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Top Story:  John Lyons, CNBE Office Provide Broad Support to OCC Supervisory Activities


John Lyons joined the OCC in 1977 and has held a variety of leadership and staff positions as a field examiner, a credit team lead, and examiner-in-charge of several banks, including First of America Bank (Kalamazoo, Michigan), Firstar Bank (Milwaukee, Wisconsin), LaSalle Bank (Chicago), and Citibank (New York). He was appointed Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank Examiner in October 2011. Lyons recently answered questions for SuperVisions about the multifaceted functions of his office as well as the challenges he and his team face in supervising the federal banking system.

John Lyons, Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank Examiner.

Can you provide a brief overview of the functions of the Chief National Bank Examiner’s office? Has it changed over the past few years, and if so, how?

The main mission of the Chief National Bank Examiner (CNBE) Office is to develop consistent and effective supervisory and accounting policy guidance, interpretations, examination handbooks, and other supervisory tools for examiners and bankers that assist in promoting a safe, sound, and competitive federal banking system. But while developing and issuing policy guidance and handbooks is an obvious part of our mission, those activities are only one component of what we do. 

We also spend a lot of time answering questions from examiners and bankers on complex policy issues, providing on-site support to field examiners, and maintaining extensive industry outreach through a wide range of speaking engagements and media interviews. 

We serve as a resource for other units in the OCC on complex policy issues. For example, we work closely and extensively with our Congressional Liaison staff to provide topical briefings for congressional staff; analyze, provide comment, and help formulate OCC positions on potential legislative issues; and create and deliver testimony and responses to congressional inquiries. We also work closely with the Chief Counsel’s office on developing new regulations, and we provide input on new products, activities, and charters. And, of course, we support the Comptroller in his various duties, including his roles as Federal Financial Institutions Examination Council chair and a member of the Financial Stability Oversight Council and Basel Committee. 

One thing that has changed in the last few years is the amount of time that we spend on interagency work, both domestically and internationally. CNBE staff is involved in numerous international work groups, primarily through the OCC’s participation in the Basel Committee. In addition, most of the substantial policy and rulemakings that we work on are done on a joint, interagency basis. 

We’ve also made strides in making better use of analytics both to support policy development work and to provide tools for examiners and bankers.

Speaking of analytics, it seems that everyone is talking about data these days, and indeed, one of the goals of the Supervising strategic initiative is to rely more on data analytics for supervision. Describe how data analytics can help the OCC supervise banks.

Improved data analytics is essential to help us to do our jobs better and more efficiently. We need to make greater use of the data to spot trends at an early stage; to assist examiners in identifying when their bank may be an outlier in terms of the types or nature of risk it may be taking, and to monitor trends in the overall system to spot risks that are building and that may require some type of broader supervisory intervention, such as policies or other directives. 

For example, our credit team has been using our Credit Analytics reports, the annual Survey of Credit Underwriting Practices, and data from external sources to monitor the condition of underwriting trends. This information, coupled with reports we were hearing from examiners, led us to press for the interagency guidance on leveraged lending that was issued earlier this year. Our Market Risk Group is using various data sources to help provide information to the field on interest rate risk and liquidity. More recently, our Financial Markets Group has started using data we can get from the DTCC Trade Information Warehouse to monitor and report to examiners at the mega banks about the banks’ credit default swap exposures. 

While data is important, we should never be driven by data alone. I don’t think bank supervision can be distilled down to a set of formulas or models. I strongly believe that our greatest resource in ensuring the safety and soundness of the banks and thrifts that we regulate are our “on-the-ground” examiners.

We read a lot about how community banks are, or will be, facing a multitude of challenges because of the many regulations coming out of Dodd—Frank. What is the OCC doing to address the challenges facing community banks?

The OCC, under the leadership of Comptroller Thomas J. Curry and Senior Deputy Comptroller for Midsize and Community Bank Supervision (MCBS) Jennifer Kelly, is doing a lot to support and encourage community banks, and CNBE is assisting them in those efforts. The Comptroller has stressed the need to carefully assess the potential impact of any policy or rule we develop on community banks. He also has stressed the need to provide tools or aids that can help community bankers navigate and understand some of the more complex rules and whether or how those rules may apply to their banks. 

