks—very profitable 

banks, I might add—to serve their communities. The CRA emerged 

out of the civil rights movement to address generations of exclusion 

and discrimination in bank lending. I do not know if Comptroller 

Otting has read a book called ‘‘The Color of Law’’ that recently 

came out. I would recommend it. I think it will give you a better 

historic knowledge of why CRA matters. That long legacy is a part 

of why we still have a racial wealth gap today. 

It is clear that Comptroller Otting has not learned the hard lessons of the recent past, including the OCC’s history of working to 

stop State and local protections on subprime mortgages, ATM fees, 

and credit card rate hikes. He is suffering from the same collective 

amnesia that a number of Members of this body suffer from, simply 

forgetting what happened 10 and 12 years ago. 

Right now, families in Ohio and Idaho and across the country, 

in Hawaii and Alabama and Pennsylvania and South Dakota, especially people of color, cannot afford to return to the risky practices 

Comptroller Otting is considering. 

I look forward to hearing your testimony and answers to the 

Committee’s questions. 

Chairman CRAPO. Thank you, and thank you, Comptroller 

Otting, for being with us today. You now have the time. Please 

make your presentation, and we will proceed with that. 

I should alert the Members of the Committee we have a vote at 

10:30, but we intend to try to keep the hearing going by rotating 

in and out as we need to. 

4 

Comptroller Otting. 

STATEMENT OF JOSEPH M. OTTING, COMPTROLLER, OFFICE 

OF THE COMPTROLLER OF THE CURRENCY 

Mr. OTTING. Thank you very much, Chairman Crapo, Ranking 

Member Brown, and Members of the Committee. Thank you for the 

opportunity to share my priorities as Comptroller of the Currency 

and my views on reducing unnecessary regulatory burden and promoting economic opportunity. 

The Office of Comptroller of the Currency’s mission is to ensure 

that our Federal banking system operates in a safe-and-sound 

manner, provides fair access, treats their customers fairly, and 

complies with applicable laws and regulations. We can accomplish 

that mission and rationalize our regulatory framework so that the 

system can help create jobs and economic opportunity. 

My written testimony details the conditions of the Federal banking system, risks facing that system, and my partners. These priorities include modernizing the Community Reinvestment Act; to increase lending, investments, and financial education where it is 

needed most; and encourage banks to meet consumers’ short-term, 

small-dollar credit needs to provide consumers with additional safe, 

affordable credit choices. 

My priorities also include enhancing bank security and anti– 

money laundering compliance so that banks can provide a more effective means to support law enforcement and comply with statutory and regulatory requirements more efficiently. I also support 

simplifying regulatory capital requirements, recalibrating the 

Volcker Rule, including that the agency operates in a safe-andsound manner and operates effectively and efficiently. 

Today I want to discuss the importance of the quality of the work 

accomplished at the OCC. Since becoming Comptroller, I have been 

struck by the professionalism and caliber of the agency staff. The 

agency’s 4,000 employees serve our Nation by performing the important task of supervising more than 1,300 national banks, Federal savings associations, and Federal branches of foreign banks. 

While the vast majority of the institutions we oversee are small 

community banks, the system also includes the large, most globally 

active banks in our country. 

Successful supervision requires a corps of professional examiners 

supported by lawyers, economists, information technology specialists, policy experts, and others. Few Americans know the OCC, but 

the majority of them have a relationship with at least one of the 

banks we supervise. It is not an overstatement to say our Nation’s 

banking system is the most respected in the world, due in large 

part to the quality of the supervision the OCC provides. 

The OCC is unique among Federal banking regulators. It is the 

sole regulator exclusively dedicated to prudential supervision. 

Undistracted by multiple mandates, we remain a laser focus on 

bank safety, soundness, and compliance. The agency takes a riskbased approach to supervise, tailoring its oversight to the risks and 

business models of each bank. At the same time, its broader national perspective provides value in identifying risk and concerns 

that may face similar banks or the broader system. Our risk-based 

approach allows us to adapt to the ever-changing environment and 

5 

to prioritize our regulatory resources on the risks with the greatest 

potential to disrupt the industry and harm its customers. Our approach may mean lower risks receive less attention compared with 

more immediate concerns, but also the agency has the ability to 

adapt quickly. 

History demonstrates the value of an agency with such singular 

focus and mature capabilities regarding regulation and supervision. 

Following the crisis of 2008, our country’s banking system recovered faster than the rest of the world because regulators and bankers together recognized losses and worked through troubled assets 

more quickly than our international counterparts. U.S. banks recapitalized faster, established stable liquidity, while other global 

economies lagged. 

Our economy recovery has been steady. We are now in the second longest period of expansion in our Nation’s history, and banks 

have been part of that success. Our banks have capital and liquidity approaching historic highs. Credit and asset quality are near 

pre-crisis quality, and bank risk management is better than at any 

time in my 35-year career. This is a testament to good supervision 

as well as sound bank management. That strength helps bank realize their potential of being engines of job growth and economic opportunity. 

I congratulate the Chairman and this Committee on passing the 

Economic Growth, Regulatory Relief, and Consumer Protection Act. 

The act achieves common-sense, bipartisan reforms that eliminate 

unnecessary burdens, promote economic growth, and continue to 

safeguard core elements of safety and soundness in our system. 

I am fully committed to implementing the changes in the law as 

quickly as possible. I will work with my fellow regulators on a collaborative interagency basis where appropriate. When existing 

rules may conflict with the Economic Growth Act or the statute 

provides transition periods or where the law requires agency rulemaking for implementation, the OCC plans to supervise institutions consistent with the intent of the law, including with respect 

to the amendments to the stress testing requirements and will not 

enforce requirements on banks that the bill intends to eliminate. 

As a bank executive, I relied heavily on the judgment and experience and counsel of the OCC examiners. They helped me to identify 

issues and address them effectively before the concerns became serious problems. I felt the OCC examiners understood what we as 

bankers were trying to achieve and how we worked to meet the financial needs of our customers. I slept better knowing the OCC supervised my bank, and you can sleep better knowing that the men 

and the women of the OCC are on the job. 

In closing, I want to congratulate you, Chairman Crapo, on your 

leadership of this Committee, and thank you for allowing me the 

time to share my perspective as Comptroller. I look forward to your 

questions. 

Chairman CRAPO. My first question is going to be on your horizontal review. I appreciate the letter you sent me earlier this week 

about the OCC’s horizontal review of sales practices at large and 

midsize banks with significant retail customer sales activities. Can 

you just tell me about the OCC’s findings and what you found and 

learned in this horizontal review? 

6 

Mr. OTTING. Sure. Chairman Crapo, in 2016 the OCC started 

what we call a ‘‘horizontal review.’’ It is frequently that we will do 

horizontal reviews amongst the agencies when we see particular 

risks that we think can be contained throughout the industry. 

We concluded that review in the fourth quarter of 2017. It was 

the primary focus of the agency over about an 18-month period. 

More than 40 national banks were involved in that, and we looked 

at the new account openings without customer consent, which included mortgages, auto, credit cards, checking accountable, savings 

accounts, money market accounts, and then any products that 

would be joined by those products, which may include overdraft 

protection or other items. 

The banks completed a look-back over a 3-year period, which included hundreds and hundreds and millions of new accounts. We 

sent the final letters to the bank CEOs on June 4th. We did follow 

up to the Chairman and Ranking Members of Congress with a 

recap on June 11th, which you referenced. The OCC did not find 

persuasive or systemic issues in regard to the improper account 

openings, but did find the need for banks to improve their policies, 

procedures, and controls. And I would say the key takeaway from 

this was that our focus of having institutions develop better controls and better policies around it, but we did not find the issues 

that this was systemic across the industry. 

With this horizontal, we issued over 250 MRAs, and 20 percent 

of those have been closed. And to put that into a kind of context, 

we currently have 4,000 MRAs outstanding. So while substantial, 

it was not, you know, I think illustrative of it being a large issue. 

Our findings were that less than 20 accounts out of the hundreds 

and hundreds of millions, less than half of those were due to unauthorized account openings. And I would also make note that it was 

determined that where there was an account that was opened, the 

banks are creating reimbursements for those dollar amounts, and 

we feel every consumer will be reimbursed if they can document 

that account was opened inappropriately. 

Chairman CRAPO. Thank you. So the short summary is that 

about 20,000 accounts were identified where the documentation 

was not present or could not be located out of around 300 million 

accounts that were reviewed? 

Mr. OTTING. Yeah, we actually think the numerator is more between 500 and 600 million. 

Chairman CRAPO. OK. So 500 to 600 million reviewed and 

around 20,000 that were identified. And of those 20,000, is it a conclusion that all 20,000 of those were wrongly opened or just not 

documented? 

Mr. OTTING. No, we estimate slightly half of those were opened 

inappropriately, and the other half there was missing documentation that the banks could not prove that they had the data to open 

the accounts. 

Chairman CRAPO. All right. Thank you. I appreciate that, and I 

appreciate the attention that has been given to this issue. 

My last question will be related to the company-run stress test. 

You referenced this in your opening statement. As you know, the 

stress tests are due for financial companies with total assets between $10 billion and $50 billion in July, and I strongly encourage 

7 

you and the other banking regulators to provide guidance to financial companies about how S. 2155 will be implemented and make 

sure that financial companies with less than $100 billion in total 

assets receive the relief the bill intends immediately, consistent 

with congressional intent. 

Can you commit to me that you will work quickly on implementing S. 2155 generally and to provide guidance on stress tests 

for financial companies with total assets of less than $100 billion 

specifically? 

Mr. OTTING. Yes, Chairman Crapo, first of all, thank you very 

much. We have made that statement to the financial institutions. 

We have made that statement publicly. And then in regards to the 

overall implementation, we have created a critical path document 

that I have in my possession where we have harnessed resources 

within the agency. We have identified items that can be done within the agency, and then the ones that require interagency, and 

there has already begun a process of discussing and creating teams 

to work on the interagency activity. So we fully intend to dedicate 

the necessary resources to achieve that objective. 

Chairman CRAPO. Thank you. 

Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. 

At the hearing yesterday, Mr. Comptroller, you were asked if you 

believed discrimination exists. You said that because you have 

never personally observed it, you cannot say. But you have had 

‘‘friends from the inner city’’ tell you it exists and you believe them. 

And you were asked if you have ever read about discrimination, 

you said that you did, but that writers are only correct about half 

the time, and then you said you do not read newspapers. These are 

unbelievable statements for any adult in America, especially one 

that took an oath of office like you did, but let me ask you a couple 

of questions. 

Does hiring through the old boys’ network serve as a headwind 

for women and minorities, whether in banking or Government? 

Mr. OTTING. My response to that would be I would not support 

those kind of activities. I think there are equal employment opportunity laws in this land that people adhere to, and I am not aware 

of any old boy network that I would associate with the banking industry. So I personally do not—have not observed that activity, and 

I would also say, to answer your question, if there was a network 

like that, I would not support that, and—— 

Senator BROWN. Well, you cannot—I know you do not read newspapers. You could not go to the New York Times and say, ‘‘This is 

the good old boys’ discriminating network.’’ But let me give you an 

example. When you and Secretary Mnuchin and the rest of the 

OneWest board signed a consent order with regulators—we know 

about all the foreclosures that your bank did—signed a consent 

order over foreclosure misconduct, your nine-member board—I 

could read the names; I will not bother—they were all men. I do 

not know if you set out to say, ‘‘I am only going to hire men,’’ but 

I have got to think the old boys’ network that you ended up being 

part of would have something to do with it. 

So it begs the question to me that you have never seen discrimination, in your mind, but some friends from the inner city told you 

8 

there was discrimination, so you believe them even though you only 

believe half of what you read in the newspaper. And then you are 

saying that you never saw any discrimination in hiring even 

though, coincidentally, all nine of the people on your board were 

men. I do not know if they were all white men. I assume—I do not 

make assumptions, but I know they are all men. 

So does that not suggest to you maybe there is an old-boys’ network in hiring and that maybe people that look like you and me 

and Schatz and Van Hollen and Jones and Toomey and Rounds, 

that we might have an advantage in hiring because we know people that look like us and that is who usually gets hired for banks? 

Did that ever occur to you? 

Mr. OTTING. First of all, I appreciate you do recognize that I 

signed that consent order right after I joined the bank, and I am 

proud to say that we diversified that board under my leadership. 

So I do not think it stayed in the format that you describe. 

Senator BROWN. But they go there, these 10 men. I am not saying you did it. I am saying you do not seem to recognize that discrimination exists—— 

Mr. OTTING. What I said was—— 

Senator BROWN. ——because you have never seen discrimination. 

Mr. OTTING. What I said was that under my leadership we diversified that board, and so that would give you an indication while 

I was there, the actions that I took. There are tools, trainings, and 

laws in place to avoid discrimination. There is lots of evidence of 

inequity in the world. I would tell you just because I have not personally experienced it that I am not saying it is not—— 

Senator BROWN. No, no, no. You did not say—you have said you 

did not personally—you said you have never seen it, but some 

friends in the inner city—— 

Mr. OTTING. No, that is not true. I mean, being part of an institution or bank over the course of my career, I have—there have 

been instances among employee groups—— 

Senator BROWN. That gives me a little more confidence. 

Mr. OTTING. ——they get referred to HR. There are investigations, there is corrective action. What I was saying was I personally 

have never experienced it. 

Senator BROWN. I think you said you personally did not see it, 

but—— 

Mr. OTTING. Well, then, let me correct the record. 

Senator BROWN. OK. I think you said it a number of times. So 

why should—with your—I am sorry to say it this way, but your insensitivity generally to these issues just evidenced by your response to—— 

Mr. OTTING. That is not true. 

Senator BROWN. Well, insensitivity—— 

Mr. OTTING. That is not—— 

Senator BROWN. I read your testimony in the House, but let me 

go to this: So, fundamentally, why should the public trust you to 

overhaul the Community Reinvestment Act, a product of the civil 

rights movement meant to address generations of segregation and 

exclusion, if you do not seem really—I mean, you just do not even 

seem certain that discrimination exists. In response to Congressman Capuano and Congressman Cleaver, you did not ever say, 

9 

‘‘Yeah, discrimination exists. I know it exists.’’ You had to come to 

the conclusion it exists because a ‘‘friend in the inner city’’ told you 

it exists. So why should we trust you, the public, the Congress, the 

civil rights community, to address generations of segregation and 

exclusion by overhauling the Community Reinvestment Act the 

way it should be overhauled? Convince me. 

Mr. OTTING. Thank you very much for that question. I think if 

you look at my top three agendas, two of those top three are redefining CRA and small-ticket lending, which go right to the core of 

what you are describing, the people in America that need the most 

help. I am all about expanding CRA into the low- to moderate-income areas across America, and small-ticket lending, when we took 

banks out of that space that offered a fair alternative to people, 

people ended up with check cashers, payday lenders, liquor stores. 

That is not the source where people can go and get quality bank 

products and get back into mainstream banking. So two or three 

of my core agenda items are focused right on those people you are 

describing. 

Senator BROWN. So if you—OK. I hear you. If you cannot just directly say to a congressional hearing discrimination exists, will you 

make this promise? You are arguing now that you say, yes, you recognize that it does exist. Will you promise us to move forward on 

a CRA overhaul only if you have the full support of the civil rights 

community? Only if you have the full support of the civil rights 

community. I understand you said you are going to do an overhaul. 

Overhaul can mean a lot of things. It can be deregulation—— 

Mr. OTTING. They will be one of the—— 

Senator BROWN. ——it can be a lot of things. 

Mr. OTTING. ——to provide us feedback through the ANPR, and 

they will be at the table discussing—— 

Senator BROWN. I understand they will be at the table, but some 

people are at the table and ignored by others at the table. Will you 

commit to this Committee—— 

Mr. OTTING. They will be at—— 

Senator BROWN. ——that if there is not consensus in the civil 

rights community, you will not move that direction on CRA overhaul? 

Mr. OTTING. They will be at the table having discussions like all 

parties involved in the CRA—— 

Senator BROWN. That is the most you are going to commit? 

Mr. OTTING. I stand by my answer. 

Senator BROWN. OK. 

Chairman CRAPO. Senator Toomey. 

Senator TOOMEY. Thank you, Mr. Chairman. I cannot help but 

observe that there are more than a handful of Senate delegations 

from various States, including Pennsylvania and Ohio, which consist exclusively of middle-aged white males. It is not obvious to me 

that the voters of those States are all part of a good old boys’ network. 

Let me raise a question about Madden v. Midland, a decision I 

am sure you are aware of. The Second Circuit Court of Appeals 

ruled that nonbank entities, when they purchase loans and debts 

originated by a national bank, will no longer be entitled to the Federal preemption from the State usury laws. This is a big departure 

10 

from the practice and the precedent that had prevailed under the 

valid-when-made principle. Even the Obama administration argued 

that the Madden decision was wrongly decided. And the result of 

it, of course, is uncertainty on the part of a potential buyer of a 

bank asset, uncertainty as to whether or not these usury laws will 

apply. 

A dramatic reduction in credit access for low-income people has 

already occurred. Quite predictably, if banks cannot be confident 

that they can sell these loans, they are just not going to originate 

them in the first place. And Columbia Professor Robert Jackson, 

who is now a Democratic member of the SEC, found that borrowers 

with credit scores under 625 saw a 52-percent reduction in credit 

access after the Madden decision. 

Now, the Second Circuit based their decision in part on the notion that they allege that the ability to sell these instruments to 

nonbank buyers—the inability to do so would not hinder national 

banks’ operations. 

So my question for you, Comptroller Otting, is: Is it your understanding that the ability to buy and sell loans that banks originate 

is, in fact, an important part of how they manage their credit exposure, their business generally, and that it is good for consumers for 

banks to be able to sell these assets broadly, including to nonbank 

entities? 

Mr. OTTING. Yes, I do agree. I also do agree, I think, that the 

Madden ruling was inaccurate. I think national banks need the 

ability to originate those credits per the National Banking Act and 

then be able to distribute and sell those loans. That does create a 

capacity in the marketplace for the originators. And a lot of banks 

are interested in that product, and so I think it expands the choices 

for consumers. 

Senator TOOMEY. And are there specific steps you could be taking 

at the OCC to try to solve the problems that are created by this 

decision? 

Mr. OTTING. I would have to—I believe we filed a brief—we did 

file a brief in this matter supporting our position. 

Senator TOOMEY. OK. I would urge you to continue to pursue 

that as much as you can because I think this is simply making 

credit less available, especially to low-income borrowers, as long as 

this stands. 

The second point I wanted to raise is, as you are aware, there 

have been instances where regulators have used guidance issuance 

as a way to circumvent the Administrative Procedures Act and impose their will without going through the proper rulemaking. The 

CFPB did so in the case of the indirect auto lending rule, and Congress repealed that when the GAO determined that that guidance 

constituted a rulemaking. GAO also determined that the leverage 

lending guidance constituted a rulemaking. 

My question for you is—I would just like for the record for you 

to assure us that you do believe that a binding rule must go 

through the APA process, must go through the rulemaking process, 

and that a guidance issued by a regulator should not constitute a 

binding rule. 

Mr. OTTING. I do agree that a rule should go through the binding 

process. I think there was one item, the leverage lending, that the 

11 

OCC could be accused of using that as a rule. We have done an 

incredible amount of in-depth training and discussion within the 

agency with our examiners that that is this particular guidance. I 

have publicly said that on a number of occasions when I have had 

speeches to recognize that guidance is guidance and rules are rules. 

And so I think we have taken an aggressive posture to make sure 

that that is known within the agency. 

Senator TOOMEY. So just to be clear, if you believe that it is necessary to have a binding rule on leverage lending, you would pursue that through the Administrative Procedures Act? 

Mr. OTTING. We would, correct. 

Senator TOOMEY. Thank you very much. 

Thanks, Mr. Chairman. 

Senator BROWN [presiding]. Thanks, Senator Toomey. 

I just want to correct the record on the Ohio delegation. On the 

Democratic side, there are five members of the delegation. There 

are two African American women, one white woman, and two white 

men. So I—— 

Senator TOOMEY. I said Senate. 

Senator BROWN. Well, I am saying the delegation. And that is 

about the same—well, the delegation as a whole is about the same 

size as the OneWest board. 

Senator Schatz. 

Senator SCHATZ. Thank you. 

In October of 2017, the OCC made a pretty significant change in 

how OCC evaluates banks’ performance under the Community Reinvestment Act, and this change is significant. It is a little technical, but it is baffling. Before the change, if a bank engaged in discriminatory lending practices, that activity logically impacted that 

bank’s CRA rating. That is intuitive because the CRA was passed 

to stop discriminatory lending practices. But now the OCC has decided that a bank’s discriminatory lending practices should not impact the CRA score if the discrimination is not related to CRA lending. Under this new approach, a bank that discriminates and engages in illegal activities, as long as it is lending outside of CRA 

lending, could get an excellent CRA rating. Why? 

Mr. OTTING. I think the issue in October was it went from a 2 

downgrade to 1 downgrade. But I—— 

Senator SCHATZ. Why? 

Mr. OTTING. That was made at that particular time—it was prior 

to my arrival in the agency. I would be happy to look at that and 

follow up with you. 

Senator SCHATZ. You do not know why? 

Mr. OTTING. I do not have the facts why that decision was made. 

It was prior to my arrival in the agency. I have been more focused 

on—— 

Senator SCHATZ. So CRA was passed to stop redlining, correct? 

Mr. OTTING. Yes. It was one of the reasons—— 

Senator SCHATZ. Right, one of the reasons. And if a bank is engaged in discriminatory lending, the OCC would want to make sure 

that that stops? 

Mr. OTTING. Oh, definitely. 

12 

Senator SCHATZ. So then why would we ignore evidence of discriminatory lending practices when evaluating a bank’s CRA performance? 

Mr. OTTING. I do not think it would be ignored. Going through 

the process—if you understand what generally happens when we 

start a CRA exam, we review the HMDA data—— 

Senator SCHATZ. So let me just read from the document: ‘‘This 

principle ensures that the CRA evaluation does not penalize a bank 

for compliance deficiencies or illegal credit practices unrelated to 

its CRA lending activities.’’ 

Mr. OTTING. I apologize. I do not have that data in front of me. 

I would be happy to go back and review it and come back and either meet with you one-on-one or have our staffs discuss it. 

Senator SCHATZ. You do not know why this happened? You do 

not know that—— 

Mr. OTTING. It happened prior—— 

Senator SCHATZ. Because, first of all, you said—hold on a second. 

Mr. OTTING. It happened prior to my arrival. 

Senator SCHATZ. Hold on. 

Mr. OTTING. I have not focused on that—— 

Senator SCHATZ. Not 6 years prior to your arrival. 

Mr. OTTING. Yeah. Probably 60 days before my arrival. 

Senator SCHATZ. Sixty days? 

Mr. OTTING. Yes. 

Senator SCHATZ. And we are here to talk about CRA, and you do 

not know why this happened or exactly what happened, because 

you just said it downgraded it in terms of the score, but it actually 

says ‘‘does not penalize a bank for compliance deficiencies or illegal 

credit practices related to its CRA lending activities.’’ So the question becomes: Why would we do that if the CRA is established for 

the purpose of preventing discriminatory practices? 

Mr. OTTING. Senator Schatz, I would be happy to review that 

data. 

Senator SCHATZ. Well, what do you think? 

Mr. OTTING. I have focused more on how can we make CRA more 

effective, how can we be more inclusive. 

Senator SCHATZ. OK. Now that you know a little bit about this, 

what do you think? 

Mr. OTTING. My own personal viewpoint is that we should never 

allow discrimination in any kind of lending activities to occur, and 

if it does, it should have an impact on their CRA rating. 

Senator SCHATZ. Will you commit to revisiting this decision? 

Mr. OTTING. Oh, absolutely. 

Senator SCHATZ. Thank you. 

Another question. Will you commit to providing the Committee 

with a comprehensive and detailed summary of the findings from 

OCC’s sales practice review? 

Mr. OTTING. Senator, there is a long legislative, regulatory, and 

case history protecting confidential supervisory information for 

good reason. Maintaining confidential supervisory information promotes more effective supervision and the orderly function of the national banking system. Maintaining the privileged and confidential 

information also protects the agency’s prerogative to take additional supervisory enforcement action on that information—— 

13 

Senator SCHATZ. Who wrote that? 

Mr. OTTING. Huh? 

Senator SCHATZ. Who wrote what you just read? 

Mr. OTTING. I wrote it. I wrote it in conjunction with my staff. 

I view at this point in time we are in the middle of supervisory action, and to release that information would be inappropriate. 

Senator SCHATZ. I guess the problem is that one of the things 

that we are hearing is that the Wells Fargo problem is much more 

widespread than we had initially thought, that it is not confined 

to Wells Fargo. I understand that your supervisory procedures— 

that there is a tension here in terms of maintaining confidentiality, 

and I respect that. But there is a pretty significant issue if we find 

out that what happened at Wells Fargo was actually widespread 

across the economy and across the country, and because of this objective you have to maintain confidentiality and discretion, that 

American consumers are getting screwed and they do not get to 

find out about it until 18 months later or 3 years later. That is a 

problem. 

So what are you going to do about that part? How are you going 

to address that tension? 

Mr. OTTING. First of all, I can assure you, based upon the data 

that I have personally reviewed, that that is not accurate. Your 

statement is not accurate. This was not systemic across the banking industry. There were isolated cases of it. And so I can assure 

you that as we go through the supervisory data that employees— 

and there has been—— 

Senator SCHATZ. So you are able to talk a little bit about the 

data. So if these data change, if there is an indication that there 

is something more widespread, will you provide that information to 

the Committee? 

Mr. OTTING. I would be happy to come back to the Committee 

and have a discussion. 

Senator SCHATZ. Should I take that as a yes? 

Mr. OTTING. Yes. 

Senator SCHATZ. OK. Thank you. 

Chairman CRAPO [presiding]. Senator Rounds. 

Senator ROUNDS. Thank you, Mr. Chairman. Comptroller Otting, 

first of all, thank you. I appreciate the opportunity here to visit 

with you. 

I was just curious earlier when Senator Brown had asked some 

questions concerning CRA, you mentioned the availability of or at 

least the need for the availability of some short-term, small-dollar 

lending. I want to go into that a little bit because millions of Americans use small-dollar loans to pay for unexpected expenses, car repairs, medical bills, and it is pretty clear that there is a significant 

demand for these products, and having establish institutions actually offer them can provide the market with better alternatives and 

more competition than simply payday lending or in some cases 

where they are literally going to a loan shark to get a loan, because 

they are going to get it from someplace. 

