The Role of the Office of the Comptroller of the Currency

Introducing the OCC

Readers of financial reports are certain to encounter references to the Office of the Comptroller of the Currency. While not every organization with such an imposing-sounding name has a correspondingly important function to perform, this allegation cannot be made about the OCC.

This agency is responsible for chartering and supervising American banks and branches of foreign banks in the USA. It employs a team of examiners to inspect bank activities, including their internal procedures and policy decisions. At present some 1,600 American banks and 50 branches of foreign banks fall within the OCC’s domain.

Key Objectives

Combined with its supervisory mandate, the OCC has a significant role in drafting regulations and reaching legal judgments on a range of issues affecting the banking sector — for example, which type of operations not directly related to banking are permissible for national banks to engage in. The OCC fulfills another key function by dealing with abusive lending practices and other issues of direct concern to bank customers.

In its published profile the OCC defines its prime objectives in terms of:

  • Ensuring the stability of the American banking system.
  • Encouraging banks to compete with each other in the provision of new and improved consumer services.
  • Improving the effectiveness of its own regulatory operations.
  • Ensuring that all Americans have access to the same range of bank services.

Parallel Functioning of the FDIC and the OCC

The OCC and the FDIC essentially have similar responsibilities under what is often referred to as the “Dual Banking System” arrangement. How a bank is chartered determines within which supervisory authority it is going to fall. Nationally chartered banks are supervised by the OCC, while the state-chartered banks operate under the joint-supervision of the state authorities and the FDIC or the Federal Reserve System.

Similar to the FDIC, the OCC is financed by assessment fees collected from the banks they supervise. Although it does not have additional income from the deposit insurance fees that go towards supporting FDIC operations, the OCC has extra income from the interest on Treasury securities. The connection between the bodies is strengthened by the fact that the OCC Comptroller also serves as a director of the FDIC.

Regulatory Powers

The OCC must approve applications for charters for new national banks; existing banks also need OCC approval for organizational or capital structure changes, or to open new branches.

OCC examiners audit every aspect of the chartered banks’ business dealings to make sure that they are operating within an acceptable risk margin, for example, avoiding making loans to borrowers without satisfactory repayment guarantees. The information gathered in OCC examinations is strictly confidential, but banks are obliged to make quarterly Condition and Income reports to the FDIC, where the public has easy assess to this information.

Another matter of great interest is ensuring that the bank’s internal structure operates in an effective commercial manner that is strictly within the letter of the law. Bank officials involved in illegal actions face serious repercussions. The OCC has the power to remove from office such officials as well as issuing financial penalties.

A Long History of Service to Bankers and the Banking Public

The contemporary relevance of OCC activities could lead you to assume that it is of recent origin, but this is not the case. Actually the OCC was founded in 1863 as a bureau of the U.S. Treasury and so it predates by 50 years the FDIC. The OCC was set up under the authority of President Lincoln when the Civil War was at its height and the Federal government was desperate for extra funding. Encouraging banks to buy government bonds was a sound strategy to follow.

The OCC, under the management of a Comptroller of the Currency Network appointed by the President, was initially entrusted with managing a new network of federally chartered banks with rights to issue standard banknotes backed by U.S. bond holdings. Subsequent legislation empowered the OCC to employ a staff of bank inspectors to carry out the supervision of bank lending and investment that is now its principal activity.

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