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Despite the warning signs, no one expected the worst financial crisis since the Great Depression. The year 2008 saw the first ever annual decline in housing prices, along with record foreclosure levels and heavy losses on subprime loans, including by national banks that had not made the risky loans but still invested in large batches of them.
The year 2008 also saw the near collapse of interbank lending markets and a liquidity freeze for asset-backed commercial paper and commercial investment vehicles.
During the crisis, several high-profile financial institutions went bust—whether failing outright, taken over by the federal government, or transferred in distress sales to other banks.
The OCC played an important role in the government-wide effort to stabilize the banking system, restore the flow of credit, and assist victims of the financial crisis. The agency was deeply involved in the Troubled Asset Relief Program (TARP)—the capital assistance program—both in regard to the largest nine institutions that received TARP support and in making recommendations about which smaller institutions should also receive capital.
The OCC also helped design and apply the "stress tests" to assess how well our largest institutions could withstand a substantial credit shock and what additional capital needs those companies might have.
The agency launched the Mortgage Metrics Report, a massive effort to collect, standardize, and analyze the performance of millions of mortgage loans extended by national banks. This data has been particularly useful in showing what types of modifications are most likely to help distressed borrowers to avoid foreclosure and remain in their homes.
After so many unexpected challenges, the agency worked to improve the quality of supervision. Examiners needed to understand the difficulty that many banks faced in accessing liquid funds during the crisis. They also needed to know more about the complex financial instruments held by banks, many hidden in off-balance sheet vehicles that clouded the institution’s exposure to risk.
In the wake of the financial crisis, Congress passed the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. The Act pointed to a more comprehensive, more exacting regulatory regime, in contrast to the deregulatory spirit of the Gramm-Leach-Bliley Act of 11 years earlier.
A key lesson of the crisis—and a foremost objective of Dodd Frank legislation—was this: Both the quantity and quality of bank capital had to be improved. The Basel Committee on Bank Supervision, an international body of bank supervisors, provided a unified global response to this challenge. The Basel Committee set, and the United States financial regulators subsequently approved, higher capital minimums involving countercyclical capital, leverage ratios, and derivatives. The new capital rules were mainly designed for the largest and most complex banks, whose failure would pose the biggest risk to the system.
Under Dodd–Frank, most of the OCC's compliance responsibilities migrated to the new Consumer Financial Protection Bureau. Oversight of the waning thrift industry, which over time lost its unique identity as a source of mortgage funding, came to the OCC from the Office of Thrift Supervision (the descendant of the Federal Home Loan Bank Board), which Dodd–Frank dissolved. Also under the law, the OCC took its place on a new Financial Stability Oversight Council, which aims through interagency cooperation to identify and address potential sources of risk posed to the financial system.
In the years after the financial crisis, OCC-supervised banks and thrifts recovered significantly. Banks stepped up their lending activities, fueling the improving economy. Better performance of existing loans—and the consequent decline of what banks set aside for losses—meant more money was available for lending. Rising prices in many U.S. housing markets and new record highs on Wall Street made many consumers feel more confident about the future and more likely to borrow to buy homes, cars, and other products and services.
In February 2013, the OCC celebrated the 150th anniversary of the founding of the agency, and saluted the values of integrity, professionalism, independence, and teamwork essential to our mission. Our visionary founders include President Abraham Lincoln, Secretary of Treasury Salmon P. Chase, and first comptroller Hugh McCulloch.
In 2016, the OCC created a position for Senior Deputy for Compliance and Community. One "lesson learned" from the financial crisis was the need to treat compliance (including consumer protection and anti-money laundering) as a matter of safety and soundness. Deficiencies in compliance risk management were no less of a threat to the condition of banks than liquidity shortages and poor underwriting.
In 2016, the OCC extended regulatory relief to a large group of community and thrifts with very little safety and soundness risk. Well-managed institutions with less than $1 billion in assets would qualify for the 18-month exam cycle rather than being examined every 12 months. The agency also issued suggestions on how community banks can legally collaborate to share expertise and reduce costs.
Meanwhile, the OCC addressed the rewards and risks posed by rapidly advancing technology. Financial innovation offers highly responsive and automated ways to make payments, save money, smooth income volatility, and provide credit for changing lifestyles and needs—including those of the unbanked and underserved.
The OCC encourages "responsible innovation" by banks—that is consistent with sound risk management practices. It created an Office of Innovation to conduct outreach and provide technical assistance. In July 2018, the agency announced that it would accept applications for national bank charters from non-depository financial technology companies ("fintechs"), engaged in the business of banking.
New technology, of course, can also threaten safety and soundness, and the OCC works closely with banks and customers to combat computer hacking. The Comptroller spearheaded creation of the inter-agency Cybersecurity and Critical Infrastructure Working Group. An interagency "cybersecurity assessment tool" helps examiners and bankers address issues facing individual banks.
Throughout crisis and recovery, innovation and hard work, the agency continues to fly its flag proudly as the oldest regulatory agency of the U.S. government. The OCC's name harks back to the time of Abraham Lincoln, but its fundamental mission of assuring a safe and sound national banking system is as modern as the 21st century.