I am just curious. While the banks probably have some additional clarity, can you talk a little bit about your focus and your 

thoughts about how to provide for that market for those small-dollar loans on short-term time periods? 

14 

Mr. OTTING. Sure. Senator Rounds, we issued a bulletin about 2 

weeks ago to the national banks where we indicated to them that 

we encourage them to participate—there are two market segments 

here that people can get confused by. There is the 45 days or less, 

which generally is referred to as ‘‘payday lending.’’ That generally 

has one payment based upon a paycheck or an event occurring. 

And then there is the 46 days or more where generally there is 

some term associated where there are multiple payments usually 

from that. What we addressed in the bulletin was that 45 days or 

longer. And in 2013 banks basically exited that market, and for the 

life of me, I do not understand, if you take, you know, the banks 

out of a space that were providing a critical source of capital, that 

it did not end up being worse for consumers and they had less 

choice. 

So one of my initiatives was to get banks back into that space 

and do it in a fair and, I think, economically viable way for consumers, that they have an alternative from financial institutions. 

So I have personally met with all the large bank CEOs—I started 

doing this after I arrived—to encourage them that we would be releasing a bulletin, and many of the financial institutions now are 

looking at products. It does take a while to go through a risk management review as they bring these products back up online, but 

I am confident more banks will enter into that sector. And we also 

provided a lot of clarity for our smaller community banks that this 

is something that we want them to do. 

Senator ROUNDS. I think that probably is an unsung part of a 

major improvement in banking opportunities for a significant part 

of our population across the board. 

Mr. OTTING. I agree. 

Senator ROUNDS. Let me ask also about ag lending a little bit. 

In the upper Midwest, in South Dakota, you know, we have suffered through some low commodity prices. We had a drought last 

year that significantly impacted our ability to actually raise crops. 

Credit is critical, and I think this year once again we are going to 

have the same challenges. 

Can you talk a little bit about what you are seeing, the observations of the reports that you have had with regard to ag lending, 

the challenges there and what you see as perhaps either modifications or things that we can do to perhaps improve our ability to actually lend to these producers during some tough times? 

Mr. OTTING. I think there are two things kind of occurring that 

people are concerned. In addition to natural disasters, I think, you 

know, there is an expectation of softening of commodity prices. And 

then you get the kind of double whammy of an increasing of interest rates. So I think our examiners, you know, in that space are 

spending a lot of time talking to the banks about their plans with 

their customers to get them through this period of time. As you 

know, the volatility in the ag market, you know, we can have a 

couple rough years, and then hopefully followed by solid years that 

allows farmers to be recapitalized. But, you know, the intent is— 

what we are hearing is banks are prepared to work with their clients to get through these difficult periods. 

Senator ROUNDS. I guess the point I would like—I am glad you 

make it. These banks have to be able to work with their clients. 

15 

They know them. They have had relationships that in many cases 

go for generations. 

The one thing I would not want to have happen is because of 

audit procedures or inappropriate guidance that these banks be 

pressured into not allowing them to do what they do best, which 

is to make appropriate judgment decisions about the extension of 

credit in what can be challenging cyclical times for ag producers. 

And it sounds like you are on board with that. 

Mr. OTTING. Yes, I am. 

Senator ROUNDS. Thank you. 

Let me ask one last thing, just on cyberissues. Do you feel comfortable that, with regard to the financial institutions, there is a 

broad understanding of the critical need to protect our assets that 

are related or directly connected with our cyberlinks? 

Mr. OTTING. Yes, on an annual basis, the national banks, we go 

in and part of our annual examination we look at the security perimeters. We look at the hardware, we look at the software, we 

look at the patchwork, and we make assessments of that for each 

individual bank, and if we see any deficiencies, we will generally 

issue MRAs for correction. 

We also look as part of that process, you know, at what does 

their recovery platform and program look like. I would say that we 

are confident that the banks that we provide oversight to, it is high 

attention both by management and boards. However, I would say, 

you know, the consumer today has become so reliant upon their 

debit card and credit card and carry a lot less cash that that would 

be the thing that would worry me. If we were down for a couple 

days, people could not buy gas in the morning, get Starbucks coffee, stop and get lunch, go to the grocery store because we have become such a card-based industry. 

There also is a lot of coordination amongst the interagencies with 

Treasury on cyber-related issues, and we are meeting tomorrow 

afternoon on this topic. So it is receive the attention, but it is the 

unknown, as you know, Senator Rounds, that gives us all angst, I 

think, as we try to manage our way through this. 

Senator ROUNDS. Thank you. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you. 

Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. Thank you for 

being here today. 

So banks get charters from the Government, which entitles them 

to special privileges. In exchange the Government expects them to 

meet the credit needs of communities in which they operate. And 

that is the idea behind the Community Reinvestment Act, or the 

CRA. 

The OCC is responsible for enforcing that law, and you have said 

you are supportive of the intent of the law, but you think it needs 

to be updated, and I just want to explore a little bit about what 

that means. 

Last year JPMorgan Chase admitted that its African American 

and Hispanic borrowers systematically got mortgages with higher 

rates and fees than comparable white borrowers. And according to 

a new report, African Americans make up 47.7 percent of the popuVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
16 

lation of Washington, DC, but they received only 2 percent of 

JPMorgan Chase’s mortgage loans in the city in 2015 and 2016. 

So are JPMorgan’s practices consistent with the CRA’s intent 

that banks ‘‘meet the credit needs of their communities’’? 

Mr. OTTING. Based upon their rating that they have in their 

CRA, I would say at an overall organizational perspective they do. 

I think in Washington, DC, you are aware they do not have 

branches. They have a specific business line. I think the intent of 

JPMorgan is to open up a retail banking franchise, and I think 

that would aid some of the issues that you have described. 

Senator WARREN. So you are saying that when they admit that 

African American and Hispanic borrowers systematically got mortgages with higher rates and fees than comparable white borrowers, 

that was OK? In fact, I see—— 

Mr. OTTING. I did not say that was OK. 

Senator WARREN. ——that they were rated by your group as satisfactory or outstanding on every one of their publicly available 

CRA evaluations? 

Mr. OTTING. I did not say the issue you described was satisfactory. I said as an overall organization they received a satisfactory 

rating. 

Senator WARREN. So you get a satisfactory rating even if you are 

engaging in that kind of behavior? 

Mr. OTTING. There is a multitude of factors that go into a 

CRA—— 

Senator WARREN. All right. Well, then let us look at another 

bank. A new report found that 54 percent of black families, 45 percent of Latino families who tried to get a mortgage from TD Bank 

are turned down. That is more than three times higher than the 

industry average. Are TD Bank’s lending practices consistent with 

the intent of the CRA? 

Mr. OTTING. I do not—I am not familiar with TD America’s actual community reinvestment, but I would say from a fair lending 

perspective, the facts that you are submitting would indicate that 

they have fair lending issues. 

Senator WARREN. Issues. It turns out that the regulators who report to you seem to think that it is all OK. TD Bank has received 

either a satisfactory or outstanding rating on every one of its publicly available CRA examinations in the past 20 years. 

So let us take a look at one more bank: OneWest, which I know 

you are familiar with because you used to run it. Community 

groups filed a fair housing complaint against OneWest at HUD in 

2016 citing widespread discrimination against Asian, black, and 

Latino mortgage applicants. While Latino borrowers took out 22.4 

percent of mortgage loans in Southern California, only 8.4 percent 

of OneWest’s mortgages went to Latinos. OneWest apparently 

avoided putting branches in minority communities and failed to 

maintain the foreclosed properties in minority neighborhoods. 

Mr. Otting, do you think your former bank’s track record is consistent with the intent of the CRA? 

Mr. OTTING. I do think that we were consistent with the intent. 

I think that you are looking at an incredibly small population that 

you based your statistical analysis on there, and that was our viewVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
17 

point from the beginning, that we were not in the mortgage business at that point in time. 

Senator WARREN. Your bank had one out of 74 branches in 

Southern California, just one was in a majority minority neighborhood in that entire region. And this is the fundamental question 

about the CRA. You get that banking charter in return for serving 

the community. But evidently the community that OneWest wanted to serve was not the Latino community, the African American 

community, or the Asian American community. 

Mr. OTTING. Could I offer a correction on one thing? We did not 

open but one or two branches the entire time. We inherited every 

one of those branches from failed institutions, and you are focusing 

on the lowest to low. If you looked at the low to moderate, we did 

have more dispersion into those markets. 

Senator WARREN. I am sorry. I am just looking at the facts that 

are part of the public record here. 

Mr. OTTING. The facts that maybe come from a particular organization that was trying to—— 

Senator WARREN. These are the facts that are in the public 

record. You had one out of 74 branches—no point in going back 

over the data. I am running out of time here. But, you know, what 

bothers me is, despite obvious attempts to avoid serving communities of color, OneWest passed all of its CRA exams. And so the 

problem I am facing here is that you say the CRA needs to be updated, and I am concerned that the man who ran OneWest, the 

man who said that the banks are his customers—the banks, not 

the American people—at the OCC, and the man who said yesterday 

in a hearing that he had personally never observed discrimination 

is not the right man to rewrite the Community Reinvestment Act. 

The CRA needs to be a lot tougher than it is today. The standards need to be higher. The enforcement needs to be more rigorous. 

Studies show all across this country that black and Latino borrowers get far less access to mortgage credit than comparable nonminority borrowers, and yet 98 percent of banks today are passing 

their CRA exams. 

If you weaken the CRA now, you are only going to push even 

more struggling families across this country out of the middle class. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Senator Tillis. 

Senator TILLIS. Mr. Otting, you did not get an opportunity to respond to that last loan, so before I ask you some questions, do you 

have anything that you would like to add with respect to the prior 

discussion with Senator Warren? 

Mr. OTTING. No, I would say I—first of all, it will not be me who 

will do the CRA changes. It will be the communities to which the 

CRA is generally deployed. And I have been a big supporter of how 

we can drive further and deeper into the communities across America, and I think my track record stands for itself on those. 

Senator TILLIS. Well, that was going to be my first question. 

When you get to the unbanked or underbanked communities that 

do need access to financing through lenders, what does the world 

look like a year or 2 years from now if you are successful with making that a priority? 

18 

Mr. OTTING. I think when you look at CRA today, there are three 

things we would like to solve for. Today we do not have a good economic measurement way that we can compare across different financial institutions in different markets. And so one of the frameworks that we have been talking about is using a balance sheet 

item, whether that is deposits, Tier 1 capital of total assets, and 

then an NCB could add up their CRA activities and come up with 

a percentage. 

Second of all, we would like to expand what qualifies for CRA 

today. It is narrowed down to predominantly residential mortgages 

and multifamily, and we think there are many more community activities plus small business lending is capped at $1 million of revenue. 

And then the third is we do CRA exams every 3 years, and it 

takes us 6 months to 24 months to turn those around. If we can 

fix the economic side of that, we can turn those around much faster. 

And then I would say with some of the small-ticket lending 

things that we are proposing that we have given banks insight, we 

want banks back into those—lending in those communities where 

Senator Rounds said, you know, we have a big void of banks playing a role in inner-city America of offering credit. 

Senator TILLIS. Incidentally, do you think the banking regulatory 

reform act that we sent to the President that is now the law, do 

you think that that will also play a role in terms of easing the burden on the smaller banks and community banks and possibly getting lending flowing as you are working on the CRA? 

Mr. OTTING. I definitely do. I think in a number of those instances, community banks that have been so focused internally on 

regulation now will be freed up to serve their customers in their 

community. 

Senator TILLIS. Mr. Otting, when you were here for your confirmation hearing, I asked you how many tips there were on a 

spear, and I think we got it cleared out. There are two ends, but 

only one tip. And the reason I mention that is that we still have 

a lot of—we are at least getting to a more rationale framework for 

regional banks and smaller banks, community banks. But we still 

have a lot of confusion about just who is regulating what in the financial services industry. And I think you and I may have a difference of opinion on a single regulator for Volcker. 

I think Mr. Quarles is doing a pretty good job of engaging the 

other regulators, so I am trying to understand—that may be an 

issue that we will be at odds with each other. I am trying to understand why you would have a fundamental disagreement with 

Volcker coming under the Fed. 

Mr. OTTING. Well, first of all, I do agree with you, we have a very 

good relationship with Randy Quarles. I think he has done an incredible job. 

The other comment I would make is that every week the FDIC, 

the Fed, and myself, the leaders meet. We have lunch once a 

month. We have an open forum to talk about any outstanding 

issues. So I think recently here we have really gotten strong momentum on our ability to work across the agencies. 

19 

I think on particularly Volcker, if you look at where the activity 

is, it is probably 45 percent in banks and 55 percent of the holding 

company, and I think they have such a critical element that our 

examiners are responsible for not to have a voice in the final rule 

would be a fatal flaw. 

Senator TILLIS. Speaking of the Volcker Rule and the proposed 

changes, what do you think those proposed changes are likely to do 

in terms of positive impact on the regulated community? 

Mr. OTTING. I think it will bring clarity. It will bring clarity for 

the banks, and it will bring clarity for the examiners as we are trying to determine the proprietary trading element. I think, you 

know, I personally commend what the Committee and legislators 

did regarding the law of excluding banks of $10 billion or less. And 

over $10 billion we have gone to an accounting methodology. It 

may not be the best solution, but it is a solution that I think we 

can all get behind. 

Senator TILLIS. I know we are running tight on time for votes, 

so I will just let you know that I am going to submit a couple of 

questions for the record. One has to do with a discussion on exempting investment and venture capital from the Volcker Rule, but 

we will send that as a question for later this week. 

Thank you very much of your time. 

Senator BROWN [presiding]. Senator Jones. 

Senator JONES. Thank you. Mr. Otting, thank you for being here, 

and I am going to be short because I have got to get over to vote. 

Getting back to CRA is probably one of the most important 

things you are going to do for the folks of Alabama. So in the modern CRA exam, the type of action a bank takes is extremely important. Lending counts differently than investment, which counts differently than service. I think everybody tends to agree that we 

need to be encouraging and crediting more types of CRA-eligible actions, but there are concerns that if we start—about blurring those 

lines. 

My question to you is: What types of actions should count differently for CRA credit? What type of action like lending, investment, and service do you believe are more important to fulfill the 

CRA requirements? 

Mr. OTTING. If your question is if we could place an emphasis, 

where would we like to see that emphasis? 

Senator JONES. Yes. 

Mr. OTTING. Senator Jones, most CRA activity today is really 

single-family mortgages and multifamily in low- to moderate-income areas. And one of the bad parts of that is single-family mortgages often get packaged up in low- to moderate-income areas, and 

they can be sold amongst institutions. And so a new incremental 

dollar does not get created when that pool gets sold, but a bank 

will get credit. And I think we should bring a stop to that. 

Then I think there are some core areas that we should look at. 

Today if a small business is $1 billion in revenue, over that will 

no longer qualify for CRA credit. And I am a believer that if a business in East Los Angeles has $1.5 million of revenue and it is going 

to create 10 jobs and it is a heavily blighted area, we should give 

that CRA credit. 

20 

I am also a believer in the inner cities of America. I understand 

the difference between church and state, but in most black and 

Latino communities, the church is where people go for their financial counseling and their job disciplines and help around training. 

And today if it has got a church associated with it, it is excluded 

from CRA. And I think what you need to do is isolate the community centers associated with churches and give them credit for CRA 

accordingly. 

Senator JONES. Thank you. You have made some comments—you 

know, I think banking has made great advances recently about trying to reach consumers outside their physical branches. But you 

have made comments that seem to de-emphasize the importance of 

branches. In Alabama that is really important. I mean, we have got 

so many communities that broadband does not touch, especially 

high-speed broadband. I think a lot of banking is personal in those 

communities. 

So what is your view on the importance of branches and how assessment areas should be calculated? 

Mr. OTTING. I think assessment areas continue to be important 

in virtually all communities. I would say, Senator, I think assessment areas, though, have actually restricted CRA investment. I can 

give you an example. When I was running OneWest Bank, L.A. 

County was our assessment area, but we were also in Inland Empire, Venture, Riverside, and Orange County. And on one particular street, if the investment was on the south side, we did not 

get credit and on the north side we did. So I think you have to look 

at, you know, are we defining assessment areas too narrowly for 

people to invest in their community? I do believe around the 

branches we need to make sure that institutions are serving the 

communities around their branches. And then we have the whole 

issue of when entities do not have branches, where should they be 

doing their community development activities? And I think personally it should be where the customers are. 

Senator JONES. All right. Well, thank you. 

Mr. Chairman, I will yield the balance of my time so I can get 

over to the vote. We will have some questions for the record. 

Thank you, Mr. Otting. 

Senator BROWN. Thank you, Senator Jones. 

Comptroller Otting, you said you want the OCC to be more responsive, you said, to our customers, which are the banks. How do 

the American people trust you to protect them from a financial crisis that cost them their jobs, their homes, their retirement, their 

neighborhoods if you say your customer is the banks, if you are 

there to serve the banks? How can they trust you to protect them 

from another financial crisis? 

Mr. OTTING. I think, Senator Brown, most of those comments 

were isolated to when I was talking about that, you know, I want 

to partner with banks to get them deeper involved in the communities across America. What I mean by that is low- to moderateincome areas. I want them to be more active in participating in 

credit at the lower economic scale. I think we can partner with the 

banks and help encourage them to move in that space. We have 

well-defined risk assessments categories that are set forth, and 

when we examine a bank, these are done within the examination 

21 

staffs that I have no influence on. And so I think you have to bifurcate between where we want to partner and what is our responsibility as an examiner. 

Senator BROWN. Well, I hear you, and that is a pretty good answer. But in the context of you said we want more of a partnership 

with the banks as opposed to a dictatorial perspective under the 

prior Administration, you compared decisions by Comptroller Curry 

to the ‘‘Wrath of Khan’’. That suggests more—that suggests something different and your partnership term. I guess I would ask you 

this: After the global economy crashed a decade ago and the banks’ 

contribution to that crash, they just had a record year, 13 percent 

increase in profits, had a decade mostly of more profits every year, 

double-digit percentage profits, and growth in most of these years. 

So it sounds to me like you think the banks have had it pretty 

tough, and it is mostly about deregulation for them. 

Mr. OTTING. First of all, the comment on the ‘‘Wrath of Khan’’ 

had to deal with the leverage lending guidance, which we were not 

supposed to be using guidance as a rule. And what occurred there 

was they were implementing the leverage lending guidance as a 

rule, and I wanted it to be very clear that that is guidance, that 

it is not a rule, as was referenced earlier in this conversation. 

Regarding, you know, your point about deregulation of the bank, 

I do not—you know, I am comfortable with the framework of our 

regulation. I just think there are certain aspects that we can look 

at that it will be better for consumers, it will be better for the 

banks, and it will be better for the economy if we can remove 

things that I do not think aid the safety and soundness. Some of 

those are like BSA. I am a big believer people should not take bad 

money, put it into the system and take it out, but today we are producing 10 million pieces of paper that I do not think add value to 

the BSA process. If we can improve that, we can actually fix—correct and find the bad guys simpler, that is the thing I want to focus 

on. 

Senator BROWN. The previous Comptroller was less concerned— 

he did not use the term ‘‘partner’’ as liberally as you did, but he 

was more concerned about fixing what led to the 2008 collapse. He 

commissioned a study by experts and decided to remove bank examiners from the banks themselves and sent OCC staff back at 

OCC headquarters. One of your first acts as Comptroller was to reverse that decision, which you say was based on your personal experience, which to that point included about a month on the job at 

OCC. The New York Fed decided to move examiners out of the 

banks. The San Francisco Fed decided to move them out of the 

banks after they failed to catch the Wells Fargo fake account scandal. 

What do you know that the predecessors with more years of experience at two of the most important Feds in the country did not 

know? 

Mr. OTTING. I do not think my 30 days was the relevant baseline 

to that. I think it was, you know, my roughly 35 years in the banking industry. And I would ask—I would be happy to share with you 

our model in the OCC so you understand that. 

We have three primary groups: we have a community bank 

model, we have a midsize model, and we have a large bank model. 

22 

Our community bank model is actually done on regional offices 

where the examiners are actually domiciled in those regional offices. Our midsize bank, it is kind of a split between some are onsite and some are local. And our large banks are onsite. 

On the onsite bank examiners, just so you understand my comfort with this, is we do rotate those examiners every 5 years, so an 

examiner cannot—and often we do it before the 5-year period, because we were rotating these people amongst financial institutions 

across America. 

Second of all, we maintain both decentralized and centralized 

resident experts on various activities. So an examiner who does an 

examination is generally consulting BSA, CRA, compliance specialists, and there are those people looking over that work and often 

participating in those exams that are in a centralized environment. 

We have what we call a ‘‘deputy comptroller’’ that is assigned to 

each bank that provides oversight, that is actually not in the 

banks, that is offsite in the process. And my experience as a CEO 

of a bank, having onsite bank examiners that could go to any meeting they wanted, see any data they wanted, ride up and down the 

elevator with the employees and hear the chatter, what was going 

on in the bank, gave them the ears and eyes by being in that institution and what was going on. And I think other than one instance 

that I can remember in the last 5 to 7 years, that model has 

worked to our benefit. 

Senator BROWN. Well, that was a good answer, again, but I hope 

you appreciate the suspicion and the skepticism and the lack of 

trust that American—that a broad swath, I think the overwhelming majority of the American people have toward banks and 

what the financial institutions, what Wall Street did to this country 10 years ago, what banks like OneWest did to this country— 

there was a long article in the Columbus Dispatch, a series of articles, I believe, about what your former bank—and I am not holding 

you responsible. I am not sure you were there at this exact, precise 

time, but what it did to force foreclosures more than there would 

have been with a different kind of institution, with robo-signings 

and other things. And, I mean, there is a reason that the public 

has a suspicion and a skepticism about the banking sector and the 

regulators. When this Administration—I mean, this Administration 

looks like a retreat for Wall Street executives, and when we see the 

Administration, the decisions they make on regulation, when we 

see the regulators that are put in place, so many of them come 

from Wall Street or come from banks, I would hope you would have 

an appreciation that when you do things like this and move the 

regulators into the banks, the public already thinks they are too 

close to you, the regulators are too close to the banks, anyway, and 

I hope you will have some appreciation. 

Let me move on to something else. Your OGE filings show that 

you purchased hundreds of shares in financial companies, including 

shares of a company the OCC supervises after your nomination 

was announced but before you took office. You then, to my understanding—and tell us if we are wrong—claimed the right to avoid 

an immediate tax hit on gains from the sale of those shares, meaning you loaded up on stocks, financial stocks, which are the ones 

we are most interested in, before your confirmation and then you 

23 

deferred taxes on your purchases. Even if that is not illegal—and 

I do not know that there has ever been any—I am not saying there 

has been any prosecutorial action aimed at you. But even if it is 

permissible, why is it advisable to buy financial stocks after you 

are nominated for this position? Wouldn’t it make more sense to 

tell your broker to stop purchases of financial stocks once you were 

under consideration for one of the most powerful bank regulating 

jobs in the country? 

Mr. OTTING. First of all, I was in constant communication with 

the Treasury Department ethics department through this entire 

process. No one had ever at any point in time told me that was improper or illegal. 

Second of all, I would tell you that all of my proceeds were thirdparty managed. I had no input, no decisions, no involvement in any 

of those decisions. And so those decisions were being done entirely 

independent of any input or involvement of myself, and they constantly are rotating in and out of sectors and different stocks. 

What I would tell you is at the point in time that I was sworn 

in, you know, all of that activity was stopped, and then it took us 

a period of time to go through the dissolution process. But there 

was no, you know, bank stocks under the guidance of the OCC—— 

Senator BROWN. OK. I mean, to rely on the ethics people at this 

White House when a story just came out that one of two of the 

President’s relatives’ unpaid advisers made $80 million in his first 

year in office and all the stories with all the strongmen around the 

world and the discussions of the President making money and all 

that, all of those things, I do not really rely—I do not think you 

should rely on them on the ethics questions. But didn’t it strike you 

as a little weird and that it would send a message to a skeptical 

public that you get nominated, you go and buy bank stocks after 

you are nominated? I mean, aren’t we brought up to think at least 

it matters what people think about us that it could look like it is 

wrongdoing, it could look like you did it for the wrong reasons? I 

do not question your integrity here, but maybe your judgment. You 

buy stocks after you get appointed to a job like this. Didn’t it occur 

to you that—sure, you run it by the ethics committees at the White 

House, whoever, whatever they are. But didn’t it occur to you that 

you have some judgment to exercise here? 

Mr. OTTING. Senator Brown, you may not be aware, but I began 

my nomination process in February of 2016, and I was sworn in 

and confirmed on November 27th of 2017—or excuse me, I have 

that backwards. In February—so almost 10 months that I was 

waiting to go through the process. So I would agree if this was a 

30- or 60-day process it would have—but my investment advisers 

who has sole discretion on these investments were independently 

making those decisions. 

Senator BROWN. I am just flabbergasted that that—because you 

had to wait 8 months, you could not buy stocks and you could not 

direct them to buy stocks somewhere else. I mean, you have made 

your mind up on this, but I am just flabbergasted that the ethics 

in this town now, ‘‘because I had to wait 8 months, I am going to 

buy financial stocks, then I am going to be the regulator here,’’ and 

the ethics people at the White House with a capital E said it was 

OK. 

24 

Let me ask another question. You approved recently a rule to weaken capital by $121 billion at the eight largest banks. FDIC did 

not sign on to this change. Are you at all concerned about risk to 

financial stability? 

Mr. OTTING. First of all, we have a rule that is out for comment, 

and we will expect to get those comments back. You are also aware 

the Economic Act will change some of the provisions of that because of some of the institutions that we were looking to figure out 

what to do with the custody banks in the Economic Act. That is resolved. So I do not think the way it is currently formatted today 

will be the way that it is implemented, because it would be a little 

bit of double counting. 

Senator BROWN. But you approved it that way. 

Mr. OTTING. Yes, but I also want you to be aware that number 

would be as if in its single element the leverage ratio was the sole 

determinant. But that is actually a backstop capital ratio, and 

there are other ratios that will be more—— 

Senator BROWN. Well, why do you think it is—— 

Mr. OTTING. Because you have—— 

Senator BROWN. I am sorry, Mr. Otting. If you argue that it does 

not do damage to do this, which I guess you are arguing, why 

would it be something that you would want to do. Why should the 

bank—so the banks can be more profitable? Is that the reason? 