A great example of how CNBE recently helped fulfill this objective is the capital rules that we just finalized. To help bankers assess the potential impact of those rules when we issued them for comment, we worked with the Federal Reserve Board (FRB) and Federal Deposit Insurance Corporation (FDIC) to develop a spreadsheet tool that bankers could use to download their call report information and estimate the potential capital impact on their institutions. We also held a teleconference for community bankers to explain the rule. For both the capital rule and the Consumer Financial Protection Bureau’s mortgage rules, we developed “quick reference guides” for the community banks we supervise. With the publication of the final rule, we issued a short, easy-to-read pamphlet that highlights the main provision of the rule. Other examples are the alternatives we provided in the recently revised lending limit rule and the guidance we provided when we issued our revised investment securities rules. 

We’ve worked with MCBS on other efforts as well, such as the CRE portfolio stress testing tool that we’ve made available on BankNet and the recent call we hosted on cybersecurity issues for community banks.

What are the priorities for the CNBE in the coming year? How do they support the Comptroller’s strategic initiatives?

Most of our key priorities will be a continuation of work we are already undertaking. One of our key priorities is to complete our efforts to refresh and update all of our examination handbooks. This is part of our effort to integrate OCC and OTS policies to have a uniform supervisory platform for banks and thrifts. Consolidating our guidance—while recognizing areas where there are unique differences between banks and thrifts—will help us be more efficient and effective in our supervision. Having a common platform also helps promote our goal of having staff with the skills to examine both banks and thrifts and thus supports the Comptroller’s initiative to optimize our supervisory effectiveness.

As Dodd—Frank moves from rulemaking to implementation of those rules, we anticipate that CNBE staff will be spending more time assisting examiners and bankers in understanding the rules, assisting in exams, and incorporating those rules into our examination procedures.

As the Executive Committee (EC) champion for the Comptroller’s Supervising initiative, I’ve been working with staff from Policy, Quality Assurance, Economics, Large Bank Supervision, and MCBS to develop a dashboard of risk metrics for the EC that will enhance our ability to monitor trends across the system and our lines of business. The cross-functional team that is working on this project is a great example of how we are furthering the Comptroller’s goal of improved interdisciplinary teamwork within the OCC.

As I noted earlier, much of the Chief’s office work involves interagency collaboration, and we continue to look for ways that we can improve this process and better coordinate and leverage off of each other’s work—another of the Comptroller’s strategic initiatives. For example, Grovetta Gardineer, Deputy Comptroller for Compliance Operations and Policy, spends much of her time consulting with the Consumer Financial Protection Bureau (CFPB) and helping to facilitate the coordination of our exam activities and information sharing with them.

International activities will continue to be a major resource commitment for our staff—participating in, and representing the OCC’s views on, various Basel Committee work groups. We’ll also continue to be actively involved in various outreach activities with bankers, the press, and Congressional staff in support of strategic initiative on external communications.

And finally, my management team and I will continue our efforts to build our bench strength, ensure our staff receives opportunities to expand their skills sets and advance their careers, and develop leadership potential.

How has the National Risk Committee (NRC) helped the OCC identify emerging risks in the banking system? What is your vision with regard to the NRC?

The NRC provides a way for us to tap into the expertise and insights on emerging risks from groups across the agency. It allows senior managers from all of our lines of business to get together each quarter to discuss and assess the trends they are seeing and the implications those trends may have both for their lines of business and for the broader system as a whole.

My vision for the NRC is for it to be the “eyes and ears” of the OCC on emerging risks—to help synthesize information from all of our resources, using both hard and soft “data,” and then, importantly, taking the next step and translating that information into specific recommendations and actions that the OCC needs to take to address those risks. The other CBS members and I have directed the NRC to be more action oriented. For example, the NRC radar screen now includes specific actions for each risk area and identifies the units responsible for carrying out those actions. We are also exploring ways to measure the effectiveness of those actions. The NRC is also taking a leadership role in developing the annual CBS operating plan.

The NRC’s Semiannual Risk Perspective report provides examiners, bankers, and the public with our assessment of risks and our areas of supervisory focus in response to those risks.

You spent most of your career in the field. How did coming to Washington, D.C., change your perspective, if at all? How does your experience in the field inform your work here in D.C.?

