[Senate Hearing 115-340]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 115-340


              UPDATE FROM THE COMPTROLLER OF THE CURRENCY

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                                   ON

EXAMINING THE EFFORTS, ACTIVITIES, OBJECTIVES, AND PLANS OF THE OFFICE 
   OF THE COMPTROLLER OF THE CURRENCY WITH RESPECT TO THE CONDUCT OF 
SUPERVISION, REGULATION, AND ENFORCEMENT OF FINANCIAL FIRMS SUPERVISED 
                               BY THE OCC

                               __________

                             JUNE 14, 2018

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





                Available at: http: //www.govinfo.gov/




                                   ______
		 
                     U.S. GOVERNMENT PUBLISHING OFFICE 
		 
31-583 PDF                WASHINGTON : 2018                 


















            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
BOB CORKER, Tennessee                JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada                  JON TESTER, Montana
TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
JERRY MORAN, Kansas                  DOUG JONES, Alabama

                     Gregg Richard, Staff Director
                 Mark Powden, Democratic Staff Director
                      Elad Roisman, Chief Counsel
                      Joe Carapiet, Senior Counsel
                 Elisha Tuku, Democratic Chief Counsel
            Laura Swanson, Democratic Deputy Staff Director
          Amanda Fischer, Democratic Professional Staff Member
                       Dawn Ratliff, Chief Clerk
                      Cameron Ricker, Deputy Clerk
                     James Guiliano, Hearing Clerk
                      Shelvin Simmons, IT Director
                          Jim Crowell, Editor

                                  (ii)





























                            C O N T E N T S

                              ----------                              

                        THURSDAY, JUNE 14, 2018

                                                                   Page

Opening statement of Chairman Crapo..............................     1
    Prepared statement...........................................    36

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2

                                WITNESS

Joseph M. Otting, Comptroller, Office of the Comptroller of the 
  Currency.......................................................     4
    Prepared statement...........................................    36
    Responses to written questions of:
        Senator Brown............................................    47
        Senator Scott............................................    57
        Senator Cotton...........................................    58
        Senator Tillis...........................................    60
        Senator Reed.............................................    62
        Senator Menendez.........................................    63
        Senator Warner...........................................    67
        Senator Heitkamp.........................................    71
        Senator Cortez Masto.....................................    73
        Senator Jones............................................    82

                                 (iii)

 
              UPDATE FROM THE COMPTROLLER OF THE CURRENCY

                              ----------                              


                        THURSDAY, JUNE 14, 2018

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Mike Crapo, Chairman of the 
Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. The Committee will come to order.
    Today we will hear from Comptroller of the Currency Joseph 
Otting. Since being sworn in last November, Comptroller Otting 
has been focused on rightsizing regulations and furthering the 
mission of the OCC.
    Recently the OCC, along with four other regulators, issued 
a proposal to make revisions to the Volcker Rule. In May, the 
OCC issued a bulletin related to short-term, small-dollar 
lending. The OCC has also been looking at modifying and 
modernizing how regulators apply the Community Reinvestment 
Act.
    Comptroller Otting has also identified reviewing compliance 
with anti-money-laundering laws as a priority of the OCC. In 
addition, the Comptroller has said he expects the OCC to 
announce in July a final decision on a specialty bank charter 
for FinTech companies. I look forward to hearing more about 
some of these important initiatives today.
    In addition, the OCC will need to implement a number of 
provisions from S. 2155, the bipartisan economic growth 
legislation that President Trump signed into law on May 24th.
    Among the provisions that the OCC will need to write rules 
to implement are: the community bank leverage ratio, which 
exempts highly capitalized banks from the international Basel 
III risk-based capital requirements; the exemption from 
appraisal requirements for banks in rural areas that suffer 
from shortages of qualified appraisers; the requirement that 
certain acquisition, development, and construction loans not be 
subject to punitive capital requirements; reduced reporting 
requirements and extended exam cycles for certain small banks; 
the requirement to promulgate regulations to remove central 
bank deposits from the denominator of the supplementary 
leverage ratio for certain banks; the exemption from stress 
testing for certain financial institutions, including the 
immediate exemption for financial companies with less than $100 
billion in assets; and the provision permitting certain Federal 
savings associations to elect to operate with the same powers 
and duties as national banks without going through the onerous 
charter conversion process.
    These provisions, and others in the legislation, rightsize 
regulations for community banks, credit unions, midsize banks, 
and regional banks, making it easier for consumers and small 
businesses to get mortgages and obtain credit.
    Absent excessive regulatory burden, local banks and credit 
unions will be able to focus more on lending, in turn 
propelling economic growth and creating jobs.
    I look forward to engaging with the OCC, and with other 
agencies charged with implementing S. 2155 over the coming 
months to ensure that their interpretations are consistent with 
the intent of the Members of Congress who voted for the 
legislation and with this Committee's goal of promoting 
economic growth.
    Our economy is strengthening, and the positive effects of 
the banking bill and tax reform are just starting to be felt. 
Layered together, these policies and others are creating 
conditions in our country that enable growth.
    I look forward to building on this momentum moving forward.
    Senator Brown.