Have more money? 

Mr. OTTING. Because the leverage ratio treats all risk equally, 

and by focusing on the leverage ratio and that being the hindrance, 

it potentially could force a bank into higher-risk issues at the expense of lower-risk issues. 

Senator BROWN. Are you arguing the eight largest banks are not 

doing well? 

Mr. OTTING. No, I am not arguing that. 

Senator BROWN. OK. I guess the question is: Why weaken capital 

now in the ninth year of a recovery with potential trouble ahead 

when the banks are more profitable than ever? You know, this recovery does not last forever. It started with the auto rescue. We 

have had—that is 8 years, 8-plus years, 90-some months of job 

growth. Job growth admittedly was less in the first year of the 

Trump administration than it had been in the number of years 

prior to that. So it does not really matter who gets credit for it, but 

the recovery will end at some point. Don’t you want the banks to 

be prepared for what they were not prepared for in 2007 and 2008? 

And does relaxing capital standards, doesn’t it speak to that? 

Mr. OTTING. The Federal Reserve—and I think Mr. Quarles 

made this comment that, you know, we felt it was $400 million 

when you take into account all the other ratios. So I do agree we 

want the industry to be well capitalized. We want them to understand their risks, and we want them to have high-quality liquidity 

to get through the next cycle. 

Senator BROWN. Going back to the whole issue of skepticism and 

cynicism about you, us—I mean, I will throw all of us into this. It 

is not just the regulators. It is the Senate, it is the House. It is the 

CEOs that make tens of millions of dollars while a bank teller 

makes $12, $13 an hour. At my high school reunion 2 years ago, 

I sat across from a bank teller who had done it for 30 years, and 

25 

she makes $30,000 a year after 30 years. So with the skepticism 

people have toward bank executives and the cynicism and bank 

regulators, I just do not think that giving them more—I mean, they 

have done so well in the last few years thanks in part to the bailout with taxpayer dollars. They have done so well with the tax cut. 

They have done so well with the Crapo deregulation bill that my 

colleague, the Chairman, introduced and go through the Senate 

with Wall Street’s loud approval. We are doing—it is just one thing 

after another we see you doing and Vice Chair Quarles doing and 

probably the FDIC starting to do, one thing after another that the 

banks ask for. And if we keep doing things the banks ask for, particularly since that is almost surely because the economic cycle is 

going to contribute to problems 1 year, 2 years, 5 years, 10 years 

down the road—maybe you and I will be gone by then, but it just 

continues to create—to contribute to that cynicism. 

Let me ask one more question, and I think colleagues will be 

back. Let me go back to CRA. You have said that your CRA proposal will simplify the CRA to judge banks based on one ratio, not 

the multipart test used today. How do you verify that banks are 

meeting unique credit needs of different communities if you measure CRA based on one specific blunt ratio? 

Mr. OTTING. Well, I think the ratio starts actually to make a determination at a macro level, is that institution dedicating enough 

of whatever you choose it to be to the communities to which they 

operate? So there will be other factors that will be important in 

that overall element, including things like, you know, where are 

you lending, what type of activities that you are doing. We also are 

proposing like a two times multiple for equity investments because 

one of the things we see a deficiency in, a lot of the CVFIs need 

equity. They can get debt, but they cannot get equity. And so we 

want to encourage financial institutions to participate in some of 

that activity. 

Senator BROWN. OK. Thank you. And thank you for bearing with 

us. 

Mr. Chairman, thank you. 

Chairman CRAPO [presiding]. All right. Thank you for your patience with us, Mr. Comptroller. I had a couple further questions, 

and we do expect another Senator to come back who has got some 

questions. And then we will probably be close to the end of the 

hearing. 

Comptroller, I understand that some of the national banks are 

contemplating eliminating their holding companies because they 

engage in only traditional activities directly permissible for the 

bank. For example, national banks used to need to have holding 

companies to be able to branch interstate, but the law has changed, 

and that has not been the case for some time. 

While the process for the dissolution of a holding company is fairly straightforward, there are some challenges because of certain antiquated provisions in the National Bank Act. Can you describe 

those challenges and what the OCC or Congress might do to address them? 

Mr. OTTING. Yes, thank you very much, Senator Crapo. We have 

seen a significant increase in interest of banks that are predominantly doing core banking-related activities across America with 

26 

our current structure of requiring multiple boards, multiple compliance, multiple BSA-related activities at both the holding company 

and the board—or, excuse me, and the bank, that a lot of banks 

are looking at, you know, can we consolidate any activities in the 

holding company into the bank and then have dissolution to the 

holding company. 

You know, it is our viewpoint today there are a couple of these 

that are in the queue today that we feel we have the authority that 

we can do work-arounds. I do believe there would be some legislative actions in the future that would make that easier as more 

banks decide to do that. There are two primary ones that, as you 

know, the current provisions do not require a bank to file the SEC 

documentation around financial data, and banks are concern if 

they do consolidate into the bank, that they would not have that 

as a vehicle to get their information into the hands through the 

normal practice and procedures. And so we have worked with the 

SEC, and we think we have a memorandum of understanding of 

how to accomplish that for banks that want to accomplish that. 

That was one of the, I think, significant issues. 

And the other significant issues, you know, the way that the 

Bank Act requires if an entity wants to issue new shares, any incremental amount of new share would require a vote of all shareholders. And at the holding company, they can authorize the 

issuance of shares, and so this would require a vote for each individual share issuance. And that probably today I would say would 

be the primary concern that most banks would have about eliminating the holding company. 

Chairman CRAPO. All right. And so you will work on trying to facilitate those changes that can be achieved regulatorily? 

Mr. OTTING. Yeah, I think we have shared with your staff, you 

know, some of the recommendations on that, and we would be—I 

do think this has the potential to be sizable in numbers as others 

go through that process and then recognize the ability to reduce 

their regulatory burden. 

Chairman CRAPO. All right. And, again, I think you said this, but 

with regard to what Congress might need to do, it would be helpful 

to have your suggestions as to what is beyond the authority of the 

agency. 

Mr. OTTING. Right. 

Chairman CRAPO. One other question—well, a couple other questions. I was encouraged that the regulators recently issued a proposed rule on Volcker, and I am sure you will receive many comments and letters, and it is my hope that you will review them 

carefully as you consider the impact of the proposal on firms’ trading and fund activities, including their investment portfolios. 

I also hope you will look for additional opportunities to simplify 

the rule’s operation by rationalizing metrics reporting and narrowing the scope of covered funds, among other items. 

Can you commit to carefully review the comments received on 

the Volcker Rule and adjust the proposal to address legitimate 

issues raised by commenters? 

Mr. OTTING. Absolutely. That is part of our normal process. We 

do expect to get a sizable amount of comments back on this. This 

was a five-agency Notice of Proposed Rulemaking, which, you 

27 

know, in itself was kind of a miracle. But we were able to kind of 

get it through the process. And I think one of our big challenges 

historically is how do we examine against the Volcker Rule on the 

proprietary trading. And I think we at least have a solution that 

we will build on in the years to come. 

Regarding the covered funds, you know, one of the provisions 

that the Volcker Rule did is that banks used to invest in various 

funds in their communities that then funneled capital into generally small businesses, and small businesses often have a tough 

time going from where they are 100 percent owned by a family to 

being a public company, and that created a bridge for a lot of those 

companies, and that activity has been virtually eliminated. And so 

I think, you know, maybe not today but in the long run we can look 

at that and say, you know, is there a source of capital that is needed in the market to be able to help businesses continue to grow, 

that, you know, someday we may bring back in, and I think that 

is perhaps what you were referencing in your comments. 

Chairman CRAPO. Yes, and I appreciate that. I also appreciate 

the fact that you and the other agencies finally got together and 

made some progress on this. And I do not want this to be misunderstood. I appreciate the progress that has been made. I just 

think that more can be made, and I was hopeful to see a little more 

out of the ultimate outcome. 

One last thing from me, and I apologize that I had to step out 

because of the votes, but I know that there were a lot of questions 

on CRA, and I suspect you did not get to give your full answers 

in response on some of them. Is there anything you would like to 

make clear or add to what you have said with regard to the questions you have received on the CRA today? 

Mr. OTTING. Yes, thank you very much. You know, I have been 

either a user or an implementer of CRA at financial institutions for 

over 25 years. I have designed programs that are specific markets, 

and I have been involved in markets where across the United 

States where CRA is used. We today, you know, in 40 years have 

created an incredibly complex, difficult system for financial institutions to understand. Often the week before the CRA team comes 

in from their examinations, they do not know if they are going to 

get a good rating or bad rating. Often they find that products that 

they thought qualified, that they made investments in or made 

loans against do not qualify. And so I think the ability to bring 

clarity—we are at a point in time where we can bring clarity to the 

CRA process, which I think will encourage more institutions to go 

deeper into their communities and remove the restrictions that I 

think historically have caused CRA to be held back. 

There are three primary things that we are trying to solve for. 

The first is to come up with a more objective way to measure a financial institution’s success and commitment to their communities. 

I talked about using a balance sheet item and adding up all the 

CRA activity and using that item to be able to come up with a percentage. I think that has universal appeal. 

The second part is we really feel we should expand the products 

and services that do qualify under CRA. We have narrowed it very 

narrowly now to mortgages in multifamily in low- to moderate-income areas, and I think we can expand that to more small business 

28 

lending, more community centers, and encouraging banks to do 

more. And we will give banks a read on the front end if they want 

to make an investment so they are not kind of making it and then 

hoping it qualifies. 

And then the last thing, which is, you know, exams are done 

every 3 years, and every 3 years it usually takes us 6 to 24 months 

to issue a CRA report. If a bank wants to close a branch or open 

a branch or enter a new product line or make an acquisition or divestiture, often they are challenged by some certain community 

groups about whether they are in compliance with CRA. If we can 

fix the first one, I think that can solve the third part of this, and 

we can allow banks then to be—we can encourage banks to be able 

to say that they are in compliance with CRA on a continual basis 

if they report that data. 

So I am highly encouraged—I just want to instill it is a false narrative if anybody thinks we are trying to bring CRA down. We actually think this is an opportunity to partner with community 

groups and banks to make CRA better. 

Chairman CRAPO. All right. Thank you very much. I appreciate 

that. 

Senator Cortez Masto, you are next. I have not been able to vote 

on the second vote yet, so I will ask you to be very brief if you can 

because we have got a couple of Senators here and we need to wrap 

up. So to the extent you can keep it to right at 5 minutes or less, 

I would appreciate it. 

Senator CORTEZ MASTO. Absolutely. 

Chairman CRAPO. I apologize for that. 

Senator CORTEZ MASTO. Thank you. Thank you, Mr. Chair. 

Thank you, Mr. Otting, good to see you again. 

So, clearly, the concern that you have seen from many of my colleagues with respect to the Community Reinvestment Act and ensuring there is no discrimination in lending, and I know the OCC 

is required to ensure that the banks comply with laws prohibiting 

the unfair and discriminatory lending, correct? 

Mr. OTTING. That is correct. 

Senator CORTEZ MASTO. And so with that, you are ensuring the 

banks—— 

Mr. OTTING. But, Senator, not with CRA. That is fair lending. 

Actually, there are fair lending exams done based upon the HMDA 

data. So fair—— 

Senator CORTEZ MASTO. That you do. 

Mr. OTTING. That is correct. 

Senator CORTEZ MASTO. Correct. Thank you. And so in ensuring 

that there is no discrimination, let me ask you this: Are you ensuring that the banks are complying with the Fair Housing Act? 

Mr. OTTING. Am I ensuring that they are complying with the 

Fair Housing Act? 

Senator CORTEZ MASTO. Correct. 

Mr. OTTING. Yes, we are. 

Senator CORTEZ MASTO. And are you ensuring they are complying with the Equal Credit Opportunity Act? 

Mr. OTTING. Yes, we are. 

Senator CORTEZ MASTO. And has your office reported any violations of those acts to DOJ? 

29 

Mr. OTTING. Yes, we have. 

Senator CORTEZ MASTO. So they are actively looking at that now. 

Thank you very much. 

Let me ask you this: Going back to the CRA enforcement, it is 

my understanding you have instructed your bank examiners to 

change how they consider CRA bank exams. Is that true? 

Mr. OTTING. Not to my knowledge. 

Oh, we are—I believe we are sending out a bulletin today. So 

there are bulletins that we send out where we update procedures, 

and it either is—yeah, we have been holding a—we frequently will 

provide Q&A or bulletins as updates, and so we have been holding, 

hoping we were going to get the ANPR out, and so there were some 

updates that went out, if that is what you are referencing, to our 

CRA—— 

Senator CORTEZ MASTO. Updates in how the bank examiners will 

be and the criteria they will be looking at when they are engaging 

in these exams? Is that what—— 

Mr. OTTING. No, no. 

Senator CORTEZ MASTO. OK. 

Mr. OTTING. The criteria has been—you know, for banks over 

$1,236,000,000, there is a point system that is lending investments 

and then a service—— 

Senator CORTEZ MASTO. Well, let me ask you this, because I am 

just trying to get to something specific, and I only have so much 

time, so I appreciate—and I want to let my colleagues also ask— 

my understanding is that the bank examiners consider the CRA 

when they are engaged in these bank exams. Isn’t that correct? 

Mr. OTTING. We actually do specific CRA—— 

Senator CORTEZ MASTO. And are they looking to ensure that 

there is no discriminatory lending going on as part of the CRA review? 

Mr. OTTING. So what occurs in a CRA exam is we do a HMDA 

review first to ensure that we can rely upon the information that 

the financial institution has given us. It does not mean that they 

are doing a fair lending exam at the same time they are doing a 

CRA exam. 

Senator CORTEZ MASTO. But are they still looking at data points 

that may—— 

Mr. OTTING. Yes, the HMDA—— 

Senator CORTEZ MASTO. Well, let me ask you this: As part of 

their CRA exam, are there any concerns that they look at data 

points that they look at to ensure there is no discrimination in any 

manner whatsoever? They do not look a any of that, any of the 

HMDA points, there is nothing in the mortgage lending or anything that they look at to ensure there is no discrimination? Because that is what I am hearing you tell me, that your bank examiners do not look for that. 

Mr. OTTING. Let me be clear. 

Senator CORTEZ MASTO. OK. 

Mr. OTTING. So prior to a CRA exam starting, we do a HMDA 

review to determine the accuracy of the data. If there are items 

that are discovered in the HMDA that would lead our suspicion 

that there is not—that there are fair lending questions, then we 

are required by statute to do within 12 months a fair lending exVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
30 

amination. We are also frequently doing fair lending examinations 

independent of CRA. 

Senator CORTEZ MASTO. OK. And so knowing this—and I know 

the OCC supervises about 1,000 banks, correct? 

Mr. OTTING. 1,300. 

Senator CORTEZ MASTO. OK. And how many of those banks, if 

you know, make fewer than 500 mortgage loans or home equity 

loans? 

Mr. OTTING. We looked at that data, and it is less than 5 percent. 

Senator CORTEZ MASTO. OK. And then as you well know, Congress passed a law—— 

Mr. OTTING. Five percent of the volume, I am sorry. 

Senator CORTEZ MASTO. OK. And Congress passed a law that exempted banks that make fewer than 500 mortgage loans from reporting publicly on much of the loan and borrower characteristics 

like points and fees, interest rate, and other indicators of loan quality. So how can you ensure without that data—let me finish my 

question. 

Mr. OTTING. OK. I want to—— 

Senator CORTEZ MASTO. OK, and then you can clarify. I will let 

you clarify. How can you ensure that without that data that you 

are not determining that there is the presence of discrimination or 

not if you do not have all of the information you need to make that 

determination? 

Mr. OTTING. So just as a point of clarification, those banks that 

will be excluded still have a HMDA lite that they have to file. The 

enhanced HMDA data is what the other financial institutions will 

submit. 

Senator CORTEZ MASTO. No, I recognize that. That is why I opposed it. I think HMDA lite does not give us enough information 

to determine whether there is discrimination or not, and that is my 

question to you. Without that additional data, how do you ensure 

there is no discrimination? 

Mr. OTTING. We have historically used the HMDA data to point 

us in the direction where we think that there is—— 

Senator CORTEZ MASTO. Do you still have access to all of the 

HMDA data or just the HMDA lite, like you called it? 

Mr. OTTING. Well, only the institution—well, it has been being 

enhanced, and there is new enhancement based upon the CFPB’s 

criteria. But what will occur is that data will come in to us for 95 

percent of the volume; 5 percent of the volume will be HMDA lite. 

Senator CORTEZ MASTO. OK. So you are only referring and utilizing HMDA lite data, is what I hear. And I know my time is up. 

I would defer to my colleagues. 

Mr. OTTING. Five percent of the data. 

Senator CORTEZ MASTO. Thank you. 

Chairman CRAPO. Thank you very much. 

Senator Menendez? And, again, I did not think you had come in. 

I have not voted yet, so I need to ask you to please stay right to 

your 5 minutes if you can so I can wrap the hearing up. 

Senator MENENDEZ. All right, Mr. Chairman. The second vote 

just began, and this is the problem with conducting hearings while 

31 

voters are—I will object on the floor from now on to having committees meet while—— 

Chairman CRAPO. Well, then you can take your time, and I will 

ask them to hold the vote open. It is still a 5-minute timeframe. 

Senator MENENDEZ. Mr. Otting, the horizontal review of sales 

practices that has been completed for which I understand you have 

reiterated here today that you are not going to publicly release detailed findings. I sent a letter this morning to you along with several of my colleagues on the Committee asking for more information, and I have to say the reality is that your citing confidential 

supervisory information is spurious. The OCC has provided public 

reports on unsafe and unsound banking practices before, namely, 

during the independent foreclosure review, after millions of Americans were harmed by unfair and predatory foreclosure practices. In 

that case the OCC provided critical information to the public explaining how mortgage services had failed to service distressed 

mortgage loans and outlined how those institutions would remediate borrowers. 

I am the Ranking Member of the Senate Foreign Relations Committee. I understand all about classified information. This is not 

classified. This is an effort not to have the ability for the public to 

understand that the institutions that they are banking at may very 

well have had the same practices as we have seen before. 

So, you know, when you were in front of this Committee for your 

confirmation last year, you refused to provide State-by-State information on the number of OneWest foreclosures in our States, and 

today as Comptroller you refuse to provide information about consumers that have been harmed not only by Wells Fargo—of course, 

we know that—but by Wells Fargo-style sales practices. 

So I have to ask myself: Who are you trying to protect? Who are 

you trying to protect: hardworking American families or big banks? 

Mr. OTTING. I am trying to protect American consumers, and—— 

Senator MENENDEZ. Well, you are not doing that when you do 

not disclose. 

Mr. OTTING. Well, first of all, this is not an unsafe and unsound 

manner. You quoted unsafe and unsound manner, and you may 

have not been in the room when I gave the statistics, but out of 

between an estimate of 500 to 600 million accounts, we found 

20,000 items. Of those—— 

Senator MENENDEZ. That is 20,000 too many. 

Mr. OTTING. I would agree with you, 20,000—— 

Senator MENENDEZ. Why can’t we know who the 20,000 are, 

what practices took place at those institutions? 

Mr. OTTING. This is a regulatory matter. There are MRAs open 

that we continue to go through. I have publicly said that this was 

not a systemic issue in the industry, and as we work through the 

MRAs and clean these issues up, all consumers that, if they were 

harmed, will receive restitution. 

Senator MENENDEZ. Well, I think that people should know the 

institutions that they are banking, whether they have these practices, whether they were among the 20,000 who were hurt or those 

who were not. And unless you know whether an institution was 

conducting those practices, you will not know whether that is an 

institution I should be banking with. So you are doing the conVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
32 

sumer universe a huge discredit, and you seem to be shilling for 

the banks. I have to be honest with you. 

Let me ask you, do you believe—let me go to a different topic, 

because I could not believe the answers you gave yesterday at the 

House Financial Services Committee. Are you sitting before this 

Committee telling a Hispanic American that there is no discrimination in this society and that there is no discrimination in mortgage 

lending? 

Mr. OTTING. I did not say that. 

Senator MENENDEZ. OK. Can you tell me, is there discrimination 

in mortgage lending? 

Mr. OTTING. I believe that there is. I think there is disparate impact that occurs in America. What I said was I had not personally 

observed it, but many people who—— 

Senator MENENDEZ. But when you were pressed consistently to 

say do you believe it, you did not give the answer you have given 

me today. So I am happy to see that you have finally come to the 

conclusion, whether you have experienced it, seen it, or not, that, 

in fact, there is discrimination in the mortgage lending field. 

Mr. OTTING. I do not think that comment was right. When I was 

pressed yesterday, I said that people that I care about, I love, and 

I have friendships have told me that there is discrimination, and 

I believe those people. 

Senator MENENDEZ. Will you commit today to retain assessment 

areas with a local geographical focus under the Community Reinvestment Act which helps ensure that banks are combating historic 

redlining and lending in low- and moderate-income communities? 

Mr. OTTING. I think there has to be a new look at assessment 

areas. I do think that around branches that we have to protect that 

banks are participating in the low- to moderate-income communities. But, Senator Menendez, my experience and other people’s 

experiences is that assessment areas also can restrict investments. 

And so I just think we need to think through what is an assessment area. 

We also have financial institutions today that have no branches, 

but they have customers, and I think we need to think through 

what are we going to call—what is the assessment area for those 

institutions. 

Senator MENENDEZ. Let me tell you, I will make sure, along with 

national leading civil rights groups, that you understand that there 

is discrimination in our society in this regard, and that you do not 

water down what limited protections already exist. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Senator Van Hollen. 

Senator VAN HOLLEN. Thank you, Mr. Chairman. And welcome. 

I am going to follow up on a couple of questions that have been 

asked. One was by Senator Warren regarding the case that was 

brought against OneWest for alleged discriminatory practices. To 

your knowledge, is HUD still engaged in an investigation of that 

complaint? 

Mr. OTTING. Are you referencing the HUD on the financial freedom where OneWest Bank paid a fine? 

33 

Senator VAN HOLLEN. I am referencing the case that was 

brought with respect to the alleged discriminatory lending that was 

referenced by Senator Warren earlier. 

Mr. OTTING. I do not know if that is a HUD issue. The accusation 

by community groups was that OneWest Bank, when you looked at 

effectively our fair lending data, we had out of proportions for the 

community. And I do not have it in front of me, Senator Van Hollen, but it was an incredible—I think it was less than 100 mortgages that they used to base that data on. So it was not a statistical relevant—I mean, we were low in certain particular areas, but 

it was not like you had a statistical relevant population in the narrative to make that accurate assessment. 

Senator VAN HOLLEN. I guess my question is—— 

Mr. OTTING. But that was not a HUD—— 

Senator VAN HOLLEN. Was a complaint filed in that case? And 

has that issue been resolved? 

Mr. OTTING. It was filed by a nonprofit organization. 

Senator VAN HOLLEN. And is that case still pending, to your 

knowledge? 

Mr. OTTING. To the best of my knowledge. 

Senator VAN HOLLEN. It is still pending? 

Mr. OTTING. Yes. 

Senator VAN HOLLEN. Have you been questioned in that case? 

Mr. OTTING. I have not. 

Senator VAN HOLLEN. OK. Because the comments you made in 

the House yesterday obviously generated a lot of understandable 

concern, and in my State of Maryland, in Baltimore, a case was 

brought against Wells Fargo back in 2011 for pricing discrimination. Baltimore City alleged that Wells Fargo steered minorities 

into subprime loans, gave them less favorable rates than white borrowers, and foreclosed on hundreds of Baltimore homes, creating 

blight and high public safety costs. And in this case, in fact, Wells 

Fargo conceded that this had happened and paid a penalty of $7.5 

million to the city of Baltimore. 

Do you have any reason to contest the conclusion that there was 

pricing discrimination in this case in Baltimore City? 

Mr. OTTING. I do not. 

Senator VAN HOLLEN. OK. I want to get to some of the issues 

of regulatory capture, and you and I have had an exchange of letters, and I welcome the opportunity to follow up even further on 

that. I believe that Senator Brown referenced the GAO report 

where they looked into the situation, and you are aware of the fact 

that there was a case where Wells Fargo alerted a bank to the fact 

that there was going to be an OCC investigation? Are you aware 

of that case? 

Mr. OTTING. I think it was an OCC employee alerted Wells 

Fargo. 

Senator VAN HOLLEN. I am sorry. Yes, an OCC employee embedded in Wells Fargo. 

Mr. OTTING. That is what the allegations were, yes. 

Senator VAN HOLLEN. And there was since a recommendation 

based on a 2013 study from outside peer groups recommending a 

separation; in other words, recommending that OCC employees not 

be embedded in banks because they would treat them too much 

34 

like customers as opposed to being on the lookout for potential 

wrongdoing and hold people accountable. So my question is: You 

have decided not to pursue that recommendation. Did you do any 

kind of study that would contradict or conflict with the 2013 finding? 

Mr. OTTING. I covered this earlier, but I want to make sure that 

I have a chance to cover it with you. Just so you understand, we 

have three kind of models in the OCC: we have a community banking model, we have what we call a midsize bank model, and we 

have a large bank model. 

On the smaller end, we service those banks by regional locations 

in the OCC so examiners are not embedded in the banks. In the 

midsize bank group, we have a split where some are in and some 

are out. And in the large bank, we have them resident onsite at 

the large banks, and that is the category you want me to described, 

but I just wanted—so you understood it. 

Senator VAN HOLLEN. Yeah, understood. 

Mr. OTTING. So when I got here and examined it and also based 

upon my background and knowledge, I looked at the procedures 

and processes, and just so everybody is aware, every 5 years we rotate—actually, it is less than 5 years. We rotate the examiner in 

charge of a financial institution, so we do have a rotation. 

Second of all, we have resident experts that are both in the field 

and in Washington that review all the examination papers and 

data for accuracy and make sure that no one could take data and 

make inappropriate conclusions. And then we also have what we 

call a ‘‘deputy comptroller’’ that is centralized and has oversight for 

that financial institution. 

