Perhaps one of the most unusual regulatory agencies to exist, the Federal Theatre Project ran from 1935 to 1939. One of several arts-related initiatives by President Franklin Delano Roosevelt, the department was tasked with providing work for the many theatre professionals across the country who had lost employment during the Great Depression. The Federal Theatre Project hired photographers to capture performances and behind-the-scenes work that would encourage the public to attend shows and ultimately revive the industry. This investment in the theatre industry helped launch entertainment legends like Orson Welles and popularized works by playwrights like Arthur Miller.While its purpose is less entertaining than theatrical productions, the Office of the Comptroller of the Currency (OCC) is one of the most important regulators of the US banking system. It charters banks, supervises and examines them, oversees compliance with banking laws, and can take enforcement actions. It also promotes fair access to financial services, a principle supported across the industry.Community banks and their representatives, including banking trade associations, have been concerned for some time about overly burdensome regulation of smaller financial institutions and the high costs of compliance. Shift in OCC ApproachNow, the OCC has responded with a significant reduction in regulation. In a major realignment, the OCC has announced a fundamental shift in supervision of banks with $30B or less in assets that is aimed at lightening their regulatory load. OCC examiners will now tailor their examinations based on the bank’s “size, complexity, and risk profile, with heightened focus on material financial risks.” Community banks will no longer face fixed examination requirements.The change from the OCC may likely have the following impacts on community banks:
- Change in assessment standards. For banks under $30B, the OCC may shift away from the Retail Nondeposit Investment Products booklet and instead apply the core assessment standards in the Community Bank Supervision booklet.
- Focus on individual risk. The OCC is likely to issue guidance that frees community banks from annual model risk evaluations. Community banks will now be expected to tailor their model risk management to their own risk exposures and business practices.
- Streamline licensing. The OCC proposed easing licensing requirements for community banks and community savings associations. Institutions that file under the new definition will see expedited or reduced filing processes.
- Consolidate processes. The OCC proposed eliminating the Fair Housing Home Loan Data System regulation, which was described as a duplicative data collection process.
The new examination and risk modeling changes take effect this January. The other proposed changes must still go through the comment and review process. The various changes should reduce the complexity and scope of compliance for community banks and thus should reduce compliance demands and costs, allowing community banks more freedom in conducting their business. OCC examiners will use streamlined methods in evaluating banks, including more limited sampling and relying on bank reports when appropriate. One example offered by the OCC was in fair lending requirements. Currently, examiners conduct regular fair lending risk assessments. That requirement is being eliminated. Changes Hailed by Community Bank AdvocatesBanking organizations and advocates lined up in support of the changes. The ICBA called the changes “meaningful steps” to “reduce unnecessary regulatory burdens on community banks.” Likewise, the American Bankers Association lauded the changes, saying they will “help community banks continue to meet the needs of their customers and communities both now and in the future.”While there are some critics of the deregulation of banks, who cite the changes as raising risks for the financial industry, most others see the OCC changes as a way to free community banks of excessive regulations. As a result, community banks may have more money to devote to lending in their communities and to work toward being more competitive in the changing world of finance.While the long-term effects of these changes remain to be seen, the OCC’s efforts to streamline oversight offer community banks an opportunity to operate with greater efficiency and autonomy. For many institutions, this may mark a welcome recalibration of regulation — one that balances safety and soundness with the practical realities of community banking.
