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Comptroller's Viewpoint

Thomas J. Curry
Comptroller of the Currency

Shortly after the OCC was founded in 1863, the first Comptroller, Hugh McCulloch, laid down basic principles to guide the bankers who received national charters. He spoke about the value of strong capital, the danger of excessive leverage, and the need for ample liquidity. In organizing the OCC, Comptroller McCulloch recognized the critical role that supervision plays in maintaining public confidence in the system’s safety and soundness.

More than 150 years after he articulated them, Comptroller McCulloch’s principles are still relevant today. They speak to the importance of building capital, recognizing that stronger capital means stronger banks and that banks should grow their capital during healthier economic periods so that it is available during a downturn. These principles have been borne out by our own experience, which has taught us that when the market begins questioning a bank’s capital strength, it might already be too late, as liquidity challenges and questions of solvency can quickly follow.

The Federal Reserve Board’s stress tests of large banks during the past six years reflect steady progress in building capital. This year’s test results show common equity at levels more than double that in the first quarter of 2009. In raw numbers, that is a $700 billion increase. This level of capital suggests that even in the most severe scenario, the 33 largest bank holding companies would remain well capitalized. That level of capital would allow these companies to continue lending in a recession, helping reduce the severity and length of any downturn. Capital at community banks is also strong and growing.

Cumulative percent change since 2007 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Total equity capital 0 1 17 20 40 43 46 52 56 63
Total assets 0 9 5 9 25 29 31 38 40 47

Recent years have also reminded us of the danger of excessive leverage. In the years leading up to the financial crisis of 2008, leverage increased dramatically, particularly in the largest and most complex banks. In response, regulators subjected large banks to a stricter leverage ratio. While it makes sense for banks to hold capital levels commensurate with their risks, we also have long recognized that such measures are not perfect. Leverage ratios provide a backstop to the risk-based capital measures. A key feature of these leverage ratio metrics for large banks is the inclusion of elements that contribute to leverage and that are not captured by simpler measures, such as those focusing exclusively on a bank’s balance sheet. We require our largest, most systemically important banks to meet more stringent leverage ratio requirements than smaller institutions.

We also emphasize the importance of ample liquidity. The lack of liquidity was a significant factor in the solvency issues faced by finance and banking companies in 2008. Since then, we have taken steps in the right direction by implementing the liquidity coverage ratio and proposing the net stable funding ratio. These two ratios complement each other and require covered banks to hold sufficient ready resources to meet short-term cash outflows and encourage banks to shift to more stable, longer-term funding by relying less on short-term wholesale funding. U.S. banks must comply with the liquidity coverage ratio by 2017; the proposed net stable funding ratio would become effective in January 2018.

These safeguards bolster the strength of our banking system, equipping it to weather financial storms while still meeting the financial needs of its customers. The safeguards make the riskiest behavior more expensive, while largely sparing smaller, less complex banks that do not pose broader risks to the system.

The Federal Reserve Board’s stress tests of large banks reflect steady progress in building capital.

Improving capital, limiting leverage, and enhancing liquidity have helped strengthen our financial system. Improvements in supervision have also played a crucial role. As a regulator with more than three decades of experience overseeing financial institutions of all shapes and sizes, I know supervision is the regulators’ primary means of affecting behavior and promoting a healthy risk culture. Weak capital and excessive risk taking are often symptoms of unhealthy risk cultures that can lead to lapses in compliance and controls affecting the safety and soundness of institutions. Addressing the risk culture within the banking system was an early priority of mine as Comptroller, and I continue to make it a theme of conversation with bankers, examiners, and other regulators.

To address risk culture and improve risk management in the largest banks we supervise, we set heightened standards for management and boards of directors that established clear expectations for governance and risk management. These standards grew from onsite supervisory observations. We took those observations and distilled them into enforceable standards for our largest banks, and we supervise using those standards today. We made significant progress implementing the heightened standards in 2016, and more work remains.

Since 2013, we have expanded our lead perspectives to their work. We enhanced our ability to identify and assess risk earlier and more effectively. In 2016, recognizing that compliance is critical to safety and soundness, we established an executive-level department dedicated to that function.

Internally, we created an Office of Enterprise Risk Management and published an enterprise risk appetite statement so employees and external stakeholders understand our own risk tolerance in key areas. We enhanced our use of metrics to assess the quality of our work and to be more forward-looking. We strengthened the ties between our strategy and budgeting process so that every dollar in assessments paid by banks yields greater value in the form of more effective supervision. We established a strategic workforce plan to improve succession and recruitment so that we can be assured of having the right talent and skill in the right place at the right time.


OCC Comptroller Curry seated at long table across from President Obama with both flanked by other financial agency officials and White House staff

Comptroller Curry and other financial regulators meet with President Obama at the White House, March 2016.

While upgrading our supervisory capabilities, we intensified our focus on the future—on what a banking system 20 years from now should look like and what its regulatory needs will be. There is little doubt that technology and innovation will reshape the way people interact with banks and how they access financial services. To make sure the OCC is as nimble as the industry it supervises, I announced this year an initiative to ensure that banks with federal charters have both a regulatory framework that is receptive to responsible innovation and supervision that supports that framework. The intent of that initiative is to provide more timely guidance and decisions on innovations, and to increase our openness to responsible innovation that can help banks operate more effectively and better meet the needs of their customers. The initiative encourages innovation that promotes fair access by increasing the financial inclusion of underserved consumers and communities.

Net income percent of total equity 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
All OCC-supervised institutions 7.264 12.906 16.383 15.957 15.752 15.177 14.717 14.120 15.497 13.635 13.883 15.692 16.459 13.806 12.810 13.232 9.069 3.050 0.056 7.122 8.324 8.875 9.829 9.059 9.420 9.352
OCC-supervised institutions with total assets under $1 billion 9.870 12.612 13.901 14.025 13.164 12.790 13.150 12.113 13.473 12.248 10.572 11.928 12.063 11.963 11.595 11.511 10.191 4.598 0.973 4.414 5.731 6.863 8.331 9.125 10.015 9.857

One significant milestone in that effort occurred in March, when we released a paper outlining the principles guiding our efforts. Another occurred in October 2016, with the release of an OCC framework for responsible innovation.

All of these changes help to ensure that the OCC is capable of delivering effective supervision for decades to come. The measure of our success is whether the financial system remains strong, resilient, and capable of satisfying the financial needs of the United States, and whether the financial system can adapt to changing consumer demands, market opportunities, and new technologies.

The progress we have made is not limited to large banks. America’s community banks have become stronger, too. Return on equity among community banks has nearly recovered to precrisis levels, and loan growth has been steady. To help community banks further, we have worked aggressively to remove unnecessary burden by simplifying the call report, lengthening the examination cycle for wellmanaged banks, and encouraging collaboration.

Veteran bank supervisors know full well that good times don’t last forever and a downturn will inevitably occur. Effective regulation and supervision will help ensure that the trough will not be so deep or wide. As Comptroller, I remain committed to achieving those goals.

Thomas J. Curry

Comptroller of the Currency