So while it could happen, I thought that the controls were in 

place, and the fourth category from my experience as a CEO, having resident onsite examiners who have open architect access to 

anything going on in that bank, they can go to risk meetings, credit 

quality meetings, they can go to credit approval meetings, wander 

around the bank, be able to interact with people, I think actually 

provides better risk management by—— 

Senator VAN HOLLEN. I appreciate that. I think the issue here 

is that obviously there may be some benefits. The question is 

whether the benefits outweigh the risks, and there have been now 

a number of independent analysts that looked at this particular situation with respect to OCC and said it is too great a risk that you 

will have regulatory capture. And so my question was: Did you undertake any independent study—— 

Mr. OTTING. I did not. I reviewed—— 

Senator VAN HOLLEN. ——in reversing this conclusion? 

Mr. OTTING. ——the situation, and I am only aware of one time 

where that has been—— 

Senator VAN HOLLEN. All right. Well, I look forward to following 

up. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you, Senator. 

Comptroller Otting, I appreciate you coming here before us 

today, but also putting up with the inconveniences that have been 

caused by us having to shift around for votes. We appreciate the 

work that you are doing and, again, appreciate the fact that you 

35 

would come here and report to the Committee. I look forward to 

our further work with you. 

That does include all of the questions, and this hearing is adjourned. 

Mr. OTTING. Thank you. 

[Whereupon, at 11:40 a.m., the hearing was adjourned.] 

[Prepared statements and responses to written questions supplied for the record follow:] 

36 

PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO 

Today, we will hear from Comptroller of the Currency Joseph Otting. 

Since being sworn in last November, Comptroller Otting has been focused on 

right-sizing regulations and furthering the mission of the OCC. 

Recently, the OCC, along with four other regulators, issued a proposal to make 

revisions to the Volcker Rule. 

In May, the OCC issued a bulletin related to short-term, small-dollar lending. 

The OCC has also been looking at modifying and modernizing how regulators 

apply the Community Reinvestment Act. 

Comptroller Otting has also identified reviewing compliance with anti–money 

laundering laws as a priority of the OCC’s. 

In addition, the Comptroller has said he expects the OCC to announce in July a 

final decision on a specialty bank charter for FinTech companies. 

I look forward to hearing more about some of these important initiatives today. 

In addition, the OCC will need to implement a number of provisions from S. 2155, 

the bipartisan economic growth legislation that President Trump signed into law on 

May 24th. 

Among the provisions that the OCC will need to write rules to implement are: 

• The community bank leverage ratio, which exempts highly capitalized banks 

from the international Basel III risk-based capital requirements; 

• The exemption from appraisal requirements for banks in rural areas that suffer 

from shortages of qualified appraisers; 

• The requirement that certain acquisition, development, and construction loans 

not be subject to punitive capital requirements; 

• Reduced reporting requirements and extended exam cycles for certain small 

banks; 

• The requirement to promulgate regulations to remove central bank deposits 

from the denominator of the supplementary leverage ratio for certain banks; 

• The exemption from stress testing for certain financial institutions, including 

the immediate exemption for financial companies with less than $100 billion in 

assets; and 

• The provision permitting certain Federal savings associations to elect to operate 

with the same powers and duties as national banks without going through the 

onerous charter conversion process. 

These provisions, and others in the legislation, right-size regulations for community banks, credit unions, midsize banks, and regional banks, making it easier for 

consumers and small businesses to get mortgages and obtain credit. 

Absent excessive regulatory burden, local banks and credit unions will be able to 

focus more on lending, in turn propelling economic growth and creating jobs. 

I look forward to engaging with the OCC, and with other agencies charged with 

implementing S. 2155, over the coming months to ensure that their interpretations 

are consistent with the intent of the Members of Congress that voted for the legislation and with this Committee’s goal of promoting economic growth. 

Our economy is strengthening, and the positive effects of the banking bill and tax 

reform are just starting to be felt. 

Layered together, these policies and others are creating conditions in our country 

that enable growth. 

I look forward to building on this momentum moving forward. 

PREPARED STATEMENT OF JOSEPH M. OTTING 

COMPTROLLER, OFFICE OF THE COMPTROLLER OF THE CURRENCY

JUNE 14, 2018 

Introduction 

Chairman Crapo, Ranking Member Brown, and Members of the Committee, thank 

you for the invitation to testify today. I am pleased to have the opportunity to share 

my priorities as Comptroller of the Currency and update the Committee on the supervision, regulation, and enforcement of financial institutions within the regulatory 

purview of the Office of the Comptroller of the Currency’s (OCC). I intend to work 

diligently to ensure that the institutions within the Federal banking system operate 

in a safe-and-sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations. I am honored to 

serve as the 31st Comptroller of the Currency, alongside nearly 4,000 men and 

37 

women who share a deep dedication to the agency’s mission. During my tenure, I 

look forward to advancing financial institution regulation with a focus on promoting 

the long-term health of the institutions we supervise and improving their ability to 

serve their customers and meet their communities’ needs. In my testimony today, 

I will share my views on the condition of the Federal banking system, the risks facing that system, and my priorities as Comptroller of the Currency. 

Before I turn to those topics, however, I want to congratulate Chairman Crapo 

on his leadership toward the successful enactment of S. 2155, the Economic Growth, 

Regulatory Relief, and Consumer Protection Act (Economic Growth Act). The Economic Growth Act contains a number of important, bipartisan provisions that will 

have a meaningful impact on OCC-regulated institutions. Those include provisions 

reducing the number of community banks and savings associations subject to the 

Volcker Rule; a simpler capital regime for highly capitalized community banks and 

savings associations; allowing qualifying banks under $5 billion in assets to file a 

simplified call report; expanding eligibility for an 18-month exam cycle to well-managed and well-capitalized banks under $3 billion in assets; exempting certain mortgage loans for properties located in rural areas from appraisal requirements; and 

adding greater financial protections for our military servicemembers and veterans. 

The law also raises the thresholds for application of the Federal Reserve Board’s enhanced prudential standards for bank holding companies to focus on the very largest 

companies, right-sizes stress testing requirements, and provides Federal savings associations with less than $20 billion in assets the flexibility to exercise the powers 

of national banks without changing charters, an important improvement championed by Senators Moran and Heitkamp, and suggested by the OCC. 

The OCC will work closely and cooperatively with our fellow financial regulators 

to ensure that all of these important reforms are implemented quickly so that financial institutions can continue to create jobs and promote economic opportunity in a 

safe, sound, and fair manner. 

Condition of the Federal Banking System 

As of the end of the first quarter of this year, the Federal banking system comprised approximately 1,325 national banks, Federal savings associations and Federal branches of foreign banks (banks) operating in the United States. These banks 

range in size from small community banks to the largest most globally active U.S. 

banks. Approximately 1,061 of these banks have less than $1 billion in assets, while 

more than 60 have more than $10 billion. Combined, these banks hold $11.8 trillion 

or about 67 percent of all assets of U.S. commercial banks. These banks also manage almost $51 trillion in assets held in custody or under fiduciary control, which 

amounts to 42 percent of all fiduciary and custodial assets in insured U.S. banks, 

savings associations, and national trust banks. The Federal banking system holds 

two-thirds of credit card balances in the country, while holding or servicing almost 

half of all residential mortgages. Through their products and services, a majority of 

American families have one or more relationships with an OCC-regulated bank. 

Because of the reach of the Federal banking system and the essential role it plays 

in meeting the financial services needs of so many Americans, their businesses, and 

their communities, it is critical that the system operate in a safe-and-sound manner, 

provide fair access to financial services, treat customers fairly, and comply with 

laws and regulations. That is the unique mission of the OCC. 

The OCC employs nearly 4,000 people, two-thirds of whom are bank examiners, 

overseeing the Federal banking system. The majority of those examiners are dedicated to the daily supervision of community banks and work in offices and banks 

across the Nation. 

Supervision by Risk 

The OCC applies a supervision by risk approach to the banks the agency supervises. Supervision by risk focuses on assessing risk, identifying existing and emerging issues, evaluating the effectiveness of a bank’s risk management systems in appropriately controlling risk, and ensuring that bank management takes corrective 

action before problems compromise the safety and soundness of a bank. This approach requires an understanding of the operations of each bank or thrift and the 

systems each has in place to control risk, with consideration of the institution’s size, 

scope of operations, complexity, and the risks presented by its business model. 

Our supervision by risk framework establishes an examination philosophy and 

structure that is used at all national banks, Federal savings association, Federal 

branches of foreign banks, and national trust companies. This approach includes a 

38 

1See OCC Bulletin 2015-48, ‘‘Risk Assessment System’’. December 3, 2015 (https:// 

www.occ.gov/news-issuances/bulletins/2015/bulletin-2015-48.html). 2See Comptroller’s Handbook, ‘‘Bank Supervision Process’’ booklet, which explains UFIRS/ 

CAMELS. (https://www.occ.gov/publications/publications-by-type/comptrollers-handbook/ 

bank-supervision-process/pub-ch-bank-supervision-process.pdf). 3 12 U.S.C. § 1820(d) prescribes the annual examination requirement. As noted earlier, that 

provision has been amended by the Economic Growth Act to expand eligibility for an 18-month 

exam cycle to well-managed and well-capitalized banks under $3 billion in assets. 4 ‘‘Community Bank Supervision’’ booklet of the Comptroller’s Handbook. October 2017 

(https://www.occ.gov/publications/publications-by-type/comptrollers-handbook/communitybank-supervision/index-ch-community-bank-supervision.html). 5 ‘‘Large Bank Supervision’’ booklet of the Comptroller’s Handbook. October 2017 (https:// 

www.occ.gov/publications/publications-by-type/comptrollers-handbook/large-bank-supervision/ 

pub-ch-large-bank-supervision.pdf). 

common risk assessment system (RAS) 1 that evaluates each bank’s risk profile 

across eight risk areas—credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation—and assigns each bank an overall composite rating 

and component ratings on the bank’s capital adequacy, asset quality, management, 

earnings, liquidity, and sensitivity to market risks using the interagency Uniform 

Financial Institutions Ratings System (informally known as CAMELS). 2 Specific examination activities and supervisory strategies are tailored to each bank’s risk profile. These strategies are updated and approved annually. While tailored to each individual bank’s risk profile, they also incorporate key agency supervisory priorities 

for the coming year. 

To reflect the different expectations for controls and risk management between 

banks of varying sizes, operations, and complexity; our bank supervision programs 

and core examination procedures for determining a bank’s RAS and CAMELS ratings are aligned across two primary lines of business: Midsize and Community Bank 

Supervision and Large Bank Supervision. 

Our community bank supervision program is built around local field offices in 

more than 60 communities throughout the United States. Every community national 

bank is assigned to an examiner who monitors the bank’s condition on an on-going 

basis and who serves as the focal point for communication with the bank. The primary responsibility for the supervision of individual community banks is delegated 

to a local Assistant Deputy Comptroller, who reports to a district Deputy Comptroller, who in turn, reports to the Senior Deputy Comptroller for Midsize and Community Bank Supervision. This structure allows community and midsize banks to 

benefit from assigned teams with thorough knowledge of local conditions and support from national resources with broad industry insight. 

The frequency of on-site examinations for community banks follows the statutory 

provisions set forth in 12 U.S.C. 1820(d), 3 with on-site exams occurring every 12 

to 18 months. The scope of these examinations is set forth in the OCC’s Community 

Bank Supervision handbook 4 and requires sufficient examination work and transaction testing to complete the core assessment activities in that handbook, and to 

determine the bank’s RAS and CAMELS ratings. On-site activities are supplemented by off-site monitoring and quarterly analyses and discussions to determine 

if significant changes have occurred in the bank’s condition or activities. 

The OCC’s Large Bank Supervision program is centralized and headquartered in 

Washington, DC. It is structured to promote consistent uniform coordination across 

institutions. As part of the Large Bank program, the OCC assigns examination staff 

who are resident on-site at the institution and who conduct on-going supervisory activities and targeted examinations in specific areas of focus. This process allows the 

OCC to maintain an on-going program of risk assessment, monitoring, and communication with bank management and directors. Given the volume and complexity of 

the literally millions of transactions that flow through large banking organizations 

each day, it is not feasible to review every transaction in each bank, or for that matter, every single product line or bank activity in each supervisory cycle. Nonetheless, 

the scope and frequency of the OCC’s targeted examinations and our constant, dayto-day supervision ensure that examiners complete sufficient work and transaction 

testing throughout the year to complete the core assessment activities set forth in 

the OCC’s Large Bank Supervision handbook, 5 and to determine the bank’s RAS 

and CAMELS ratings. The on-site teams at each bank are led by an Examiner-inCharge, who reports directly to the Deputy Comptrollers in our Large Bank Supervision Office, and in turn, to our Senior Deputy Comptroller for Large Bank Supervision. On-site examiners are supported by specialized examiners in the OCC’s lead 

expert program and the Compliance and Community Affairs unit which provides a 

39 

6See ‘‘Semiannual Risk Perspective’’, Spring 2018, at https://www.occ.gov/publications/publications-by-type/other-publications-reports/index-semiannual-risk-perspective.html. 

horizontal view across the industry, a focus on particular risks, and can quickly 

share insight from that broader perspective. 

Supporting OCC examination staff is a nationwide network of lawyers, economists, accountants, compliance, and administrative and policy experts who together 

make the OCC the world’s preeminent prudential supervisor. This network of experts brings a broad national perspective to complement the deep local expertise of 

the assigned exam teams. 

The quality of that supervision contributes to the strong condition of the Federal 

banking system today. The system has rebounded from the crisis. Capital and liquidity are near historic highs. Bankers understand the risks facing their banks 

better than at any point in my 35-year banking career. Return on equity and asset 

quality are approaching precrisis levels. Bank profitability improved in 2017 when 

compared with 2016 on a pretax basis. OCC-supervised banks reported healthy revenue growth in 2017 compared with 2016. Net income was flat for banks with total 

assets less than $1 billion and declined 8.5 percent for the Federal banking system 

because of the effect of the Tax Cuts and Jobs Act. Pretax income rose 4 percent 

in 2017 for the Federal banking system and more than 7 percent for banks with 

assets less than $1 billion. That improvement continued into the first half of this 

year, and the economic environment is expected to continue to support loan growth 

and bank profitability through 2019. 

Risks Facing the Federal Banking System 

Despite the relative strength of the banking system and health of the economy, 

the regulators’ job is to peer over the horizon and assess any gathering storm 

clouds. The OCC publishes its view of risks facing the banking system twice each 

year in its Semiannual Risk Perspective. 6 Our objective is to provide transparency 

around trends and potential risks so that the industry takes these risks into account 

and adjusts their practices accordingly. The most recent edition of the report, published on May 24, primarily focuses on credit, interest rate, operational, and compliance risks. 

Credit Risk 

At this point in a long economic expansion, asset quality metrics are, as is typical, 

very good, and changes in risk appetite and external factors are the primary drivers 

of credit risk and future performance. While overall credit quality remains strong, 

bankers must remain vigilant about the potential effects of competition and undue 

complacency on the quality of new loans and credit risk management. Recent reviews of underwriting indicate that satisfactory policies and practices exist to guide 

lending decisions and that, thus far in this economic cycle, banks as a whole are 

operating within established risk tolerances. Competition for quality loans remains 

strong, however, and examiners note evidence of eased underwriting, increased commercial real estate concentration limits, and a higher level of concerns related to 

policy exceptions. The accommodating credit environment warrants a continued 

focus on underwriting practices to monitor and assess credit risk and prevent lender 

complacency. 

Overall lending grew 3.6 percent within the Federal banking system in 2017. That 

growth continues the positive trend of the last several years, albeit somewhat slower 

in 2016 and 2017 than in previous years. Commercial loan growth for large banks, 

which hold more than 83 percent of all loans, fell to 4.2 percent, down from the 10- 

percent level 2 years ago. Although loan growth has slowed, growth rates still represent a healthy economy. Midsize and community banks continued to experience 

significant loan growth, particularly in commercial real estate and other commercial 

lending, which grew almost 9 percent last year. Such growth heightens the need for 

strong credit risk management and effective management of concentration risk. 

Interest Rate Risk 

At the same time, rising interest rates also pose a number of potential risks for 

some banks. Although rising interest rates generally increase net interest margins 

at small banks, bank investment portfolios with concentrations of long-duration and 

low, fixed-rate assets could erode in value as interest rates rise, particularly if they 

increase more abruptly than expected. Rising interest rates also likely will increase 

the cost of deposits because of competitive pressures particularly for banks with 

total assets of $250 billion or more that are subject to additional regulatory liquidity 

40 

7See OCC Bulletin 2014-51 (https://www.occ.gov/news-issuances/bulletins/2014/bulletin2014-51.html), which describes the Liquidity Coverage Ratio final rule and provides a link to 

that rule. 8See OCC Bulletin 2013-29, ‘‘Third-Party Relationships’’ (https://www.occ.gov/newsissuances/bulletins/2013/bulletin-2013-29.html). 

requirements. 7 Banks should be modeling these potential risks as part of sound balance sheet management. 

Credit risk is also likely to increase as interest rates rise. Rising interest rates 

will often increase debt service costs and may affect credit affordability as well as 

repayment capacity of some financially stretched customers. 

Operational Risk 

Operational risk remains elevated as banks adapt business models to the evolving 

banking environment, transform technology and operating processes, and respond to 

increasing cybersecurity threats. The speed and sophistication of cybersecurity 

threats show no signs of abating. Banks face constant threats from bad actors seeking to exploit personnel, processes, and technology. Some of these threats target 

large quantities of personally identifiable information and proprietary intellectual 

property to facilitate fraud and misappropriation of funds at the retail and wholesale levels. Other threats are aimed at disrupting or otherwise impairing operations. 

Failure to maintain proper controls over cybersecurity can lead to material negative 

effects on financial institutions, consumers, and national and economic security. 

Banks also continue to rely on third-party relationships to support a significant 

number of key services and operations because of the greater economies of scale and 

advanced technical resources that allow them to manage operations better and more 

efficiently. Banks need to manage risks associated with using third parties 8 through 

appropriate due diligence and risk oversight to ensure controls protecting the confidentiality, integrity, and availability of systems and data are maintained. Increasing consolidation among large technology service providers has created third-party 

concentration risk, in which a limited number of providers service large segments 

of the banking industry for key financial services. Operational events at these larger 

service providers could affect large parts of the financial industry, if not properly 

managed by the service providers and the banks that rely on their services. The 

OCC and the other Federal banking agencies continue to prioritize supervisory activities related to these large service providers. 

Cybersecurity and operational issues have a greater potential to affect individual 

consumers, business, and communities than ever before. As innovation and technology moves us toward greater interconnectedness and reliance on online transactions, outages and breaches generate greater disruption in how we conduct our 

lives and businesses. Extended outages of bank websites and applications, automated teller networks, or payments systems can paralyze commerce and undermine 

overall confidence in our system. To avoid these consequences, banks, retailers, 

nonbank service providers, and regulators must be vigilant in working together to 

protect the system and improve its resiliency. 

Compliance Risk 

Compliance risk remains elevated as banks manage risks in an increasingly complex environment and work to comply with evolving regulations. 

The dynamic nature of money-laundering and terrorist-financing methods present 

challenges for banks to comply with the Bank Secrecy Act (BSA) requirements. 

Banks offer new or evolving delivery channels that increase customer convenience 

and access to financial products and services, and they must maintain a focus on 

refining or updating BSA compliance programs to address vulnerabilities in these 

new delivery channels that criminals seek to exploit. At the same time, recent 

changes to the regulatory framework implementing the BSA increase the burden of 

complying with the law. One example involves the Financial Crimes Enforcement 

Network’s (FinCEN) new requirements for conducting customer due diligence and 

documenting the beneficial ownership of companies conducting financial transactions. While these new requirements enhance the transparency and confidence of 

financial transactions, they place significant new burden on financial institutions. 

Other complex and constantly changing regulations also strain bank compliance 

management systems and change management processes, which increases operational, compliance, and reputation risks. Recent regulatory changes in the consumer compliance area include changes in the requirements under the Home Mortgage Disclosure Act and Military Lending Act, and implementation of the integrated 

mortgage disclosures under the Truth in Lending Act and the Real Estate Settlement Procedures Act. Banks need consumer compliance risk management and audit 

41 

functions sufficient to promote ongoing compliance with regulations, even those that 

change on a frequent basis. 

My Priorities as Comptroller of the Currency 

As Comptroller, my short-term priorities have focused on initiatives to help banks 

promote job creation and economic opportunity while continuing to operate in a safe, 

sound, and fair manner. These priorities include modernizing the regulatory approach to the Community Reinvestment Act (CRA), encouraging banks to meet consumers’ short-term, small-dollar credit needs, enhancing our supervision of BSA/ 

anti–money laundering (AML) compliance and making it more efficient, simplifying 

regulatory capital requirements, and reducing burden associated with the Volcker 

Rule. At the same time, we continue to enhance the agency’s effectiveness and efficiency. 

Modernizing Our Approach to the CRA 

During the four decades since the CRA became law, the regulatory approach to 

implementing that law has become too complex, outdated, cumbersome, and subjective. We have an opportunity to modernize the regulatory framework around CRA 

to better serve its original purpose and encourage more investment and banking activity supporting the people and communities needing it most. 

As a banker for more than 30 years, I saw firsthand the benefit of CRA activities 

and how they make communities more vibrant. I believe in the power of community 

reinvestment to reinvigorate financially distressed areas and to give residents of 

those neighborhoods new hope and new economic opportunities. I have been involved in directing hundreds of millions of dollars in community development, reinvestment, and support for groups that provide important services to their communities, and I want to expand the types of activities eligible for CRA consideration 

to include more small business lending and community development activities and 

strengthen the CRA regulatory framework to benefit future generations. 

Stakeholders from all perspectives have called for modernizing the current regulatory framework for the CRA. Members from both sides of the aisle have described 

their frustration with some of the CRA regulatory framework’s current limitations. 

Many have complained of significant administrative burden, lack of incentives for 

investment, and failure to adapt to advances in banking such as interstate branching and digitization of services. Others have complained about the limited opportunity for bank activities to qualify for CRA consideration. Bankers and community 

groups alike criticize the length of time between the issuance of CRA performance 

evaluations, the unwieldly length of performance evaluation reports, and the lack 

of transparency, clarity, and flexibility with respect to regulatory requirements and 

processes. The complaints I hear most frequently are that the current approach to 

evaluating CRA performance is too subjective and costly. 

To begin the process of modernizing the CRA, the Federal banking agencies are 

discussing an Advanced Notice of Proposed Rulemaking (ANPR) soliciting comments 

from stakeholders on how best to modernize the CRA regulatory framework. We 

have an opportunity to consider a transformational CRA framework that would: (1) 

expand and provide clarity regarding the bank activities that receive CRA consideration; (2) revisit the concept of assessment areas; and (3) increase the transparency 

of how bank CRA performance is measured by using quantitative standards that are 

applied consistently. 

First, we should expand the types of activities that qualify for CRA consideration. 

Over the years, opportunities for CRA consideration have focused heavily on singleand multifamily residential lending. While necessary for a vibrant community, residential lending is not the only activity that can have a meaningful impact in these 

communities. Communities also need more small business lending, student lending, 

economic development opportunities, and in some cases, additional opportunities for 

consumers to access credit including responsible, short-term, small-dollar consumer 

loans. These activities deserve more consideration during CRA evaluations. We have 

the opportunity to encourage banks to help neighborhoods become communities 

where families can make a living and not just reside. 

Second, we need to revisit the concept of assessment areas. Limiting assessment 

areas to a bank’s branch-based footprint has become an impediment to investment 

and providing capital in areas of need that the bank may serve. I have seen situations where projects have not received CRA consideration merely because they were 

on the wrong side of a street. I have also seen needy communities go unserved or 

have much needed resources delayed because of a lack of clarity in current regulations. In reconsidering assessment areas, we need to broaden our thinking to include all areas where institutions provide their services rather than only narrow geographies defined by branches and deposit-taking automated tellers. 

42 

9 Refer to Center for Financial Services Innovation, ‘‘2017 Financially Underserved Market 

Size Study’’, pp. 44–47, for revenue and volume data on pawn loans, online payday loans, storefront payday loans, installment loans, title loans, and marketplace personal loans. 10See OCC Bulletin 2018-14, ‘‘Installment Lending: Core Lending Principles for Short-Term, 

Small-Dollar Installment Lending’’ (https://www.occ.gov/news-issuances/bulletins/2018/bulletin-2018-14.html). 11 Refer to OCC NR 2017–118. 

Third, we need to develop a metrics-driven approach to evaluating CRA performance using clear thresholds. Such changes could make facts and data regarding a 

bank’s CRA activity more transparent and available to the public more frequently. 

Establishing clearer, more transparent metrics for what banks need to do to achieve 

a certain CRA rating would allow stakeholders to understand how a bank is working to meet the credit needs of its community, provide a more objective base for examiner ratings, and allow regulators to report on aggregate activity to show a 

bank’s overall performance. Clear thresholds would minimize subjectivity, encourage 

consistency, and promote transparency in contrast with today’s evaluations that 

may rate similar activities differently from bank to bank and make comparisons 

across institutions difficult and less meaningful. This type of change would also help 

regulators to make decisions that rely on CRA data more quickly and to produce 

more concise and meaningful performance evaluations. 

The ANPR will solicit comments on all possible approaches to modernizing CRA, 

including modest changes to the existing CRA framework and more transformational changes. It also will seek feedback on allowing community banks to retain a more traditional approach based on their business models. 

Once published, I encourage all stakeholders to provide their thoughts on how to 

improve our approach to the CRA regulatory framework to better encourage banks 

to meet the credit needs of their communities, including those in low- and moderateincome neighborhoods, consistent with the safe-and-sound operation of these institutions. I recognize that there are many people and organizations with decades of experience in this important field. I look forward to publishing the ANPR and reviewing the comments received as we move ahead. 

Encouraging Banks To Meet Consumer’s Short-Term, Small-Dollar Credit Needs 

Millions of Americans rely upon short-term, small-dollar credit to make ends 

meet, but have few choices in this area. According to one study, U.S. consumers borrow nearly $90 billion every year in short-term, small-dollar loans typically ranging 

from $300 to $5,000. 9 Consumers need safe, affordable choices, and banks should 

be part of that solution. While banks may not be able to serve all of this market, 

they can reach a significant portion of it and bring additional options and more competition to the marketplace while delivering safe, fair, and less expensive credit 

products that support the long-term financial health of their customers. 