Coming to D.C. has given me a much greater appreciation of the level and nature of interagency work that is done in D.C. and the collaboration that is needed both within the OCC and with other agencies to successfully address complex policy issues. This reflects the multifaceted nature of the policy issues we work on. For example, mortgage lending issues can raise credit, market, capital, compliance, and legal issues. In the field, we worked closely with the FDIC and the FRB, but it was on a more localized, direct basis. I also have a greater appreciation of the work that OCC staff across HQ do to position and promote the OCC’s interests in the interagency and international arenas and with the industry, Congress, and the press.

My field experience has been instrumental in giving me a “real world, practical” perspective on how policies may play out in the banks we supervise and on the challenges examiners may confront in trying to execute them.

Do you still interact with the field? How so?

Yes. I think it is essential for my management team and me to interact with the field on a regular basis—after all, they are one of the most important clients we have. If our work isn’t benefitting them and helping them do their jobs better, then we are not successful. One of my priorities has been visiting individual field offices and participating in various district Senior Management Group meetings. These trips are extremely useful in helping understand the issues that examiners are seeing and where we may need to redirect or emphasize policy resources.

What do you consider as your most significant accomplishment since coming to D.C.?

Building up the bench strength and talent within the Chief’s Office. While we still have vacancies we need to fill, we have added to our bench strength over the last several years, through the talent we brought on with the OTS integration, and through successful recruitment from the field and the industry.

The CNBE office has increasing representation and presence in the international arena, even though organizationally the OCC offices that deal with international bank supervision are in Large Banks. Describe the role the CNBE plays in international bank supervision.

CNBE plays a critical role in international bank supervision through our work on the various Basel, Financial Stability Board, and other international work groups where key policy decisions are formulated. Ron Pasch, Deputy Comptroller for International Banking Supervision (IBS), recently chaired an internal OCC working group to assess the OCC’s process for participation in these various groups. The OCC participates in 44 international committees or groups; CNBE staff serve on nearly 60 percent of these groups, which touch upon all facets of the CNBE office’s work—capital and liquidity, derivatives, accounting standards, operational risk and bank technology, and anti-money laundering. Charles Taylor, Deputy Comptroller for Regulatory Policy, serves as Chair of one of the key Basel Committee groups, the Standards Implementation Group. Like so much of what the Chief’s office does, our work on these committees is not done in a vacuum—we closely coordinate with other units in the OCC, including IBS, Economics, and the Chief Counsel’s office. Because the U.S is more effective in the international arena if we can present a unified front on key issues, our staff also collaborates closely with the FDIC and the FRB to help to develop the U.S. positions.

What do you think are the immediate challenges facing the OCC? The CNBE?

The key challenges that the EC identified and the Comptroller summarized in his August 7 message about the EC’s strategic retreat are directly applicable to the Chief’s office.

As the Comptroller noted, regulatory reform has added meaningfully to the scope of our work. We are continuing to devote considerable resources to interagency work on finalizing rulemakings and, going forward, we anticipate we will be shifting those resources from developing the rules to helping examiners and bankers implement them. We will need to update policies and examination handbooks to incorporate key provisions and will likely need to work collaboratively with MCBS to provide training tools for examiners and bankers.

Like the rest of the OCC, the CNBE’s office is challenged to work smarter and more efficiently. One the challenges I’ve posed to our managers is developing mechanisms and measures to assess the effectiveness of our policies. Are they achieving their desired goal in terms of influencing bank behavior? I’d welcome the field’s input on this challenge.

And like other units in the OCC, we have a large number of staff who can or will soon be able to retire, so we need to continue to build our bench strength and bring in folks who can contribute to the important work we do.

What else would you like OCC employees to know about the CNBE office?

First and foremost, CNBE is a resource for the field. A key mission for our office is to provide employees support in carrying out their jobs, and my managers and I always want to know how we can improve on the ways we work to support them.

Second, I want to underscore how valuable working in the policy area can be to developing your career. One of the things I’ve promoted since I’ve been here is the greater use of one- or two-year rotations for field staff who would like to gain policy experience. I think these rotations are a great opportunity to get a more complete view of, and high-level exposure to, the OCC and the myriad issues and organizations that our agency deals with. I would encourage employees who are interested to talk with their managers and my management team about such opportunities.

Last Updated: 03/23/2015