That is why the OCC clarified its position in a bulletin published on May 23, 

2018, that encourages banks to offer responsible short-term, small-dollar installment loans to help meet the credit needs of their customers. 10

Banks are well suited to offer affordable short-term, small-dollar installment lending options that can help consumers find a path to more mainstream financial services without trapping them in cycles of debt. When banks offer products with reasonable pricing and repayment structures, consumers can benefit from banks’ other 

financial services such as financial education and the opportunity to build a positive 

credit record. 

Banks should consider the following three core principles when offering shortterm, small-dollar lending products. 11

• All bank products should be consistent with safe-and-sound banking, treat customers fairly, and comply with applicable laws and regulations. 

• Banks should effectively manage the risks associated with the products they 

offer, including credit, operational, compliance, and reputation. 

• All credit products should be underwritten based on reasonable policies and 

practices, including guidelines governing the amounts borrowed, frequency of 

borrowing, and repayment requirements. 

The agency’s bulletin also highlighted reasonable policies and practices specific to 

short-term, small-dollar installment lending, including: 

• Loans and terms that align with eligibility and underwriting criteria. Products 

should be designed to achieve reasonable borrower affordability and repayment. 

• Loan pricing that complies with applicable State laws and reflects overall returns reasonably related to product risks and costs. The OCC views unfavorably 

43 

an entity that partners with a bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing State(s). 

• Analysis that uses internal and external data sources, including deposit activity, to assess a consumer’s creditworthiness and to effectively manage credit 

risk. Such analysis could facilitate sound underwriting for credit offered to consumers with an ability to repay but who do not meet traditional standards. 

• Marketing and customer disclosures that comply with consumer protection laws 

and regulations and provide information in a transparent, accurate, and customer-friendly manner. 

• Loan servicing processes that assist customers, including distressed borrowers. 

To avoid continuous cycles of debt and costs disproportionate to the amounts 

borrowed, timely and reasonable workout strategies should be used. 

• Timely reporting of a borrower’s repayment activities to credit bureaus. Borrowers should have the ability to demonstrate positive credit behavior, build 

credit history or rebuild credit scores, and transition into additional mainstream 

financial products. 

The Pew Charitable Trusts praised the OCC’s action when announced by saying 

the action encourages ‘‘the other Federal bank and credit union regulators to follow 

the Comptroller’s lead and institute the necessary standards to ensure the development of safe and affordable small installment loans that will save millions of borrowers billions of dollars a year.’’ The OCC also is working with Congress to encourage the banking sector to offer additional short-term, small-dollar lending products 

to meet consumer needs. 

Enhancing BSA/AML Compliance 

The BSA and AML laws and regulations exist to protect our financial system from 

criminals who would exploit that system for their own illegal purposes and from use 

of that system to finance international terrorism. Bank regulators, law enforcement, 

national security personnel, and bankers must continually adapt to increasingly sophisticated criminals and other illicit actors who take advantage of the Nation’s 

banks and financial system. While regulators and the industry share a commitment 

to fighting money laundering and other illegal activities, the process for complying 

with current BSA/AML laws and regulations has become inefficient and costly. 

Banks spend billions each year to comply with BSA/AML requirements. We need to 

reform the BSA/AML to be more efficient while improving the ability of the Federal 

banking system and law enforcement to safeguard the Nation’s financial system 

from criminals and terrorists. 

In May, the Federal banking regulators met to discuss ideas on how to improve 

our approach to implementing BSA/AML laws and regulations and presented those 

recommendations to the Department of the Treasury and FinCEN. 

There are several improvements that the OCC believes could be addressed 

through regulation and others that would need legislative relief. Opportunities include: 

• Allowing regulators to schedule and scope BSA/AML examinations on a riskbasis and identifying ways to conduct associated examinations in a more efficient manner. 

• Considering changes to the threshold requiring mandatory reporting of Suspicious Activity Reports (SARs) and currency transaction reports and simplifying reporting forms and requirements. 

• Working with law enforcement to provide feedback to banks so that they understand how SARs and other BSA report filings are used and can provide the 

most useful information. 

• Exploring the use of technologies to reduce reporting burden and provide more 

effective access and information to law enforcement and national security personnel. 

I look forward to working with my fellow banking regulators, Treasury, FinCEN, 

law enforcement, and national security personnel in the coming months to identify 

changes we can implement to reduce the burden of complying with BSA/AML laws 

while also improving how we protect our financial system. I also look forward to 

working with Members of this Committee who are interested in improving the BSA/ 

AML laws. 

Simplifying Regulatory Capital and the Volcker Rule 

Following the financial crisis, bankers, regulators, and policymakers responded by 

appropriately focusing on improving the quality and quantity of capital and liquidity 

44 

12 82 FR 49984 (October 27, 2017). 13 83 FR 17317 (April 19, 2018). 14 12 U.S.C. 1851; 12 CFR 44. 15 82 FR 36692 (August 7, 2017). 

in the banking system. As a result, today’s financial institutions have capital and 

liquidity near historic highs. At the same time, calculating regulatory capital has 

become too complex. Even some of the most seasoned bankers need the assistance 

of a capital expert to understand and explain how the various categories of capital 

are counted. This results in regulatory and business inefficiency and places an unnecessary burden particularly on well-capitalized community and midsize banks. 

In late October 2017, Federal bank regulators proposed a rule intended to reduce 

burden by simplifying several requirements in the agencies’ regulatory capital 

rule. 12 Most aspects of the proposed rule would apply only to banking organizations 

that are not subject to the ‘‘advanced approaches’’ in the capital rule, which are generally firms with less than $250 billion in total consolidated assets and less than 

$10 billion in total foreign exposures. The proposal would simplify and clarify a 

number of the more complex aspects of the existing capital rule. The Federal banking agencies received a number of comments on various aspects of the proposal and 

are working together to consider what changes to the proposal would be appropriate 

in light of the different ideas and suggestions provided in the comments. Additionally, one area of the proposal—the treatment of acquisition, development, and construction loans—has been superseded by the Economic Growth Act. As we move forward with our efforts to simplify and clarify our regulatory capital requirements, 

the agencies will, of course, make any changes necessary to conform our capital 

rules to the new law. 

In April of this year, the OCC and the Board of Governors of the Federal Reserve 

System proposed a rule that would further tailor leverage ratio requirements to the 

business activities and risk profiles of the largest domestic firms. 13 Currently, firms 

that are required to comply with the ‘‘enhanced supplementary leverage ratio’’ are 

subject to a fixed leverage standard, regardless of their systemic footprint. The proposal would instead tie the standard to the risk-based capital surcharge of the firm, 

which is based on the firm’s individual characteristics. The resulting leverage standard would be more closely tailored to each firm. Importantly, the Economic Growth 

Act includes a provision (section 402) that requires the agencies to make changes 

to the calculation of the supplementary leverage ratio for banking organizations engaged in custody, safekeeping, and asset servicing activities. As we move forward 

with the changes required by the new law, we will need to consider whether the 

proposed recalibration of the enhanced supplementary leverage ratio remains appropriate, or whether additional fine tuning will be necessary. 

I also look forward to working with fellow regulators to update regulations to implement additional relief authorized in the Economic Growth Act. Among those provisions are section 201 which allows banks that exceed a ‘‘community bank leverage 

ratio’’ (tangible equity to average total consolidated assets of 8 percent to 10 percent) to be deemed to be in compliance with current leverage and risk-based capital 

provisions. This will greatly reduce regulatory burden for well-capitalized, qualifying 

institutions. 

Similarly, the agencies have been working to simplify the Volcker Rule 14 to ease 

associated burden, particularly for those community and midsize banks that do not 

pose systemic risk to the Nation’s financial system and typically do not engage in 

the type of activities that the statute was intended to address. I also applaud the 

changes made by the Economic Growth Act to reduce the number of banks subject 

to the Volcker Rule and want to thank the many Members of this Committee who 

supported this reasonable exemption. 

For those entities that remain subject to the rule, the OCC is committed to adding 

clarity and reducing unnecessary burden, as appropriate. In August 2017, the OCC 

sought public comment about what should be done to improve the current regulation 

implementing the Volcker Rule 15 and specifically invited input on ways to tailor the 

rule’s requirements and clarify key provisions that define prohibited and permissible 

activities. The agency also sought input on how the Federal regulatory agencies 

could implement the existing rule more effectively without revising the regulation. 

The OCC has used comments to inform its dialogue with other Federal regulatory 

agencies. 

The OCC has worked collaboratively with the other Federal regulatory agencies 

responsible for the Volcker Rule to develop a proposed rule that would clarify and 

streamline the current regulation. These proposed changes focus on reducing the 

subjectivity, and associated uncertainty, of the current rule. A key objective is to 

provide clear lines that enable firms to quickly and easily determine whether activiVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00048 Fmt 6621 Sfmt 6621 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
45 

ties are subject to the rule. In this regard, the proposal seeks to eliminate the test 

that looks to the subjective intent of a transaction for purposes of determining 

whether it is proprietary trading and to focus on objective factors. For example, a 

trading desk that operates within a prescribed profit and loss threshold would be 

presumed to be operating in compliance with the rule unless the appropriate agency 

determines otherwise. 

In addition, the proposed rule focuses on appropriate burden reduction by seeking 

to calibrate the regulation to the type and level of risk presented. For example, a 

bank with only moderate trading activities would be eligible for streamlined 

versions of the market-making and hedging exemptions relative to a bank that has 

significant trading activities. For banks with the most limited trading activities, 

there would not be any ongoing obligation to demonstrate compliance, although the 

rule’s substantive restrictions on proprietary trading and covered funds activities 

would still apply. We believe these changes will reduce burden, particularly for 

smaller and midsize banks that remain subject to the Volcker Rule following the recent statutory amendment. We believe these changes will also improve the agencies’ 

implementation of the Volcker Rule by allowing regulators to focus on the activities 

that were at the core of the statutory prohibitions. 

Each of the five agencies involved in writing the rules implementing the Volcker 

Rule has adopted the proposal, and I look forward to working with my fellow regulators to finalize changes to the Volcker Rule later this year. 

Agency Effectiveness and Efficiency 

Ensuring that the OCC operates as effectively and efficiently as possible allows 

the agency to succeed in its mission, to be a responsible steward of every assessment 

dollar collected, and to maintain a professional and inspiring workplace for the men 

and women who contribute to the economic security of our Nation by supervising 

its banks. 

Since I arrived at the OCC, we have greatly improved the agency’s decision-making processes. Over the years, the OCC had developed a centralized and bureaucratic approach to decision making that required multiple officials and many layers 

of review to approve examiner guidance, internal policies, and public issuances. We 

have 3 months of data that tell us that the change is paying dividends. The average 

total time for executive managers to review documents and agency decisions is now 

less than 8 days, down from an average of nearly 22 in calendar year 2017. The 

revised process also pushes decision making down to appropriate staff. Under the 

revised process, for example, the Comptroller’s approval has been required on 54 

percent of the documents issued by the agency, compared with 97 percent of documents reviewed at the agency in 2017. This more efficient approval and coordination 

process reduces waste and allows more resources to be committed to executing decisions rather than coordinating their approval. We continue to look for opportunities 

to make that process even more efficient and reduce the time even further. 

The agency has also focused on reducing its costs through gaining efficiencies and 

making better use of technology. When I arrived at the OCC, I was greeted with 

18-inches of three-ring binders for briefings the next day. Executives would arrive 

to meetings with their binders and coordination packages would be copied and 

bound for each required signature. Today, we have significantly reduced paper received by the front office and coordinate all materials electronically. Executives 

largely rely on electronic communication, and staff share information and document 

decisions online. Moving to an online-only system has saved an incalculable amount 

of paper and time—time spent under the old process assembling and delivering 

paper packages for each reviewer. Now, because comments are now provided electronically, we have eliminated the need to copy and scan comments by reviewers, 

decipher handwritten notes, and track down the commenter when follow-up is required. Recordkeeping is accomplished more quickly because all the documents are 

electronic and easily saved to the initiating office’s system of records. 

The agency is also mindful of our responsibility to get the most out of every dollar 

assessed to the institutions we supervise and is working to reduce costs wherever 

it makes sense. At the beginning of fiscal year 2018, the OCC supervised 1,347 institutions and had authorized 3,945 full-time employees. After I became Comptroller, OCC management conducted a thorough budgetary review and identified efficiencies to fulfill our mission and lower our expected expenses by reducing the 

number of additional personnel we planned to hire during the year, prioritizing our 

work, completing that work more efficiently, and taking a closer look at actual 

versus planned spending for personnel travel and contracts. That effort reduced the 

amount we planned to spend in fiscal year 2018 by nearly $70 million, or about 5 

percent of our expected costs. 

46 

As the agency looks ahead to fiscal year 2019, we will think even more critically 

and creatively about what we need to do our jobs successfully and reduce our anticipated costs further. There are many ways to save money and operate more efficiently and effectively, and currently none of them involve a reduction-in-force 

through layoffs or buyouts. As the agency plans its spending for fiscal year 2019 

and beyond, we will seek to optimize our real estate strategy by shrinking our physical footprint and taking advantage of technology to reduce our costs. Our revised 

spending plan for the remainder of fiscal year 2018 and the budgets I authorize in 

the future will continue to provide the resources necessary for the agency to succeed 

in its mission and to provide employees an engaging and fulfilling work experience. 

The agency will continue to invest in training and career development while providing a professional, supportive workplace so that the agency can attract and retain the experience and talent it needs. 

Conclusion 

Thank you for the opportunity to provide my views on the condition of the Federal 

banking system, risks facings that system, and my priorities as Comptroller. I look 

forward to working with Members of this Committee, my fellow regulators, and the 

seasoned team at the OCC to address these important issues facing our Nation’s 

banks and to further strengthen the Federal banking system. 

I again congratulate the Chairman on his leadership and I thank the Committee 

Members for their important and formative work resulting in common-sense relief 

for community and midsize banks that was passed into law last month. 

47 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN 

FROM JOSEPH M. OTTING 

Q.1. Under your leadership, has the OCC experienced any reductions in staffing? 

A.1. At the end of fiscal year 2017, the OCC employed 3,956 staff. 

As of May 31, 2018, the OCC employed 3,838 staff. 

Q.2. If so, what reductions were the result of attrition versus other 

forms of staff reduction? 

A.2. Fluctuation in the number of employees reflects seasonality 

and ordinary attrition. The OCC has not conducted and has no 

plans to conduct a reduction in force or other forms of layoffs. The 

agency does intend to operate as effectively and efficiently as possible with sufficient staff to fulfill its mission. 

Q.3. Is the OCC anticipating future reductions in staffing? If so, 

please explain the number of staff reductions implemented or expected, and please list the locations of the staff reductions, including the division within the OCC and the geographic location. 

A.3. The OCC is in the process of developing its strategic plan for 

fiscal years 2019–2023 and its budget for fiscal year 2019. The 

agency intends to operate more effectively and efficiently in the future. The budget and staffing levels will be set sufficiently to fulfill 

the agency’s important mission, but these levels have not yet been 

determined for fiscal year 2019 and beyond. 

Q.4. Also, please describe any other significant cost or expense reduction measures, including any reductions that could impact oversight of financial institutions. Finally, please describe any Administration recommendations or requests to reduce staffing or costs. 

A.4. The OCC is in the process of developing its strategic plan for 

fiscal years 2019–2023 and its budget for fiscal year 2019. The 

agency intends to operate more effectively and efficiently in the future. The budget and staffing levels will be set sufficiently to fulfill 

the agency’s important mission, but these levels have not yet been 

determined for fiscal year 2019 and beyond. Finally, the Administration has neither instructed nor advised the OCC to reduce staffing or costs. 

Q.5. Does discrimination in housing exist? Does discrimination in 

banking exist? Does discrimination in lending exist? 

A.5. I do not condone discrimination and believe more can be done 

to provide credit and banking services mare fairly. This is one of 

the reasons I support changes to the Community Reinvestment Act 

(CRA) to encourage more lending and investment activity in our 

communities and to expand banking services to more consumers 

and businesses, particularly in low- and moderate-income communities. One of the reasons the CRA was enacted was to address redlining activity in the United States. Even today, there are observable differences in the approval rates and distribution of housing, 

banking services, and lending by race and other attributes. 

The OCC employs the tools and authority it has to combat discrimination. Examiners are required to complete a fair lending risk 

assessment for all OCC-supervised institutions during each supervisory cycle to guide the fair lending examination strategy for each 

48 

bank. Using a risk-based process to identify banks and focal points 

for fair lending examinations, the Home Mortgage Disclosure Act 

(HMDA) screening process is intended to supplement the fair lending risk assessments. Using a combination of statistical analysis 

based on the HMDA data as well as a review of the data collected 

using the OCC Fair Lending Risk Assessment Tool, the OCC identifies banks that exhibit higher fair lending risk for which a fair 

lending examination is required within the following fiscal year. In 

instances where the OCC has identified evidence of redlining or 

discriminatory practices, it has taken supervisory action, and 

where appropriate, made referrals to the Department of Justice 

and Department of Housing and Urban Development in accordance 

with OCC policy. 

Q.6. In your testimony, you noted that you diversified OneWest’s 

Board. Please provide a list of Board members, along with each individual’s gender, race, and ethnicity, for each of the years you 

were employed at the bank. 

A.6. As discussed at the hearing, during my tenure at OneWest, we 

diversified the Board of Directors from the one that was in place 

when I arrived. Public information about the board members of 

CIT Bank, N.A., is available on S&P Global at https://platform.mi.spglobal.com/web/client?auth=inherit#company/officers?id=4227407. 

Q.7. In your testimony, you noted that you were ‘‘not aware’’ of an 

‘‘old boys’ club’’ in the banking industry. 

A.7. I am not. 

Q.8. What does research suggest regarding barriers to inclusion for 

women and persons of color in the banking industry? 

A.8. While the banking industry is generally a leader in employee 

inclusion and diversity, current research suggests women and people of color continue to be underrepresented in the banking industry as a whole, and we should continue to encourage their participation. 

Q.9. Do you believe you would be serving as Comptroller of the 

Currency if you did not have a prior relationship with Secretary 

Mnuchin? 

A.9. I serve the country as Comptroller of the Currency because the 

President nominated me and the Senate reviewed my nomination 

and qualifications and voted to confirm me to this position. 

Q.10. The Director of the Office of Minority and Women Inclusion 

(OMWI) at the OCC directly reports to the Comptroller, per Section 

342 of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. How many times have you met with the OCC 

OMWI Director? What specific objectives within the purview of the 

OMWI do you plan to accomplish during your tenure? What is your 

timeline for meeting your goals? 

A.10. I meet at least monthly and more often as the need arises 

with the OCC’s Executive Director for Workforce Diversity and Inclusion, Joyce Cofield. She and I also attend diversity meetings and 

events together, regularly. 

49 

More diversity broadly at senior level positions at the OCC is one 

objective. In addition, I am particularly committed to enhancing 

the participation of more Hispanics at the OCC in terms of overall 

representation throughout the agency as well as at the most senior 

leadership levels to address the low participation of Hispanics in 

our workforce. Women also are underrepresented in the examiner 

discipline and we are considering ways to address this. Finally, I 

am proposing a summer internship program for 2019 in which local 

high school students from low- and moderate-income areas could 

participate to increase their awareness of career opportunities at 

the OCC. 

Q.11. According to the OCC’s most recent No FEAR Act disclosure, 

the OCC will receive 52 EEO complaints in 2018. In comparison, 

the OCC received 23 EEO complaints in 2017, 18 in 2016, 15 in 

2015, and 17 in both 2014 and 2013. What explains the jump in 

EEO complaints during your tenure? 

A.11. The question incorrectly projects the number of complaints 

for 2018. The accurate projection is 26 not 52, based on the 13 complaints filed from October 1, 2017, to March 30, 2018. This figure 

is not a significant increase over 2017 and is still a low number for 

an agency of our size. I am committed to maintaining a workplace 

that is free from fear, harassment, and discrimination. The agency 

has made a concerted effort to make employees aware of all of the 

channels they have to voice concerns. 

Q.12. The Comptroller has the discretion to waive confidential supervisory information disclosure restrictions generally applicable 

under 12 CFR Part 4 if the Comptroller determines such disclosure 

‘‘may be necessary or appropriate.’’ As such, will you use this discretion to make additional information public regarding the OCC’s 

horizontal review of sales practice violations? If not, why not? 

A.12. I have previously provided a public summary of the OCC’s 

horizontal review of sales practices. Information that remains confidential supports ongoing supervisory activity. Release of any additional confidential supervisory information could prejudice or adversely affect future supervisory actions. 

Q.13. Please list the 40 national banks subject to the OCC’s horizontal review of sales practice violations, which concluded in the 

fourth quarter of 2017. 

A.13. The banks reviewed included the largest national banks and 

Federal savings associations with significant consumer sales activity. 

Q.14. Why did the OCC select a ‘‘look-back’’ period of 3 years for 

the horizontal review given that Wells Fargo admitted that the 

bank’s unauthorized account scandal dated back to the year 2003? 

A.14. The primary objective of the review was to determine whether systemic issues were occurring in the Federal banking system 

related to unauthorized account openings. Three years were sufficient for that purpose. While the look-back period was set by my 

predecessor, I agree with this timeframe. 

Q.15. Your testimony noted that the OCC sent final letters to bank 

CEOs upon the conclusion of the horizontal review on June 4th. 

50 

Please provide the Committee with a sample of a final letter sent 

to a bank CEO. 

A.15. Our formal communications with the institutions we supervise are confidential supervisory documents. However, a summary 

of our horizontal review was provided to the Chairman and Ranking Member in a letter dated June 11, 2018. The information provided in the June 11 letter was similar to that contained in the 

final letters to bank Chief Executive Officers. 

Q.16. You noted in testimony that the OCC did not find pervasive 

or systemic issues in regard to improper account openings. Please 

explain why you view the OCC’s findings to be nonsystemic. 

A.16. Based on the hundreds of millions of accounts opened by the 

reviewed banks during the 3-year look-back period, neither the volume of accounts identified with issues nor the variety of root 

causes for those issues constituted a systemic issue. 

Q.17. Please provide a copy of each of the five industrywide matters requiring attention. 

A.17. The matters requiring attention (MRA) are confidential supervisory information. They generally involved deficiencies in policies, procedures, and controls as described in my June 11, 2018, 

letter to the Committee Chairman and Ranking Member. 

Q.18. (MRAs) the OCC issued as a result of the horizontal review 

of sales practice violations. If the OCC intends not to provide such 

documentation, what is the rationale for keeping industrywide information private? To what extent have the MRAs been addressed 

by the banking industry? 

A.18. The MRAs are confidential supervisory information. They 

generally involved deficiencies in policies, procedures, and controls 

as described in my June 11, 2018, letter to the Committee Chairman and Ranking Member. The MRAs support our ongoing supervisory activities. Release of any additional confidential supervisory 

information could prejudice or adversely affect future supervisory 

actions. The OCC is monitoring banks’ actions to correct issues 

identified in the horizontal review, and approximately 20 percent 

of the MRAs have been remediated to date. Failure to correct the 

issues in a timely and effective manner may result in additional 

supervisory actions, including public enforcement actions if warranted. 

Q.19. Please describe in detail the methodology used to conduct the 

horizontal review. How did the OCC review 500 to 600 million recently opened accounts, and determine that only 20,000 were unauthorized? What was the sample size of the accounts reviewed? Did 

OCC examiners inspect account opening documentation or files for 

signatures? How did OCC supervisors determine if signatures were 

legitimate? 

A.19. The general methodology used to conduct the horizontal review was described in my June 11, 2018, letter to the Committee 

Chairman and Ranking Member. The review was conducted in 

three phases. Phase 1 determined whether systemic or bank-specific issues exist with regard to bank employees opening accounts 

on behalf of individual and small business customers without conVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00054 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
51 

sent. In phase 2, examiners evaluated sales goals, strategies, incentive compensation, and quota programs to determine if they appropriately balance sales and revenue targets with risk management 

and customer satisfaction. Phase 3 included large and midsize insured depository institutions with assets greater than $50 billion to 

determine if their risk management framework effectively controls 

risks associated with sales practices and incentive compensation 

programs. Specific review methods varied from bank to bank based 

on the risk characteristics and business portfolio of that bank. The 

500 to 600 million number represents an estimate of the total number of accounts opened by the participating banks during the 3- 

year, look-back period. 

Q.20. How did the OCC determine that of 20,000 authorized accounts, half were opened inappropriately and half were merely 

missing documentation? How did the OCC distinguish between 

those two categories? 

A.20. The approximately 20,000 accounts with issues were identified through the 3-year look-back of accounts and supporting documentation used by the banks to open the accounts. More than half 

of the 20,000 accounts involved issues unrelated to the initial account authorization. In those instances where proof of authorization could not be provided, we determined the account merely 

lacked customer consent documentation if the consumer activated 

or used the product since opening the account. In other cases, 

known issues related to recordkeeping or system deficiencies were 

determined to be causes of poor or incomplete documentation. 

Q.21. In a briefing with Senate staff conducted on June 8, 2018, 

the Senior Deputy Comptroller for Large Bank Supervision indicated that the CARD Act of 2009 (Public Law 111–24) may have 

contributed to banks’ creating unauthorized accounts. Why does the 

OCC believe that the CARD Act led to the creation of unauthorized 

bank accounts? 

A.21. To clarify, the CARD Act added a signature requirement for 

applications to open a credit card account by a consumer who is 

under 21, which we understand some banks interpreted as requiring signatures only in those limited circumstances. Credit cards 

were the products most often associated with concerns regarding 

unauthorized account openings. However, banks involved in the 

horizontal review have implemented more robust account opening 

and closing policies, procedures, and controls designed to reduce 

the potential for inappropriate activities or unauthorized account 

openings. 

Q.22. Less than a month into your tenure at the OCC, you reversed a decision by former Comptroller Curry to bring bank examiners to OCC offices instead of keeping them on-site at the banks 

they supervise. At the hearing, you said that you made this decision to keep bank examiners on-site based on your 35 years of experience in the banking industry. It was unclear, however, what 

other perspectives, such as those of your fellow regulators, you considered in making this decision. 

Please describe the process for making this decision. 

52 

A.22. As I discussed at the hearing, I relied upon my experience 

and judgment to make the decision. The value of retaining on-site 

examiners outweighs any benefit of removing them from bank 

premises. Open, effective communication and early identification of 

concerns are the keys to effective supervision, both of which are 

supported by an on-site presence. My decision is further supported 

by the practices at the OCC to rotate examiners-in-charge after 5 

years, to provide oversight by Deputy Comptrollers assigned to 

OCC Headquarters, and to depend on off-site lead experts who provide a horizontal view of risks and practices across the agency. 

Also, there has been no study to date regarding the cost of moving 

examiners out of banks or showing that moving examiners would 

reduce the perception of regulatory capture. 

Q.23. Did you solicit the views of or consult any individuals at (i) 

the OCC; (ii) the Federal Reserve Bank of New York; (iii) any other 

banking regulatory agencies; (iv) any industry groups; (v) any 

banks; or (vi) any groups representing the interests of consumers? 

If so, please describe these communications and provide any copies 

of the communications to the Committee. 

A.23. No. I relied upon my experience and judgment to make the 

decision. My decision is further supported by the practices at the 

OCC to rotate examiners-in-charge after 5 years, to provide oversight by Deputy Comptrollers assigned to OCC Headquarters, and 

to depend on off-site lead experts who provide a horizontal view of 

risks and practices across the agency. Also, there has been no 

study to date regarding the cost of moving examiners out of banks 

or showing that moving examiners would reduce the perception of 

regulatory capture. 

Q.24. Did you or any OCC staff conduct an economic or other analysis to support the decision? If so, please provide a copy of any such 

analysis to the Committee. 

A.24. No, nor was there such a study conducted to determine the 

effect of moving examiners out of bank space to support the original recommendation in 2013. 

Q.25. At the hearing, when asked why you purchased stock in financial companies after your nomination to lead the OCC, including banks regulated by the OCC, you noted that you played no role 

in these decisions, and that they were made by a third-party money 

manager. Given the potential for at least the appearance of a conflict of interest—if not a conflict of interest itself—why not instruct 

your money manager to place all your holdings in a passive investment, such as a broad-based index fund, or a blind trust? Wouldn’t 

that better avoid the appearance of a conflict of interest? 

A.25. I abided by all of the available guidance and ethics standards 

applicable to this and previous Administrations, and continue to do 

so. 

Q.26. The OCC’s proposal to weaken leverage limits for the biggest 

banks would, according to the OCC, reduce the required capital for 

the eight banks covered by the proposal by $121 billion. This reduction would increase the likelihood that such banks fail and would 

likewise increase the magnitude of harm caused by their failure, 

53 

1See https://www.occ.gov/news-issuances/news-releases/2018/nr-la-2018-36a.pdf. 

potentially leaving taxpayers with the bill and increasing overall 

risks to financial stability. 

A.26. The proposed changes would retain a meaningful calibration 

of the Enhanced Supplemental Leverage Ratio (eSLR) standards 

while not discouraging firms from participating in low-risk activities. The changes correspond to changes in the leverage ratio 

standard published by the Basel Committee on Banking Supervision in December 2017. It is unlikely that banks would release 

$121 billion in Tier 1 capital because of other binding constraints 

on liquidity and capital. The proposed eSLR standards along with 

current risk-based capital standards and other constraints applicable at the holding company level would continue to limit the 

amount of capital that global systemically important banking organizations (G–SIB) could distribute to investors, thus supporting the 

safety and soundness of G–SIBs and helping to maintain financial 

stability. I look forward to reviewing comments received on the proposal. 

Q.27. Please provide a bank-by-bank breakdown of these reductions in capital across the eight national banks impacted by the 

proposal supervised by the acc. 

A.27. As indicated above, it is unlikely that the national banks supervised by the OCC and affected by the proposal would release a 

combined total of $121 billion in Tier 1 capital. Other binding constraints on liquidity and capital, combined with current risk-based 

capital standards and other constraints applicable at the holding 

company level would continue to limit the amount of capital that 

these banks could release, thus supporting their safety and soundness and helping to maintain financial stability. 

Q.28. What benefits would the OCC’s proposal create? 

A.28. The changes to the eSLR requirements proposed by the Federal Reserve and the OCC would tailor the requirement to the business activities and risk profiles of the largest banks. The proposed 

changes would retain a meaningful calibration of the eSLR while 

not discouraging banks from participating in low-risk activities. 

With the proposed modifications, the eSLR would serve as a backstop to the risk-based measures rather than the primary binding 

constraint. In addition, the proposed changes are aligned with recent changes to the leverage standard published by the Basel Committee on Banking Supervision in December 2017. Aligning with 

the Basel standard creates a more level international playing field, 

reducing disadvantages faced by U.S. G–SIBs in competing with 

international counterparts. 

Q.29. What costs would the OCC’s proposal impose (e.g., risks to 

the Deposit Insurance Fund, or decreased financial stability)? 

A.29. The change to the eSLR requirements is being proposed by 

the Federal Reserve and the OCC. 1 We are unable to predict exactly how banks will choose to respond to these changes in regulatory capital under the rule and therefore to quantify the costs of 

the proposal. As part of the preliminary assessment of the potential 

effect of the rulemaking, OCC staff concluded that banks might reVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00057 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
54 

2See https://www.occ.gov/news-issuances/news-releases/2018/nr-la-2018-36a.pdf. 

spond to a decrease in minimum required regulatory capital in 

three ways. First, all else equal, banks affected by the rule will 

have improved capital ratios, and they can elect to operate with 

these higher capital ratios. Second, if capital at the higher ratios 

exceeds regulatory minimums and the bank’s internal capital requirements, the bank con choose to return some of this capitol to 

shareholders in the form of stock buy-backs or increased dividend 

payouts. Third, banks can choose to increase their assets until they 

achieve their targeted capitol ratio. 

Q.30. How did the OCC determine that the benefits of its proposal 

would exceed the costs? Did the OCC perform any quantitative 

analyses? If so, please provide a copy of any such analysis. 

A.30. The change to the eSLR requirements is being proposed by 

the Federal Reserve and the OCC. 2 Staff at the OCC conducted a 

preliminary assessment of the potential effect of the rulemaking. 

Staff did not quantify the potential benefits of the proposal, however, as part of the assessment OCC staff determined that the proposed rule would help alleviate any unintended distortive effects of 

the SLR, particularly for custody banks, and address concerns that 

the eSLR is punitive because it does not make accommodations for 

low-risk business models or low-risk assets such as central bank 

deposits and U.S. Treasury securities. Second, the proposed rule 

would retain the original purpose of the SLR which is to be a nonrisk-based measure of a banking organization’s overall leverage, including off-balance-sheet exposures. Third, the proposal would 

make the institution’s eSLR buffer proportional to an institution’s 

systemic riskiness as measured by its G–SIB buffer. This proportional approach is in alignment with recent Basel III reforms endorsed by the Basel Committee on Banking Supervision’s oversight 

body, the Group of Central Bank Governors and Heads of Supervision (GHOS), reducing disadvantages faced by U.S. G–SIBs in 

competing with international counterparts. 

Q.31. Asked during June 13th House Financial Services Committee 

hearing whether the current Volcker Rule has unacceptably 

‘‘chilled’’ market-making functions, you replied: ‘‘I don’t believe so.’’ 

If the Volcker Rule is not unacceptably hurting market-making, 

then is the only benefit to the Volcker proposal a reduction in compliance costs? 

A.31. Compliance cost and unnecessary burden on institutions that 

do not engage in the type of activities that section 13 of the Banking Holding Company Act (Volcker Rule) was intended to restrict 

are reason enough to revise the Volcker Rule. However, other reasons exist, which include providing greater clarity on the scope of 

activities that are covered by the rule and clarifying the compliance 

responsibilities for covered entities. 

Q.32. How did the OCC determine that this reduction in compliance costs, or any other benefits, would exceed the benefits to financial stability and protection of the Deposit Insurance Fund that 

the current Volcker Rule provides? Did the OCC perform any quantitative analyses? If so, please provide a copy of any such analysis. 

55 

A.32. The OCC performed an analysis consistent with the Unfunded Mandates Review Act to evaluate whether the mandates 

imposed by the proposal may result in an expenditure of $100 million or more by State, local, and tribal governments, or by the private sector, in any one year. The OCC also performed an analysis 

pursuant to the Regulatory Flexibility Act on whether the proposal 

will have a significant economic effect on a substantial number of 

small entities. The OCC determined the proposal would neither result in expenditures in excess of $100 million, nor impact a substantial number of small entities. A copy of the OCC’s analysis is 

attached. 

Q.33. How does the OCC plan to surveil banks with below $100 billion in assets for resiliency to economic shocks in the absence of 

stress testing? How does the OCC plan to test for correlated risks 

across this cohort of banks? 

A.33. The OCC’s examinations of the institutions we supervise will 

continue to include evaluations of capital adequacy and stress testing. OCC Bulletin 2012-16, ‘‘Guidance for Evaluating Capital Planning and Adequacy,’’ provides our examiners and the industry with 

our expectations in this area. This bulletin addresses the expectation for these institutions to ‘‘have a forward-looking assessment of 

the bank’s capital needs, including capital needs that may arise 

from rapid changes in the economic and financial environment.’’ 

Similarly, OCC Bulletin 2012-14, ‘‘Stress Testing–Interagency 

Stress Testing Guidance’’ addresses sound practices for effective 

stress testing. Further, our OCC subject matter experts monitor for 

correlated risks across product types and economic conditions. 

Q.34. Please provide a list of all OCC rulemakings mandated by S. 

2155 and an expected timeline of when the OCC will propose the 

required rulemakings. 

A.34. The OCC expects to be engaged in at least 11 rulemakings 

to implement the following sections of the Economic Growth, Regulatory Relief, and Consumer Protection Act (Economic Growth Act): 

Section 103. Exemption From Appraisals of Real Property 

Located in Rural Areas 

Section 201. Capital Simplification for Qualifying Community Banks 

Section 203. Community Bank Relief 

Section 204. Removing Naming Restrictions Section 205. 

Short Form Call Reports 

Section 206. Option for Federal Savings Associations To 

Operate as Covered Savings Associations 

Section 210. Examination Cycle 

Section 214. Promoting Construction and Development on 

Main Street 

Section 401. Enhanced Supervision and Prudential Standards for Certain Bank Holding Companies 

Section 402. Supplementary Leverage Ratio for Custodial 

Banks 

Section 403. Treatment of Certain Municipal Obligations 

56 

3See ‘‘Regulators Should Let Banks Get Back to Small-Dollar Loans’’, The Pew Charitable 

Trusts. January 7, 2016 (http://www.pewtrusts.org/en/about/news-room/opinion/2016/01/ 

07/regulators-should-let-banks-get-back-to-small-dollar-loans) and ‘‘From Payday to Small Installment Loans’’, The Pew Charitable Trusts. August 11, 2016 (http://www.pewtrusts.org/en/ 

research-and-analysis/issue-briefs/2016/08/from-payday-to-small-installment-loans#O-overview). 4See ‘‘Report on the Economic Well-Being of U.S. Households in 2015’’. Board of Governors 

of the Federal Reserve System. May 2016 (https://www.federalreserve.gov/2015-report-economic-well-being-us-households-201605.pdf). 

The OCC can issue a rule to implement section 206, providing 

greater flexibility for Federal savings associations, on its own. The 

remaining rulemakings are joint or coordinated rulemakings and 

will require interagency work. We are currently engaged in discussions with the other regulators to develop timelines for these 

rulemakings. 

Q.35. In your Senate testimony, regarding the OCC’s 2013 leveraged lending guidance, you noted that you’ve emphasized to OCC 

examiners that ‘‘guidance is guidance and rules are rules . . . so 

I think we’ve taken an aggressive posture to make sure that that 

is known within the agency.’’ The OCC has not rescinded this guidance, and yet you’ve downplayed its importance as a supervisory 

directive. How are OCC examiners currently using the 2013 leveraged lending guidance in their exams? How does this differ from 

how it was used in 2013 through April 2017? 

A.35. Supervisory guidance outlines safe-and-sound banking and 

risk management principles and promotes transparency and consistency in the OCC’s supervisory approach across banks. Guidance 

does not impose legally binding constraints on banks. The agency 

has stressed that examiners should focus on the deficient practice 

and the potential for the deficient practice to adversely affect the 

bank’s condition or result in violations if not addressed. In some instances in the past, examiners may have inappropriately relied on 

guidance alone when citing compliance requirements and deficiencies. We have communicated extensively to OCC staff the differences between regulations and guidance. 

Q.36. Regarding OCC deposit advance products guidance issued in 

2013, you noted that, ‘‘banks basically exited that market, and for 

the life of me, I don’t understand if you take, you know, the banks 

out of a space that were providing a critical source of capital, that 

it didn’t end up being worse for consumers and they had less 

choice.’’ Please provide any studies or research indicating that consumers were harmed following the issuance of this 2013 guidance 

and had less choice. 

A.36. An example of analysis in this area was conducted by the 

Pew Charitable Trust. 3 The Board of Governors of the Federal Reserve System also published a study in 2016 that stated nearly half 

of adults were unprepared to cover an emergency expense of $400. 4

The general logic is that if you dramatically decrease supply for a 

product without reducing demand, the price of that product increases and terms often become less consumer friendly. 

57 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT 

FROM JOSEPH M. OTTING 

Q.1. I think the Community Reinvestment Act serves a valuable 

purpose. It isn’t perfect . . . but few things are. That said, the Administration is on the right track in considering some changes to 

how we implement that law. Let’s face it the CRA was first enacted 

in 1971. A lot has changed since then. 

I want to focus your attention on the Opportunity Zones that tax 

reform created. We’ve got about 50 million Americans living in economically distressed communities around the country. These folks 

have a lot of potential, it’s just the matter of unlocking it. 

That’s why my Investing in Opportunity Act directed the Treasury Department and all 50 governors to designate ‘‘Opportunity 

Zones’’ and invite more private investment into the places that 

need it the most. 

So there’s a shared objective with the CRA-increasing economic 

activity in underserved communities. To me, it would make a lot 

of sense to incorporate these Opportunity Zones with the CRA. 

Please answer the following with specificity: 

Are you considering broadening CRA-eligibility to investments in 

Opportunity Zones? If so, could we give financial institutions CRAcredit for making such investments? 

A.1. I would welcome considering making investments in Opportunity Zones eligible for CRA credit. 

Q.2. What’s your timeline on some of these proposed changes to the 

CRA? 

A.2. I am working on an interagency basis with the intent to publish an ANPR as soon as possible. Comments from an ANPR may 

then inform an NPR, which is typically followed by a final rule. 

I would like to bring attention to a subject we have discussed in 

the past nonbank SIFI designations. Secretary Mnuchin and I 

agreed on the perfect analogy for the designation process how it 

stands: It is like getting a speeding ticket in a neighborhood with 

no speed limit signs. I know the Administration is reforming the 

process. That aside, it still does not make sense to me that a group 

of bank regulators like you are making designation decisions for insurance firms. It is not that you are not bright folks—it is just that 

banking and the business of insurance are totally different. 

Q.3. I hope the Administration keeps that in mind as it continues 

with reforming FSOC. I’m concerned that implementation of the 

Volcker Rule as it stands could dramatically slow down or even 

halt capital investments in the financial services sector, despite enactment of S. 2155, Section 203. The last thing we should do is discourage capital investments in the lending arena that do not pose 

a risk to insured deposit funds, which is what the Volcker Rule was 

designed to protect against. 

Do you share this concern in regards to implementation of the 

Volcker Rule? If so, what is the OCC doing to rectify the situation? 

A.3. The recent proposed changes to the Volcker Rule and the 

changes included in the Economic Growth Act would make significant improvement to the implementation of the rule by maintaining core prohibitions and protections while reducing burden on 

58 

banks that do not engage in the type of activities that section 13 

of the Bank Holding Company Act (the Volcker Rule) was designed 

to restrict and providing greater regulatory clarity for all banks. I 

look forward to reviewing the comments received on the proposed 

changes to the Volcker Rule. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR COTTON 

FROM JOSEPH M. OTTING 

Q.1. S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act was signed into law last month. Senator 

Jones and I were pleased that S. 2155 included our provision that 

clarified rules on High Volatility Commercial Real Estate 

(HVCRE), providing much needed, common-sense relief for acquisition, development or construction (ADC) loans. We’re pleased that 

lower-risk loans and good business practices are no longer being 

penalized by vague, counterproductive regulations. 

As you are no doubt aware, those changes were effective immediately, and they supersede contrary provisions of the current 

HVCRE rule. As a result, the HVCRE rule currently on the books 

is inconsistent with the law. 

What steps are the OCC and the other Federal banking agencies 

taking to conform the HVCRE rule to what the law requires? 

A.1. The OCC is working with the Federal Reserve and the FDIC 

to implement the new statutory requirements. With respect to 

HVCRE, the agencies noted that a depository institution would immediately be permitted to, consistent with the statute, risk-weight 

at 150 percent only those commercial real estate exposures it believes meet the statutory definition of an HVCRE ADC loan. When 

reporting HVCRE exposures on Schedule RC-R, Part II of the Consolidated Reports of Condition and Income (Call Report), depository 

institutions may use available information to reasonably estimate 

and report only HVCRE ADC loans. Depository institutions may 

refine these estimates in good faith as they obtain additional information but will not be required to amend previously filed regulatory reports as these estimates are adjusted. Alternatively, a depository institution may also continue to report and risk-weight 

HVCRE exposures in a manner consistent with the current instructions to the Call Report, until the agencies take further action. 

Q.2. What are you planning to do in the meantime to assure banks 

that you and the other Federal banking agencies will not enforce 

the current rule in a manner inconsistent with this legislation? 

A.2. The OCC together with the Federal Reserve and FDIC issued 

a Statement Regarding the Impact of the Economic Growth Act 

which addresses how the agencies plan to enforce the HVCRE requirements until a rule is finalized. See https://www.occ.gov/ 

news-issuances/news-releases/2018/nr-ia-2018-69a.pdf. 

Q.3. The OCC’s supervisory manual makes it clear that there is a 

difference between, on the one hand, a Matter Requiring Attention 

(MRA) which is based on a violation of law, and, on the other hand, 

an MRA which is based on the local examiner’s opinion of actions 

which the bank might take to improve the its ability to deal with 

future, hypothetical concerns or threats. 

59 

Will the OCC make it dear that the first kind of MRA is compulsory and could be subject to an enforcement action, and the latter 

is not, but rather a type of safe harbor or best practice? 

A.3. The OCC uses MRAs to communicate the OCC’s concern with 

a bank’s deficient practices. In addition to a practice that results 

in a violation of law or regulation, deficient practices also include 

bank practices that deviate from sound governance, internal control, or risk management principles, and have the potential to affect the bank’s condition if not corrected. The OCC’s MRA policies 

indicates that MRAs are not used to communicate best practices or 

offer enhancements to a bank’s practices that are not deficient. 

Examiners may discuss recommendations for best practices or 

enhancements with banks informally; the OCC does not track such 

recommendations or include them in the report of examination, and 

there is no expectation for bank management to take action in response to recommendations. The OCC’s Office of Enterprise Governance and the Ombudsman, which operates independently from 

the bank supervision process, maintains a bank appeals process. 

Banks may appeal agency decisions through this process, including 

material supervisory determinations such as MRAs, compliance 

with enforcement actions, or other conclusions in the report of examination. 

Q.4. Yes or no, can an OCC examiner issue a ‘‘Matter Requiring 

Attention’’ to a bank for not following agency guidance that has not 

been subject to review under the Congressional Review Act? 

A.4. No. Agency guidance alone does not have the same force and 

effect as a statute or regulation. Guidance generally outlines safeand-sound banking or risk management principles and promotes 

transparency regarding the agency’s supervision. No single risk 

management system works for all banks. Therefore, examiners assess each bank’s risk management consistent with the bank’s individual circumstances and risks. MRAs focus on the deficient practice and its potential to adversely affect the bank’s condition or result in violations if not addressed. Referring to supervisory guidance may assist bankers in implementing sound risk management 

principles for certain activities, depending on the bank’s circumstances. 

Q.5. Senator: In Acting Comptroller Noreika’s letter on the GAO 

determination that the joint agency guidance on leveraged lending 

constituted a rule under the Congressional Review Act (CRA) and 

therefore must be submitted to Congress for review as required by 

law, the OCC acknowledged that guidance cannot be used to create 

a legal obligation. While it seems the OCC leadership is on its way 

to complying with the law under the CRA, it has been brought to 

my attention that this has not changed the mindset of bank examiners. 

To ensure bank examiners, and as importantly, bank compliance 

officers, understand that guidance is not legally enforceable, would 

you consider including a notice in examination and supervisory 

handbooks making clear that guidance cannot be the basis of enforcement actions? 

A.5. We have communicated extensively with our examiners the 

important distinction between supervisory guidance and regulaVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00063 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
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tions. Supervisory guidance does not have the force and effect of 

law or regulation, but provides transparency about the factors the 

OCC considers when exercising its supervisory authority. Examiners will continue to base their criticism of a supervised institution on the institution’s deficient practices or its failure to comply 

with a specific law or regulation. 

Q.6. Senator: In today’s economic environment, a growing number 

of Americans are having trouble making ends meet. The Federal 

Reserve found nearly half of the country could not cover a $400 

emergency expenditure, and many have few choices to turn to for 

help. Banks previously offered the deposit advance product (DAP) 

to help existing customers with proven income streams meet their 

critical needs, but in 2013 both the FDIC and OCC effectively regulated banks out of this space, pushing customers into the less regulated payday loan market. 

Given the need for small-dollar credit and the benefit of permitting access to product from a well-regulated industry, will you revisit the 2013 guidance to allow responsible actors/banks to reenter 

this market? 

A.6. The OCC rescinded that guidance in October 2017. 

Q.7. Good actors and responsible banks/credit unions have left the 

small-dollar market as a result of overregulation: Where do consumers go to make ends meet considering this gap in the market? 

A.7. I agree that guidance perceived as regulation caused certain 

banks to stop making demand-deposit advance loans in the shortterm, small-dollar space, and no alternatives were apparently pursued by banks to service this space. As a result of the reduced supply, costs and features became less consumer friendly as consumers 

turned to available sources for such credit-payday lenders, check 

cashers, pawn shops. We need to do more as a Nation to encourage 

institutions to responsibly meet this consumer need. On May 23, 

2018, the OCC issued a bulletin encouraging banks to offer responsible short-term, small-dollar installment loans and to remind 

banks of the core lending principles for prudently managing the 

risks associated with offering short-term, small-dollar installment 

lending programs. See https://occ.gov/news-issuances/bulletins/ 

2018/bulletin-2018-14.html. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS 

FROM JOSEPH M. OTTING 

Q.1. Are banks restricted from providing capital and credit to businesses because of limitations of providing this capital and credit 

under various fund structures? Does the current covered fund 

structure limit this availability of capital and credit? How do you 

plan on narrowing this definition so that banks can engage in the 

lending and capital injection that continues to grow and stimulate 

the economy? 

A.1. The Volcker Rule (section 13 of the Bank Holding Company 

Act) restricts banking entities from engaging in certain fund activities and investments. The NPR issued by the OCC, Federal Reserve, FDIC, Securities and Exchange Commission and Commodity 

Futures Trading Commission (the Agencies) solicits comments on 

61 

whether the regulatory provisions implementing this statutory provision—in particular the regulatory ‘‘covered fund’’ definition—has 

been imprecise and whether that has led to unintended consequences. The NPR requests comment on both the ‘‘base definition’’ of covered fund in section 10(b) of the regulation as well as 

potential exclusions to this base definition. Banks may continue to 

engage in fund activities and investments that are not covered by 

the Volcker Rule and are otherwise permissible for national banks. 

I look forward to exploring this issue further together with my 

counterparts at the other Agencies. The Agencies welcome specific 

examples from commenters an the types of activities that have 

been limited by the regulatory definition. 

Q.2. The Volcker Rule was never intended to penalize bank lending, it was intended to reduce risky activities of banks, specifically 

proprietary trading. Under the current rule, banks are restricted 

from providing credit via various partnership structures. 

Is that correct? 

A.2. See response to Question 1 above. 

Q.3. If the above is correct, does the OCC plan on addressing these 

limitations to promote lending? 

A.3. See response to Question 1 above. 

Q.4. Do you believe that the current definition of a covered fund 

is too broad? 

A.4. See response to Question 1 above. 

Q.5. If so, does the OCC plan on narrowing that definition so that 

the unintended consequences are eliminated? 

A.5. See response to Question 1 above. 

Q.6. I am aware of multiple examples where banks have passed on 

opportunities to engage in lending activities to entities since it was 

determined that such engagement would meet the current covered 

fund definition due to the recipients’ business structure or strategy. 

However, to me, these examples do not appear to be consistent 

with the original intent of the Volcker Rule, and should not meet 

the definition of what a covered fund is. 

Are you aware of such scenarios? 

A.6. I am not familiar with specific examples you might be referencing and welcome the opportunity to discuss them with you. 

Q.7. Do you think that regulators should limit a bank’s ability to 

provide services to companies through a fund structure limitation? 

Are there scenarios where we would want to limit a bank’s ability 

to provide such services via a fund structure? 

A.7. See response to Question 1 above. 

Q.8. Why would we allow a bank to provide debt or equity financing directly from its balance sheet to a company, but restrict them 

by providing financing through a covered fund? 

A.8. See response to Question 1 above. Even absent the Volcker 

Rule, national banks are generally restricted in their ability to provide equity financing subject to certain limited exceptions. National 

banks may not generally acquire equity investments in venture 

capitol funds unless the fund qualifies as a small business investVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00065 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
62 

ment company (SBIC) or public welfare investment fund. Both 

SBICs and public welfare investment funds are currently excluded 

from the Volcker Rule covered fund definition. Other ‘‘banking entities’’ subject to the Volcker Rule may have additional authorities 

to provide equity financing to portfolio companies and fund structures such as venture capital funds. 

Senator: It is my understanding that under the Volcker Rule, a 

fund is considered ‘‘covered’’ if it avails itself of exemptions provided by the Investment Company Act, but that regulators have 

authority to exclude funds and have done so since first issuing regulations. 

Q.9. Is that correct? 

A.9. Section 13 of the Bank Holding Company Act generally restricts a banking entity from acquiring or retaining an ownership 

interest in or sponsoring a hedge fund or private equity fund. The 

statute defines hedge fund and private equity fund as an issuer 

that would be an investment company, as defined in the Investment Company Act of 1940, but for section 3(c)(1) or 3(c)(7) of that 

Act, or such similar funds as the relevant agencies by rule determine. The current regulation includes the same definition referencing sections 3(c)(1) and 3(c)(7) of the Investment Company Act 

of 1940. Consistent with the statute, the current regulation provides a number of exclusions, including for foreign public funds, 

loan securitizations, wholly owned subsidiaries, joint ventures, and 

small business investment companies, among others. The regulation also permits consistent with the statute certain additional covered fund activities, such as organizing and offering, underwriting, 

and market making with respect to a covered fund. 

Q.10. It is my understanding that previous exclusions have included: foreign public funds; certain securitization vehicles; wholly 

owned subsidiaries; and joint ventures. 

Can you look into these exclusions and communicate to me if 

these situations can be exempted under your existing authority in 

the final proposal that you and the other Volcker Regulators are 

currently engaged on? 

A.10. The NPR requests comment on whether the Agencies should 

provide new exclusions in order to more effectively tailor the covered fund definition. The Agencies specifically requested comment 

on whether to exclude funds that lack certain characteristics of 

hedge funds and private equity funds, among other types of 

issuers. The Agencies welcome specific examples from commenters 

on the types of activities that have been limited by the regulatory 

covered fund definition. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED 

FROM JOSEPH M. OTTING 

Q.1. As you know, the OCC is authorized to enforce the Military 

Lending Act (MLA), which is a bipartisan law enacted in 2006 that 

sets a hard cap of 36 percent interest for most loans to the military. On July 22, 2015, the Department of Defense finalized MLA 

rules that closed prior loopholes that allowed unscrupulous lenders 

to prey upon servicemembers and their families. As part of the conVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00066 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
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1See OCC Bulletin 2018-11, ‘‘Comptroller’s Handbook, Military Lending Act’’, May 11, 2018 

(https://www.occ.gov/news-issuances/bulletins/2018/bulletin-2018-11.html). 

firmation process, I asked whether you would support and enforce 

these strong MLA rules to the fullest extent possible. You responded that you ‘‘would support and enforce strong MLA rules.’’ 

Since you have been confirmed, can you please tell us how you 

have lived up to this commitment? 

A.1. I am committed to supporting and enforcing strong MLA rules. 

In May of this year, we issued OCC Bulletin 2018-11 with examination procedures to provide supplemental guidance to examiners 

regarding the MLA. 1 The Handbook provides background information on the MLA and its implementing regulation, as well as examination procedures. The Handbook is to be used in conjunction with 

other examiner guidance to assist examiners in determining the 

scope of the examination based on risk. Should the OCC identify 

deficiencies or violations, we will use our supervisory and enforcement authorities to address them. 

Q.2. The OCC is also expected to enforce the Servicemembers Civil 

Relief Act (SCRA), but SCRA enforcement of the 6 percent interest 

cap on loans incurred prior to active duty or the SCRA’s foreclosure 

protections has been inconsistent and subject to the discretion of 

our financial regulators. As part of the confirmation process, I 

asked how you would prioritize SCRA enforcement. You responded 

that you ‘‘would be supportive of SCRA being part of the regulatory 

exam process and would endorse a horizontal review in the industry.’’ 

Since you have been confirmed, can you please tell us how you 

have lived up to this commitment? 

A.2. The agency includes examinations for compliance with the 

SCRA in its regular supervision of national banks and Federal savings associations. I am committed to ensuring that we continue to 

supervise for compliance with that statute, and take supervisory 

action, including enforcement actions, when warranted. 

Q.3. If changes are made to the Community Reinvestment Act that 

lead to financial institutions, including those that have an online 

presence, to take deposits from communities but actually make less 

of an effort to reinvest in these same communities, would you consider that to be a good or bad outcome? 

A.3. I would consider that to be a bad outcome, and it is one of the 

reasons that I believe assessment areas should be expanded and 

better defined. 

RESPONSES TO WRITTEN QUESTIONS OF 

SENATOR MENENDEZ FROM JOSEPH M. OTTING 

Q.1. Please provide the following information, disaggregated by institution, about the findings of the horizontal review of sales practices: 

The volume and type of misconduct uncovered. 

A.1. Such detail beyond what was provided in my June 11, 2018, 

letter to the Committee Chairman and Ranking Member and my 

July 9, 2018, to you would be confidential supervisory information. 

64 

Q.2. Whether, if any, Matters Requiring Immediate Attention were 

issued, and a description of when such misconduct occurred. 

A.2. As stated in my testimony, there were more than 250 MRAs 

issued. Five types addressed broad weakness in policies, procedures, and controls. The remaining were bank specific. All reviewed 

banks received at least one MRA. 

Q.3. The number of consumers impacted, disaggregated by State. 

A.3. As stated during the hearing, the review identified approximately 20,000 accounts with potential issues, about half of those 

involved instances where proof of authorization could not be provided. The OCC is monitoring banks’ corrective actions, including 

reimbursing consumers’ applicable costs and fees when applicable. 

Q.4. A description of any incentive compensation plans that may 

have encouraged the sales practice misconduct. 

A.4. The review did not identify situations where the design of incentives or quotas resulted in widespread unauthorized account 

openings. In those limited instances where accounts were opened 

without authorization involving issues other than failure to maintain documentation, the most common factors included either 

short-term sales promotions without adequate risk controls, deficient account opening and closing procedures, or isolated instances 

of employee misconduct with no clear connection to sales goals, incentives, or quota programs. During the review, banks reassessed 

the design of their existing incentive programs and took steps to 

better balance sales, production, and revenue targets with risk 

management and customer satisfaction. 

Q.5. A general summary of the Action Plans that the OCC required 

banks to create and the expected timeline of adoption of such Action Plans. 

A.5. Action plans and timelines are specific to the findings of each 

bank and are confidential supervisory information. The OCC is 

monitoring bank compliance with action plans to ensure timely resolution. 

Q.6. A progress report outlining banks’ adoption of OCC’s recommended inventory of practices to improve banks’ management of 

sales practice risk. 

A.6. The OCC continues to monitor banks’ corrective actions. 

Q.7. The amount of remediation payments required and the 

timeline for the completion of such remediation. 

A.7. The OCC has not aggregated the dollar value of remediation 

payments. However, where unauthorized account opening or other 

inappropriate sales practices were identified, banks had already 

taken, or were in process of taking, remedial action. This could include closing the account, refunding or reversing any inappropriate 

fees or other customer charges, or correcting credit bureau information. In most cases, remediation has been completed or is underway 

now. 

Q.8. Whether the banks that engaged in misconduct used, and/or 

seek to enforce, forced arbitration clauses in contracts used to create unauthorized accounts. 

65 

A.8. The review did not reveal any action by any bank to enforce 

forced arbitration clauses in contracts used to create unauthorized 

accounts. 

Q.9. In your testimony on June 14, you said that the horizontal 

sales practice review included between 500–600 million accounts 

over a 3-year period. 

What is the 3-year period covered by the review? 

A.9. The review covered 2014–2016. 

Q.10. Given the fact that Wells Fargo was engaging in these practices as early as 2009, and perhaps earlier, shouldn’t the OCC conduct a second review with a longer look-back period to capture any 

misconduct that occurred prior to the 3-year period covered by the 

review? 

A.10. The purpose of the review was to determine whether such 

practices presented a systemic problem. A 3-year look-back period 

is sufficient for that purpose. My predecessor determined the 3- 

year look-back period, and I agree with this timeframe. 

Q.11. During a Banking Committee staff briefing with OCC staff 

on June 8, 2018, OCC Senior Deputy Comptroller for Large Bank 

Supervision Morris Morgan said that the CARD Act’s digital 

verification requirements were partially to blame for the creation 

of unauthorized accounts uncovered in the horizontal review. 

Please identify what provision of the CARD Act Mr. Morris was referring to, and please provide an explanation as to why that provision is related to the creation of unauthorized accounts. 

A.11. To clarify, the CARD Act added a signature requirement for 

applications to open a credit card account by a consumer who is 

under 21, which we understand some banks interpreted as requiring signatures only in those limited circumstances. Credit cards 

were the products most often associated with concerns regarding 

unauthorized account openings. However, banks involved in the 

horizontal review have implemented more robust account opening 

and closing policies, procedures, and controls designed to reduce 

the potential for inappropriate activities or unauthorized account 

openings. 

Q.12. During the aforementioned briefing on June 8, OCC staff 

stated that the horizontal review was conducted in conjunction 

with the CFPB, FDIC, and Federal Reserve. Did any of the other 

agencies involved in the review issue any MRAs connected to the 

review? 

A.12. I am not aware that any other agency took any action or 

issued any finding against the banks they supervise based on their 

review. The other Federal agencies are better positioned to answer 

questions about their actions. 

Q.13. On June 15, 2018, the OCC rescinded its guidance for how 

examiners should evaluate large banks for compliance with the 

Community Reinvestment Act. What is your justification for rescinding this guidance? 

A.13. The guidance was outdated. Since its publication in 2000, the 

regulations have been revised twice (2005 and 2010), and the supVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00069 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
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plementary interagency Questions and Answers on Community Reinvestment have been revised numerous times. 

Q.14. Do you believe that enforcement against discriminatory or 

unfair lending practices should work hand-in-hand with any revisions to the Community Reinvestment Act? 

A.14. Fair lending laws (e.g., the Fair Housing Act, the Equal 

Credit Opportunity Act) and the CRA were enacted as separate 

statutes, and vary in terms of the banking regulators authority to 

take enforcement action. At the OCC, CRA evaluations and fair 

lending examinations are conducted separately, however, findings 

from one are considered during examinations of the other. Findings 

during a CRA evaluation can be used to prioritize and focus fair 

lending examinations. For example, the current CRA regulations 

require the OCC to determine whether assessment areas reflect illegal discrimination and to consider the effect of discriminatory or 

other illegal credit practices when assigning a bank’s overall CRA 

rating. The agencies are discussing an ANPR to solicit input and 

feedback on ideas to revise or modernize the CRA. 

Q.15. Do you believe that in some low income and hard-to-reach 

communities, physical branches are sometimes the only way to 

meet credit needs? 

A.15. I believe branches remain an important part of bank services 

to their communities and for some services and some individuals. 

However, in same instances, internet banking, automated teller 

machines, loan centers, and FinTech may actually be better options. 

Q.16. Will you commit to retain assessment areas with a local geographical focus under the Community Reinvestment Act, which 

help ensure that banks are combating historic redlining and actually providing access to credit in low- and moderate-income communities? 

A.16. I have no intention to eliminate the concept of assessment 

areas. The intent is to identify a banks’ assessment area more effectively to determine the geography in which a bank should be 

evaluated. That geography, however, may be better determined by 

considering where a bank provides its services, where its customers 

are located or through means other than where its branches or deposit-taking automated teller machines are located. 

Q.17. The Treasury Report issued in April recommends that the 

Federal Reserve and FDIC adopt the OCC’s new policy allowing 

banks with failing CRA ratings to merge or expand. Is it your opinion that regulators should allow banks with failing CRA ratings, 

which may be engaged in discriminatory lending practices; to 

merge and expand? 

A.17. Applications should be considered based on their unique facts 

and circumstances. In some cases, denying an application based on 

a CRA rating alone could exacerbate the bank’s ability to meet the 

credit needs of it’s community. 

Q.18. Comptroller Otting, when I asked you about the Dodd–Frank 

Section 956 incentive-based compensation rulemaking last July, 

you said ‘‘If confirmed, I would urge all the regulators to work toVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00070 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
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gether to finalize the rule as required by statute.’’ But nearly a 

year later, and we have still don’t have a final rule. How is it that 

you have had time to revisit capital rules, revisit leverage rules, revisit the Volcker Rule—all of which were finalized after years of deliberation, public comments, and input from other regulators—and 

you have not had time to finish the incentive-based compensation 

rulemaking for the first time? When will this rulemaking be finalized? 

A.18. There is much to do, and I am proud of the progress we have 

made in the areas you mention. As you know, the law requires a 

joint rulemaking or guidelines regarding incentive-based compensation. I look forward to working with my fellow regulators to complete that rulemaking. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER 

FROM JOSEPH M. OTTING 

Q.1. On May 25, 2018, I led 15 other Democrats in a letter to you, 

Chairman Powell, and then-Chair Gruenberg on the issue of potential new regulations on the Community Reinvestment Act (CRA). 

I think there’s broad consensus on a number of ideas out there, 

making clearer which bank investments will qualify under the 

CRA, improving the consistency of CRA exams across banks, and 

adjusting the definition of a bank’s assessment area to account for 

the technological innovations that have allowed banks to do significant business outside its branch footprint. But there are a couple 

of areas that the OCC, under your predecessor, Acting Comptroller 

Noreika, has led on that gave me and the 15 other Democrats some 

pause. 

First, I have concern about the new policy that expands banks’ 

ability to grow their footprint even if they have a ‘‘less than satisfactory’’ CRA rating. The prior policy was a strong presumption 

against expansion if a bank was failing to meet its CRA obligation. 

Given that one of the only formal consequences—and the most serious consequence—for the failure to receive a satisfactory rating on 

a CRA exam had been limits on expansion, I’m concerned that the 

change will cause banks to take their CRA obligations less seriously. 

Do you support the change made by your predecessor? If so, what 

incentive will banks have to comply with the CRA and what will 

be the consequences for failing to do so? 

A.1. I think applications should be evaluated by the unique facts 

and circumstances of each application. Denying applications on a 

near automatic basis because of a low CRA rating could have unintended consequences and may adversely affect a bank’s ability to 

meet the credit needs of its communities. We do need to revisit 

CRA, including how we incent banks to loan and invest where it 

is needed most, and consider consequences for failing to do so. 

Q.2. OCC CRA guidance used to say that if you are a bank that 

is not meeting your consumer protection responsibilities, that will 

negatively affect your CRA rating. New OCC guidance considers 

whether there is a nexus between a CRA rating and evidence of a 

consumer protection law violation, suggesting that some consumer 

68 

protection laws are not relevant to a bank’s CRA rating. I find this 

suggestion troubling, given that the statutory purpose of the CRA 

is to require banks to demonstrate that they ‘‘serve the convenience 

and needs of the communities in which they are chartered to do 

business’’—they are hardly doing so if they are violating laws that 

protect those communities. 

Do you support the OCC’s change? If so, why? 

A.2. During my hearing I committed to reviewing the rationale for 

the previous policy change and am in the process of doing so. Consistent with the current regulations, the OCC considers violations 

of law that reflect discriminatory or other illegal credit practices in 

determining a bank’s assigned rating. The regulations include specific examples such as violations of the Equal Credit Opportunity 

Act, the Fair Housing Act, or violations of the Truth in Lending Act 

provisions regarding a consumer’s right of rescission. 

Q.3. I’ve read reports about the OCC horizontal review that covered approximately 40 banks and their sales practices. I understand that the OCC has issued MRA letters to banks in the report 

about any found deficiencies covering more than 250 specific problems, including a number of issues beyond sales practices. These 

reports are deeply troubling. 

Please describe the extent of problems that you saw. 

A.3. I provided a summary of those findings in a letter to the Committee Chairman and Ranking Member on June 11, 2018, that included the following information. The review identified several 

common weaknesses in policies, procedures, and controls and in 

banks’ risk governance frameworks related to account opening, account closing, account management, employee complaints, and employee fraud or misconduct. These common weaknesses were documented in MRAs issued to the participating banks. Most banks received MRAs regarding one or more of these common weaknesses. 

These MRAs were focused primarily on actions to strengthen operational risk governance and policies and procedures, and were not 

based upon findings related to unauthorized account openings. 

During the hearing, I confirmed that the review identified approximately 20,000 accounts with issues from among the hundreds of 

millions of accounts opened by reviewed banks during the 3-year 

look-back period. Approximately half of the 20,000 accounts involved issues unrelated to account authorization. In those instances 

where proof of authorization could not be provided, it was considered merely lack of documentation if a consumer continuously used 

the product since opening the account. In other cases, known issues 

related to recordkeeping or system failures were determined to be 

causes of poor or incomplete documentation. 

Q.4. How many banks received MRA letters relating to your inquiry? 

A.4. All of the reviewed banks received at least one MRA. 

Q.5. Of those, how many would you say have very serious problems 

with their customer activities? 

A.5. We take every MRA seriously. Failure to correct issues in 

MRAs in a timely and effective manner may result in additional 

69 

supervisory actions, including public enforcement actions, if warranted. 

Q.6. Are there issues other than sales practices that your inquiry 

surfaced that you find very troubling? 

A.6. The key issues related to policies, procedures, and controls. 

The OCC also issued MRAs related to bank policies, procedures, 

and controls. Failure to correct issues in MRAs in a timely and effective manner may result in additional supervisory actions, including public enforcement actions, if warranted. 

Q.7. Why did the conduct uncovered not warrant a consent order 

with any bank? Do you anticipate that one or more banks will have 

more significant regulatory consequences as a result of this inquiry, 

such as a consent order or a fine? 

A.7. The supervisory process is an incremental one that typically 

begins with an examination and includes discussions around any 

concerns found, which may include the issuance of MRAs. Failure 

to correct issues in MRAs in a timely and effective manner may result in additional supervisory actions, including public enforcement 

actions, if warranted. We continue to monitor banks’ corrective actions. 

Q.8. I’ve read that you do not intend to disclose any further information about the review. The OCC has broad authority to make 

public information that is otherwise considered confidential. 

Given the widespread public interest in the subject—and the desire by banks who have not had any compliance issues to be in the 

clear—why have you decided not to release more information about 

the review? 

A.8. We have ongoing supervisory actions regarding this matter. 

Releasing confidential supervisory information could prejudice or 

adversely affect potential future action by the agency. 

Q.9. I’m interested in anti–money laundering compliance reform. Banks spend around $8 billion per year on AML compliance, which 

is nearly the cost to fund the entire FBI for a year. And for smaller 

banks, AML compliance costs are a disproportionately large share 

of their personnel and compliance expenses. And this Committee 

heard testimony earlier this year from law enforcement experts 

who agreed that the current system does not deliver outcomes that 

justify that kind of expense. 

What steps are you taking now to ease the compliance burden 

and strengthen the efficacy of the compliance regime? 

A.9. I agree we need to make compliance with the Bank Secrecy 

Act (BSA) and anti–money laundering (AML) lows and regulations 

more effective and efficient. We particularly need to find ways to 

reduce burden on small, less complex banks with lower risk profiles. I have made modernizing the regulatory approach to BSA/ 

AML compliance one of my top priorities and am actively working 

with other regulators, Treasury, and the Financial Crimes Enforcement Network to identify changes we can make to improve how 

BSA/AML compliance works. Changes may include greater use of 

technology and analytics, clearer guidance, providing greater flexibility for regulators to implement a risk-based approach for less 

complex and well run banks, and revisiting thresholds for SusVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00073 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
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picious Activity Reports and Currency Transaction Reports. In 

most cases the OCC does not write the rules and in some cases revising the rules will require statutory relief. Whatever actions we 

pursue, we must be careful to maintain or improve the protection 

of our Nation’s financial system and continue to provide law enforcement the information and data it needs to succeed in its important job. 

Q.10. How and on what subjects are you working with other regulators to improve the AML system? 

A.10. We are having dialogue on a variety of ways to improve BSA/ 

AML compliance such as greater use of technology and analytics, 

clearer guidance, providing greater flexibility for regulators to implement a risk-based approach for less complex and well run 

banks, and revisiting thresholds for Suspicious Activity Reports 

and Currency Transaction Reports. 

Q.11. Are there any aspects of AML reform that you believe merit 

congressional action? 

A.11. We are working on an interagency basis on a number of opportunities to make compliance with AML regulations work more 

efficiently. At this time, the only items that may require Congressional action include increasing thresholds for Suspicious Activity 

Reports and Currency Transaction Reports. 

Q.12. The policy behind the Volcker Rule is to reduce risky activities in banks, in particular high risk proprietary trading. This is 

a worthy goal, as we never want banks to go back to that type of 

risky trading. The rule aims to achieve this in part by prohibiting 

banks from investing in hedge funds and private equity funds. I’ve 

heard, however, that the current definition has captured investments that seem far removed from the statute’s original concern— 

such as an incubator for women-run businesses. It is critical to 

have an appropriate definition of ‘‘covered fund’’ that can balance 

the statute’s command and goals, while ensuring banks can provide 

enough capital to companies looking to grow and innovate Under 

the current definition of ‘‘covered fund’’ in the Volcker Rule, there 

appears to be an inconsistency in the regulatory structure where 

banks are permitted to directly provide important types of capital 

and credit to businesses yet are materially restricted when doing 

so via a fund structure where the bank can diversify risk. 

Do you believe that fund structures can diversify a bank’s risk 

compared to portfolio investments? 

A.12. It is entirely dependent on the structure and underlying assets of the fund, as well as the individual institution. The recent 

NPR requested comment on a characteristics-based exclusion from 

the covered fund definition for issuers that lack certain characteristics of hedge funds and private equity funds or that do not engage 

in activities that section 13 of the Bank Holding Company Act was 

designed to address. The Agencies welcome specific examples from 

commenters. 

Q.13. If so, does this suggest that regulators can broaden the scope 

of qualifying fund investments while improving safety and soundness? 

71 

A.13. As reflected in the NPR’s robust request for comment on the 

covered funds provisions, the Agencies are exploring whether there 

is opportunity to permit a broader range of activities and investments consistent with section 13 of the Bank Holding Company 

Act. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR HEITKAMP 

FROM JOSEPH M. OTTING 

Q.1. What response have you received from lenders in light of the 

OCC’s May bulletin encouraging national banks and Federal savings associations to offer short-term, small-dollar installment 

loans? 

A.1. In speaking about this and other priorities, lenders, community groups, social and religious organizations and legislators, have 

applauded the action. 

Q.2. Have you gotten commitment to see installment loans at a 

scale that you believe would provide consumers with a better option than what’s currently available through payday lending? 

A.2. I expect large regional banks will be the first to return to this 

space and will offer consumers responsible, affordable options to 

meet their short-term, small-dollar needs. 

Q.3. Has the OCC heard from lenders who are looking to extend 

credit in Indian Country or seen certain installment products that 

look promising for getting more credit into these communities? 

A.3. Through various publications, the OCC encourages national 

banks and Federal savings associations to engage in consumer and 

commercial lending and with nonprofit partners working in Indian 

Country. Examples of such publications can be found at the following: https://www.occ.gov/publications/publications-by-type/ 

other-publications-reports/cdi-newsletter/extending-credit-indiancountry-aug-2013/indian-country-ezine-table-of-contents.html; 

https://www.occ.gov/topics/community-affairs/publications/insights/insights-commercial-lending-indian-country.pdf. 

Q.4. Has the OCC run any analysis on what type of fee structure 

or interest rate would be necessary to achieve profitability for 

small-dollar loan-type products? 

A.4. Loan pricing will be very bank specific to the cost and business goals of individual banks. Through our supervisory process, 

we will review and assess the appropriateness of pricing. 

Q.5. Given the disruption in trade, rising interest rates, and depressed commodity prices, many farmers in North Dakota and 

across the region are carrying some of the highest levels of debt 

since the 1980’s crisis. What is the OCC seeing in terms of the risk 

to our ag lenders and farmers in this environment? 

A.5. Our most recent Semiannual Risk Perspective identifies agricultural lending as one of the risks that warrants further monitoring, stating that ‘‘low or declining prices for grain, livestock, and 

dairy that result in lower cash flow and increased farm carryover 

72 

1See ‘‘Semiannual Risk Perspective’’, Spring 2018 (https://www.occ.gov/publications/publications-by-type/other-publications-reports/semiannual-risk-perspective/semiannual-risk-perspective-spring-2018.pdf). 

debt for agricultural borrowers.’’ 1 The report also states ‘‘In addition, while net farm income stabilized in 2017 due to improved 

yields, the outlook for 2018 is not favorable. Net farm income in 

nominal dollars is projected to decline to the lowest level since 

2006, driven primarily by a decline in revenues and increased fuel 

and oil, interest, and labor expenses.’’ 

Q.6. Does the prospect of an increasingly high interest rate environment concern you? 

A.6. Yes, interest rate risk is one of the four primary risks identified in our most recent Semiannual Risk Perspective. Rising interest rates pose risks that warrant monitoring. Multiple rate increases could negatively affect credit affordability, performance, 

and asset valuations. Additionally, in a rising rate environment, refinancing risk, underwriting behavior, and changing credit terms 

could limit future performance. There is also uncertainty in how 

bank deposits will react to increasing interest rates. Banks may experience unexpected shifts in liability mix or increasing costs that 

may adversely affect earnings or increase liquidity risk. Examiners 

will be working closely with banks to ensure their risk management activities effectively mitigate the risk associated with higher 

interest rates. 

Q.7. What steps are you taking to work with lenders to help them 

assist our farmers with the operating credit they’ll need to weather 

these challenges? 

A.7. Examiners are working with bankers to appropriately identify 

risks in their portfolio that allows banks to proactively identify opportunities to work with borrowers early. Most OCC-supervised 

banks focused on agricultural lending have a long history with 

multiple economic cycles. Furthermore, the OCC issues publications related to rural development, for example, to encourage national banks and Federal savings associations to enter into partnerships with nonprofits to expand rural lending and educate them 

about applicable Federal loan guarantee programs. Examples can 

be found at the following: https://www.occ.gov/topics/communityaffairs/publications/fact-sheets/fact-sheet-usda-rural-housing-finance-program.pdf; https://www.occ.gov/topics/community-affairs/publications/insights/insights-usda-business-industry-guaranteed-loan-program.pdf. Recently, the agency released a publication on the benefits of investments in rural broadband (https:// 

www.occ.gov/topics/community-affairs/resource-directories/ruraleconomic-development/bank-financing-for-rural-broadband-initiatives.html). 

Q.8. What are some of the activities that we should be encouraging 

banks to do that are limited by the covered funds section of the 

Volcker Rule? 

A.8. The Volcker agencies are currently exploring the scope of covered funds provisions put forward in the implementing regulation. 

The recent Notice of Proposed Rulemaking (NPR) includes a robust 

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tivities that have been inadvertently scoped into the Volcker Rule 

covered fund provisions and that may be excluded from the regulation consistent with the statute and safe-and-sound operations. In 

addition to requesting comment on the scope of the covered fund 

definition (see Question 9 below), the NPR requests comments on 

other aspects of the covered fund provisions, such as the scope of 

the so-called ‘‘Super 23A’’ provisions. I look forward to exploring 

these issues further with my counterparts at the other agencies. 

The agencies welcome specific examples from commenters on these 

issues. 

Q.9. Are we harming financial innovation by the broad definitions 

of covered funds in the rule? 

A.9. I look forward to reviewing the comments provided to the 

questions asked about covered funds in the recently issued NPR. 

In particular, the NPR solicits comments on whether the regulatory 

covered fund definition has been imprecise and whether that has 

led to unintended consequences. I look forward to exploring this 

issue further with my counterparts at the other agencies and welcome specific examples from commenters on the types of activities 

that may have been limited by the regulatory covered fund definition. 

Q.10. How can we ensure that banks are not proprietary trading 

while also allowing them to help companies that need capital to 

grow and innovate? 

A.10. The recent proposed changes to the Volcker Rule and the 

changes included in the Economic Growth Act make significant improvements to the implementation of the rule by maintaining core 

prohibitions and protections while reducing burden on small and 

midsize banks and providing greater regulatory clarity for all 

banks. 

RESPONSES TO WRITTEN QUESTIONS OF 

SENATOR CORTEZ MASTO FROM JOSEPH M. OTTING 

Q.1. Numerous studies, including a 2016 study from the Urban Institute, found that banks often charge single women significantly 

higher interest rates when they borrow money to purchase a home 

than single men. Women do, on average, make less money than 

men and have lower credit scores. But women are better credit 

risks. They tend to default on their loans less than men. 

In addition, another study from Center for Public Integrity and 

REVEAL found that in 61 metropolitan regions, there were significant disparities by ethnicity in mortgage acceptance rates. 

In your testimony before the House Financial Services Committee, you said you only believed about half of what you read on 

discrimination. Do you believe these two reports are accurate? Why 

or why not? 

A.1. I have not read either report, but I am aware that such disparities exist. However, disparities alone do not indicate illegal discrimination has occurred in the underlying credit decisions. 

Q.2. Please provide me a bibliography and links to research that 

OCC has led or reported on through your newsletters or other comVerDate Nov 24 2008 11:00 Oct 12, 2018 Jkt 046629 PO 00000 Frm 00077 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\06-14 Z DISTILLER\61418 TEST.TXT JASON
74 

munications in the past decade regarding gender; racial, ethnic or 

other bias in mortgage lending or bank services in the past 2 years. 

A.2. The OCC, through its Community Affairs Division, has issued 

numerous publications to encourage banks to serve underserved 

communities including ‘‘Profitable Partnerships; Collaborating 

With Minority Depository Institutions’’. These publications can be 

found at https://www.occ.gov/topics/community/affairs/publications/index-ca-publications.html. 

Q.3. Which of these documents have you read? Which of these do 

you agree with the conclusions? 

A.3. I strongly support OCC developing publications on a wide variety of topics including encouraging banks to serve underserved 

communities. 

Q.4. The Community Reinvestment Act was designed to equalize 

the financial playing field by encouraging banks to meet the credit 

needs of consumers in low-income neighborhoods, especially African 

American communities. Specifically, the CRA was designed to address discriminatory policies such as redlining. Under your leadership, the OCC is actively trying to change the Community Reinvestment Act. I am concerned that someone with such little familiarity nor sophistication about the long history of discrimination in 

lending and redlining is spearheading changes to CRA. 

A.4. I have been involved in CRA lending and activities throughout 

my career of more than 30 years. I have a deep personal commitment to the goals of CRA and appreciation of its history and evolution. While CRA is color-blind, I strongly support increasing bank 

lending and activity in the communities and to the people who 

need it most, specifically in low- and moderate-income communities, which often are communities of color. 

Q.5. Will you commit to make no changes to CRA enforcement 

until you have the support of the other regulators—the FDIC and 

Federal Reserve—and the consensus of community development 

and civil rights groups? 

A.5. I support working jointly with fellow regulators at the Federal 

Deposit Insurance Corporation (FDIC) and the Federal Reserve 

whenever possible. I also support a broadly inclusive decision-making process that includes community development and civil rights 

voices. As Comptroller of the Currency, however, I have the responsibility and authority to act in the best interest of the Federal 

banking system and the consumers who depend on it to meet their 

banking needs and will act accordingly to fulfill that responsibility, 

including, when necessary, acting independently when I believe 

that is the right thing to do. In discussing CRA with hundreds of 

people across the country with diverse views, there is strong consensus regarding the need to update our approach to the CRA. 

Q.6. I asked you about the number of banks supervised by the OCC 

which make fewer than 500 mortgage loans or home equity lines 

of credit in a year. You said those banks produce 5 percent of the 

volume of mortgage loans. 

How many banks supervised by the OCC make fewer than 500 

mortgage loans or home equity lines of credit in a year? 

75 

A.6. Based on 2017 HMDA data, 733 national banks and thrifts 

(OCC-supervised banks) reported data to either the OCC or the Bureau of Consumer Financial Protection. Of these, 555 OCC-supervised banks originated fewer than 500 closed-end mortgage loans. 

Overall, the banks that make fewer than 500 mortgage loans or 

home equity lines of credit in a year represent less than 5 percent 

of the total volume of those loan products. 

Q.7. Congress passed a law that exempted banks that make fewer 

than 500 mortgage loans from collecting loan and borrower characteristics and reporting that data publicly. In our discussion, you 

said that examiners would only look at ‘‘HMDA-lite’’ information, 

meaning, examiners would NOT consider the expanded HMDA information required under Dodd–Frank, which would include credit 

scores, points and fees, loan terms, etc., for lenders which made 

fewer than 500 mortgage loans or home equity lines of credit unless they gathered it separately as part of an examination. 

A.7. Section 104 of the Economic Growth Act provides regulatory 

relief to depository institutions that have originated less than 500 

closed-end mortgage loans or less than 500 open-end lines of credit 

in each of the two preceding calendar years by generally exempting 

them from certain additional disclosure requirements under the 

HMDA. Examiners continue to receive basic HMDA information on 

all institutions, and can gather any necessary additional data as 

part of fair lending examinations. For institutions with more than 

500 mortgages, agencies will receive the additional information beginning in 2019. 

Q.8. To clarify, for the majority of regulated banks, OCC examiners 

will no longer have access to detailed loan characteristics like 

points and fees, interest rate, credit score, and other indicators of 

loan quality through HMDA. They will only be able to find detailed 

loan and borrower information if they receive it separately as part 

of the institutional exam. Is that correct? 

A.8. To clarify, the OCC will receive the additional HMDA data on 

95 percent of the loans originated within the Federal banking system starting in 2019. For institutions that make under 500 closedend mortgage loans annually that are now exempt from providing 

certain additional HMDA data as required by the recent rulemaking, the OCC will continue to have access to necessary additional bank data during its fair lending examination process. 

Q.9. Please estimate how much more costly the exams will be for 

OCC now that they may need to stay on site longer to review a 

bank’s loan portfolio loan by loan instead of building on the HMDA 

data? How much longer will exams need to remain at banks for 

such reviews? 

A.9. I do not anticipate any increase in cost to OCC exams or 

spending additional time on-site as a result of changes in HMDA 

reporting resulting from the Economic Growth Act. 

Q.10. The Treasury Department released recommendations last 

April for modernizing CRA. Currently, the only penalties for failed 

CRA ratings is the possibility of denial of merger or branch applications, and would only apply to the approximately 2 percent of 

banks that fail their CRA exams. This is one of the few sticks that 

76 

motivates banks to pass their CRA exams. But Treasury recommended eliminating this penalty for failing exams. 

With a lack of penalties, how do we ensure banks are improving 

their performance and fulfill their obligations under the law? 

A.10. The statute, itself, does not provide enforcement authority to 

regulators as it is intended to encourage banks to meet the credit 

needs of the communities they serve, including low- and moderateincome communities. That is one of the many reasons we need to 

modernize the regulatory framework of the CRA to provide greater 

incentive for banks to lend and invest in the communities that 

need it most. 

Q.11. Shouldn’t there be a presumption that a bank with a failing 

CRA rating will not have its application approved until it passes 

its exam? If not what would be an incentive for the relatively few 

failed banks to improve their performance? 

A.11. The facts and circumstances of each application should be 

evaluated on its merits. It would be counterproductive to deny an 

application that may increase services in low- and moderate-income 

communities simply because of a less than satisfactory CRA rating. 

Q.12. Currently, the CRA service test places primary emphasis on 

bank branches while still considering alternative service delivery. 

Bank branches remain vital, specifically for low and moderate income communities and must be given strong consideration even 

while alternative delivery channels develop. Deemphasizing bank 

branches on CRA exams could cause banks to pay less attention to 

neighborhoods where they receive deposits (redlining or not reinvesting in neighborhoods generating deposits for banks was the 

major concern of lawmakers when they passed CRA). 

Will bank branch presence remain the focus of the service test? 

A.12. Branches remain a significant part of many banks’ service 

models, but we must find a way to assess bank performance in 

those instances where banks provide services through other means 

or do not maintain a network of branches. In those cases, we 

should consider alternative ways of defining a bank’s community. 

This could include considering where a bank’s headquarters or 

major offices are, location of employees or where customers are located. Let me be clear, I do not intend to eliminate the concept of 

assessment areas. I hope they can be expanded and redefined to 

better capture a bank’s service area. 

Q.13. The Treasury report was unclear whether just investments 

should be considered outside of the current assessment areas or 

whether CRA exams should consider investments and retail lending. 

What is your view on whether CRA exams should consider retail 

lending and investments? 

A.13. We should expand investments and activities eligible for CRA 

consideration and incentivize institutions to engage in qualifying 

activities that contribute to creating greater opportunity in the 

communities banks serve, particularly low- and moderate-income 

communities. This is a subject that we should solicit feedback on 

through the Advance Notice of Proposed Rulemaking (ANPR) process. 

77 

Q.14. The OCC examined the opening of 500–600 million new accounts during a 3-year period and found roughly 20,000 without 

proof of authorization and other issues. Of those 20,000, the OCC 

believes ‘‘less than half’’ were unauthorized. They found 252 MRAs. 

Were there any banks that you reviewed that did not have an 

MRA? 

A.14. No. All banks had at least one MRA. 

Q.15. How soon will harmed consumers see remediation? 

A.15. Much of the required remediation has already been completed or is underway. 

Q.16. Is the OCC considering any enforcement actions on its own, 

or in coordination with other agencies based on the horizontal review? 

A.16. The agency is monitoring bank actions required to correct 

issues identified in the horizontal review through the normal 

course of our supervision process. Failure to correct issues in a 

timely and effective manner may result in additional supervisory 

actions, including public enforcement actions if warranted. 

Q.17. Were incentive compensation practices part of the review? If 

so, did you provide MRAs for concerns that employees were compensated in ways that could lead to fraudulent acts? Please describe the compensation practices that would be concerning for 

incenting fraud. 

A.17. In those limited instances where accounts were opened without authorization involving issues other than failure to maintain 

documentation, the most common factors included either shortterm sales promotions without adequate risk controls, deficient account opening and closing procedures, or isolated instances of employee misconduct with no clear connection to sales goals, incentives, or quota programs. 

Q.18. Senator: The Wells Fargo fraudulent account scandal, and 

the incentive-based cross-selling strategy that fueled it are a stark 

reminder of how important it is for financial regulators to finalize 

executive compensation rules. Section 956 of the Dodd–Frank Act 

directed regulators, including the Fed, to adopt joint rules aimed 

at prohibiting incentive compensation arrangements that might encourage inappropriate risks at financial institutions. The regulators 

made an initial proposal in 2011, then reworked the proposal and 

issued a new plan in 2016. The proposal increases in stringency 

based on the financial company’s asset size with enhanced requirements for senior executive officers and significant risk-takers. 

Given that this is not a discretionary requirement, but a mandatory one, what steps are you taking to implement and enforce this 

provision of the law? 

A.18. The law requires the agencies to jointly issue rules or guidelines. The OCC remains committed to working with other regulators to complete the rule. In the meantime, OCC-supervised institutions will continue to be subject to the compensation requirements in 12 CFR part 30, appendix A (and, for larger institutions, 

appendix D). The joint OCC, FDIC, and Federal Reserve Guidance 

on Sound Incentive Compensation Policies also continues in effect. 

78 

Q.19. On December 6, 2017, you halted the removal of in-house 

bank examiners stating, ‘‘Upon review, it is not practical to continue the agency’s efforts to move resident examiners out of on-site 

locations,’’ You said, ‘‘The agency will continue to review its locations and real estate strategy to ensure they support the agency’s 

mission in the most operationally and cost effective manner possible.’’ However, on the same day, the Government Accountability 

Office (GAO) released a report indicating that Federal Reserve had 

not taken enough steps to address regulatory capture and ensuring 

independence for its examiners. GAO has previously found that 

regulators should be independent of inappropriate influence, including undue influence from the industry they are regulating. 

While the Federal Reserve has taken observers offsite in order to 

avoid regulatory capture, you have decided to keep OCC regulators 

on site. 

What is your rationale for keeping regulators on site despite the 

evidence of regulatory capture? 

A.19. Based on my experience and judgment, the value of retaining 

on-site examiners outweighs the benefit of removing them from 

bank premises. Open effective communication and early identification of concerns are the keys to effective supervision, both of which 

are supported by on-site presence. My decision is further supported 

by the practices at the OCC to rotate examiners-in-charge after 5 

years, to provide oversight by Deputy Comptrollers assigned to 

OCC Headquarters, and to depend on off-site lead experts who provide a horizontal view of risks and practices across the agency. 

Q.20. Why did the OCC issue a proposal with the Fed that would 

revise the enhanced Supplementary Leverage Ratio (eSLR) which 

according to the FDIC, could reduce bank capital by as much as 

$120 billion at the Nation’s largest banks? 

A.20. The changes to the eSLR requirements proposed by the Federal Reserve and the OCC would tailor the requirement to the business activities and risk profiles of the largest banks. The proposed 

changes would retain a meaningful calibration of the eSLR while 

not discouraging banks from participating in low-risk activities. 

With the proposed modifications, the eSLR would serve as a backstop to the risk-based measures rather than the primary binding 

constraint. In addition, the proposed changes are aligned with recent changes to the leverage standard published by the Basel Committee on Banking Supervision in December 2017. Aligning with 

the Basel standard creates a more level international playing field 

reducing disadvantages faced by U.S. G–SIBs in competing with 

international counterparts. It is also unlikely that banks would release $121 billion in Tier 1 capital because of other binding constraints on liquidity and capital. The proposed eSLR standards 

along with current risk-based capital standards and other constraints applicable at the holding company level would continue to 

limit the amount of capital that G–SIBs could distribute to investors, thus supporting the safety and soundness of G–SIBs and helping to maintain financial stability. 

Q.21. What are your views on research from the Federal Reserve 

that suggests that current bank capital requirements are on the 

lower end of what is socially optimal, and that regulators should 

79 

consider raising them for the public’s benefit and to mitigate future 

financial crises? Their research is backed by other research done by 

the Minneapolis Fed, FSB, Basel Committee, Macroeconomic Assessment Group, and the IMF. 

A.21. While there has been research conducted in this area, I note 

that the recent proposed revisions to the eSLR requirements were 

approved by the Federal Reserve and are consistent with the leverage ratio standards published by the Basel Committee on Banking 

Supervision in December 2017. 

Q.22. Will the OCC consider increasing capital requirements for 

the largest banks? 

A.22. I have no plans to increase the overall capital requirements 

for the largest banks. The agencies will continue considering ways 

to simplify the capital rules for all of the banking organizations we 

regulate in order to reduce compliance costs. Some changes may affect banking organizations in different ways depending an the nature of their business and assets—for some, the capital requirements may increase slightly, for others, they could fall slightly— 

but we do not intend to significantly change overall capital levels. 

Q.23. Are you concerned that granting a FinTech charter to a 

nonbank lending company or nonbank payments company would 

bring an end to the traditional separation of banking and commerce by allowing large commercial companies, like Amazon and 

Google, to obtain a national bank charter? 

A.23. No. Granting a charter to a FinTech engaged in the business 

of banking does not change any of the legal and regulatory requirements prohibiting commercial firms from owning a bank. Further, 

we believe a FinTech charter is another way of providing consumers with more options and choices to meet their financial service needs. 

Q.24. Recently, you expressed an unfavorable view of bank-non 

bank partnerships, where the ‘‘sole goal [is] evading’’ State-law rate 

limits. Given that a primary purpose for a nonbank lending company seeking a FinTech charter would be to evade State-law rate 

limits, why is creating a FinTech charter less unfavorable than 

bank–nonbank partnerships? 

A.24. I reject the premise of the question. I do not agree that evading State-law rate limits are a ‘‘primary purpose’’ for a nonbank 

lending company to seek a national bank charter. There are many 

other business advantages, such as access to customers, scalability, 

cost of funds, and more effective supervision. 

Q.25. Senator: In reference to FinTech Charters and small-dollar 

loans you have been quoted saying, ‘‘that as long as FinTech firms 

don’t take consumer deposits, they will pose little risk to the financial system.’’ Yet, small-dollar loans pose risks directly to consumers. 

What measures will you have to protect consumers from being 

charged high interest rates or falling into debt traps? 

A.25. With regard to FinTech lenders that became national banks, 

the new national bank would be subject to regular, rigorous examination and supervision, which nonbank lenders do not currently 

80 

face. With regard to short-term, small-dollar loans, that lending is 

still subject to Federal consumer protection laws, and regulations, 

including the prohibition against unfair or deceptive acts or practices under section 5 of the Federal Trade Commission Act. 

Q.26. Senator: In a document released by the OCC titled ‘‘Exploring Special Purpose National Bank Charters for FinTech Companies’’, the agency cited 12 U.S.C. §1, 12 U.S.C. §1461, and 12 

U.S.C. 3102 as statutory authority to grant banking charters to 

FinTech companies. However, the plain language reading of the 

statute does not clearly indicate that your office has this authority. 

Can you specifically point out the section in the statute that 

gives your office authority to issue banking charters to FinTech 

companies? 

A.26. Under the National Bank Act, the OCC has broad authority 

to grant charters for national banks to carry on the ‘‘business of 

banking.’’ 12 U.S.C. sections 21 and 27. The OCC has interpreted 

the ‘‘business of banking’’ to include any of the three core banking 

functions of receiving deposits, paying checks, or lending money. 

The Act does not require that a bank take deposits in order to be 

engaged in banking. Rather, under the Act, performing only one of 

these three activities is sufficient to be performing core banking 

functions. This is reflected in the OCC’s regulation 12 CFR 5.20, 

which provides that, to be eligible for a national bank charter, a 

special purpose bank must either be engaged in fiduciary activities 

or conduct at least one of three core banking functions: receiving 

deposits, paying checks, or lending money. 

Q.27. What concerns, if any, do you have about Bitcoin and the use 

of other virtual currency in the U.S. banking system? Should banks 

promote or discourage their use? What protections are needed to 

ensure these cryptocurrencies can’t be used to evade anti–money 

laundering and antiterrorism financing laws? 

A.27. Regulators should continue to push for transparency and 

safeguards to prevent criminals from using cryptocurrencies to 

evade anti–money laundering laws and regulations or to fund other 

crimes. We also believe it is important to ensure that consumer 

protections are in place as the use of virtual currency expands. 

Q.28. I believe it is important to promote diversity at the various 

financial agencies, including the OCC, and in the financial services 

sector. 

What has OMWI Executive Director Cofield told you about discrimination at the OCC? 

A.28. The OCC’s OMWI office produces an annual report provided 

to Congress regarding the diversity of the OCC and briefs each 

business area on its diversity as it compares to the rest of the country and similar business functions elsewhere. The most recent report showed that as of September 30, 2017, the OCC’s permanent 

workforce totaled 3,930 employees, a decline of 0.7 percent below 

the 3,958 permanent employees at the end of fiscal year 2016. The 

participation rate of females (currently 45.0 percent) in the OCC’s 

workforce has remained fairly stable since fiscal year 2013 (a 0.6 

percentage point decrease). Minority participation increased from 

fiscal year 2013 by 2.6 percentage points to 34.7 percent in fiscal 

81 

1See OMWI Annual Report to Congress, FY2017 (https://www.occ.gov/about/who-we-are/ 

occ-for-you/diversity/and-inclusion-programs/omwi/omwi-annual-report-fy-2017.cid). 

year 2017. At the end of fiscal year 2017, all major EEO groups 

were at or near parity with the 2010 national civilian labor force 

(NCLF) rates, with the exception of females and Hispanics. Although the OCC continues to work to address the law participation 

of Hispanics in its workforce, their overall participation rate remained below their NCLF rate (see table 2). In fiscal year 2017, 

the OCC slightly increased its Hispanic participation rate to 7.0 

percent, from 6.9 percent in fiscal year 2016, and this was an improvement from 6.6 percent in fiscal year 2013. Hispanic participation rates are below parity in the following occupational positions— 

economists, bank examiners (females), and ‘‘all other series.’’ Similarly, females across EEO groups in bank examiner positions participated below their occupational civilian labor force (OCLF) rates, 

and White females in economist and ‘‘all other series’’ positions 

participated below their respective OCLF and NCLF rates. 1

Q.29. What steps can the OCC take to promote diversity within the 

financial system, especially with respect to the firms the OCC regulates? 

A.29. Pursuant to the Dodd–Frank Act, the OCC and other OMWI 

directors collaboratively published a policy statement on June 10, 

2015. The standards identified in the policy statement offer guidance and a framework to enable an entity to voluntarily assess its 

diversity policies and practices in the following key areas: 

• Organizational commitment to diversity and inclusion 

• Workforce profile and employment practices 

• Procurement and business practices—supplier diversity 

• Practices to promote transparency of organizational diversity 

and inclusion 

• Entities’ self-assessment process 

In July 2016, the Office of Management and Budget approved the 

collection of voluntary self-assessment information from institutions. During the second quarter of fiscal year 2017, the OCC sent 

letters to 382 chief executive officers of institutions with 100 or 

more employees. Approximately 14.7 percent of the institutions 

provided their diversity self-assessments. The OCC OMWI director, 

along with OMWI directors at other agencies, conducts various outreach to institutions to engage them, discuss diversity, and solicit 

feedback on the diversity self-assessment process and perspectives 

of the institutions. 

Q.30. Some of the biggest concerns regarding ‘‘Small-Dollar Loans,’’ 

formerly known as ‘‘Payday Loans,’’ are that consumers end up in 

‘‘debt traps’’ in which consumers are borrowing one loan to pay off 

another. Recently, your office published a bulletin titled ‘‘Core 

Lending Principles for Short-Term, Small-Dollar Installment Lending’’ dated May 23, 2018, but fails to discuss this issue in detail. 

In your testimony, you mention that consumers benefit when banks 

offer ‘‘reasonable pricing and reasonable repayment structures.’’ 

What kinds of measures will you put in place to ensure that 

banks aren’t charging too high interest rates? 

82 

2See OCC Bulletin 2018-14, ‘‘Installment Lending: Core Lending Principles for Short-Term, 

Small-Dollar Installment Lending’’. May 23, 2018 (https://www.occ.gov/news-issuances/bulletins/2018/bulletin-2018-14.html). 

A.30. Loan pricing should reflect overall returns reasonably related 

to product risks and costs and should comply with all applicable 

laws and regulations. If necessary, we can use our supervisory and 

enforcement powers to address unfair or deceptive acts or practices 

prohibited by the Federal Trade Commission Act, violations of 

other relevant consumer protection laws and regulations, and unsafe and unsound practices. Interest rates are determined based on 

the State where the national bank is located. 

Q.31. Please indicate how a bank can offer a small-dollar loan at 

a ‘‘reasonable price’’ with a ‘‘reasonable repayment structure.’’ 

A.31. Banks can offer short-term, small-dollar loans in a responsible manner by following the three core principles included in the 

May bulletin: 2

• All bank products should be consistent with safe-and-sound 

banking, treat customers fairly, and comply with applicable 

laws and regulations. 

• Banks should effectively manage the risks associated with the 

products they offer, including credit, operational, compliance, 

and reputation. 

• All credit products should be underwritten based on reasonable 

policies and practices, including guidelines governing the 

amounts borrowed, frequency of borrowing, and repayment requirements. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES 

FROM JOSEPH M. OTTING 

Q.1. The OCC’s actions on the Community Reinvestment Act represent an excellent opportunity to modernize CRA rules—but there 

is also great risk at taking a step backwards. One area that I am 

especially concerned with is the potential that you undertake this 

effort alone—without the Federal Reserve and without the FDIC. 

Will you commit to working and moving forward with the other 

regulators on an advanced noticed of proposed rulemaking? On the 

next step, a NPR? And on the final step of official rulemaking? 

A.1. I support working jointly with fellow regulators at the FDIC 

and Federal Reserve whenever possible. I also support a broadly inclusive decision-making process that includes community development and civil rights voices. As Comptroller of the Currency, however, I have the responsibility and authority to act in the best interest of the Federal banking system and the consumers who depend on it to meet their banking needs and will act accordingly to 

fulfill that responsibility, including, when necessary, acting independently when I believe that is the right thing to do. 

Q.2. The reports of the opening of unauthorized consumer accounts 

is extremely alarming for me. 

What exactly is the timeline and procedure the OCC will follow 

in following up on the Action Plans that the OCC required banks 

to create? Once an Action Plan is created, what steps will the OCC 

83 

1See OCC Bulletin 2018-14, ‘‘Installment Lending: Core Lending Principles for Short-Term, 

Small-Dollar Installment Lending’’. May 23, 2018 (https://www.occ.gov/news-issuances/bulletins/2018/bulletin-2018-14.html). 

take to ensure it is properly implemented? What are the regulatory 

options the OCC is considering if a plan is not properly developed 

or is not properly implemented? 

A.2. OCC is monitoring banks’ corrective action through the normal 

course of supervision, which for large and most midsize banks is 

a continuous process. While timelines vary based on the findings 

of particular banks, failure to correct identified deficiencies in a 

timely and effective manner may result in additional supervisory 

action, including public enforcement actions if warranted. 

Q.3. Payday lending is an issue that is of great importance to me 

and to the State of Alabama. I believe your comments to encourage 

banks to enter small-dollar lending has merit—but I remain concerned on the lack of certainty about whether banks would be required to follow an ability to repay standard. 

You have previously mentioned banks offering products to consumers who ‘‘have the ability to repay,’’ but you don’t offer specifics 

on how this would be measured. Does the OCC plan to move forward at any point with further guidance on these standards? 

A.3. The OCC published core principles in its May bulletin, 1 but 

banks may identify unique and individual means to assess customers’ ability to repay. The OCC does not want to stifle innovation 

or discourage lending by being overly prescriptive.