           OPENING STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman. Thank you, 
Comptroller Otting, for joining us today.
    In the more than 7 years since we passed Wall Street 
reform, our financial system is much stronger than it was at 
the outset of the Great Recession.
    Much of that hard-earned progress, however, has been 
threatened in the 7 months since Comptroller Otting took over 
at the OCC--an agency that is supposed to be a watchdog for our 
Nation's largest banks.
    Comptroller Otting has said that the banks are, in his 
word, his agency's ``customers'' and ``partners.'' That is the 
exact mindset that contributed to the crash. We thought we got 
rid of the Office of Thrift Supervision because it was an 
industry lapdog. Perhaps it has been reincarnated at the OCC.
    The real customers of the OCC are the Ohio families and 
people across the country who suffer when the people they pay 
to ensure the stability of our financial system do not do their 
jobs.
    Mr. Otting, if you have not heard me say this, certainly 
your staff has, and my colleagues in this Committee have heard 
it many times, but the Zip code my wife and I live in, in 
Cleveland, Ohio, 44105, had more foreclosures in the first half 
of 2007 than any Zip code in the United States, and I see every 
day going to and from my house the results of those 
foreclosures and the results of that devastation.
    In one of his first acts as Comptroller, Mr. Otting 
reversed course on changes meant to prevent OCC from becoming 
too close to the banks it oversees. Comptroller Otting decided 
that examiners should continue to work out of the bank's 
headquarters instead of the OCC to save money. Penny wise, 
pound foolish, but I guess befitting a partnership.
    It is not as if the banks have been suffering lately.
    The FDIC released data last month showing that the industry 
increased its profits by 13 percent last year. Oh, but when you 
add the tax bill into account, their profits increased 28 
percent.
    Rather than invest in their workers and communities, big 
banks are plowing profits into pushing up their stock price. 
The ten largest U.S. banks bought back $67 billion--$6,700 
million--in stock in 2017, an increase of 70 percent over 2016. 
They just do not seem to have enough, do they?
    The CEOs of the six largest banks, already making tens of 
millions of dollars a year, got an average 22 percent raise 
last year. For the CEO of Well Fargo, it was 36 percent last 
year.
    And, oh, yeah, the average bank teller in this country 
makes $26,000 a year. Twenty-six thousand dollars a year. Tens 
of millions for CEOs, $13 an hour for the average bank teller.
    When times are good, as they are in the ninth year of a 
recovery, banks should prepare for the tough times ahead. 
Instead, our watchdogs are loosening the rules that should be 
guarding us against the next crash.
    Right now, the OCC and the Fed are considering a proposal 
to weaken protections and give a $121 billion boost to the 
eight largest U.S. banks.
    Comptroller Otting announced that he wants banks to get 
back into the business of payday loans, something that had been 
prohibited since 2002. He has pulled back on guidance meant to 
protect the banking system from reckless corporate lending.
    And he has other plans--plans that deeply concern Members 
of this Committee, I think on both sides of the aisle, and 
deeply concern the civil rights community--to gut the Community 
Reinvestment Act, a 40-year-old law that pushes banks--very 
profitable banks, I might add--to serve their communities. The 
CRA emerged out of the civil rights movement to address 
generations of exclusion and discrimination in bank lending. I 
do not know if Comptroller Otting has read a book called ``The 
Color of Law'' that recently came out. I would recommend it. I 
think it will give you a better historic knowledge of why CRA 
matters. That long legacy is a part of why we still have a 
racial wealth gap today.
    It is clear that Comptroller Otting has not learned the 
hard lessons of the recent past, including the OCC's history of 
working to stop State and local protections on subprime 
mortgages, ATM fees, and credit card rate hikes. He is 
suffering from the same collective amnesia that a number of 
Members of this body suffer from, simply forgetting what 
happened 10 and 12 years ago.
    Right now, families in Ohio and Idaho and across the 
country, in Hawaii and Alabama and Pennsylvania and South 
Dakota, especially people of color, cannot afford to return to 
the risky practices Comptroller Otting is considering.
    I look forward to hearing your testimony and answers to the 
Committee's questions.
    Chairman Crapo. Thank you, and thank you, Comptroller 
Otting, for being with us today. You now have the time. Please 
make your presentation, and we will proceed with that.
    I should alert the Members of the Committee we have a vote 
at 10:30, but we intend to try to keep the hearing going by 
rotating in and out as we need to.
    Comptroller Otting.

   STATEMENT OF JOSEPH M. OTTING, COMPTROLLER, OFFICE OF THE 
                  COMPTROLLER OF THE CURRENCY

    Mr. Otting. Thank you very much, Chairman Crapo, Ranking 
Member Brown, and Members of the Committee. Thank you for the 
opportunity to share my priorities as Comptroller of the 
Currency and my views on reducing unnecessary regulatory burden 
and promoting economic opportunity.
    The Office of Comptroller of the Currency's mission is to 
ensure that our Federal banking system operates in a safe-and-
sound manner, provides fair access, treats their customers 
fairly, and complies with applicable laws and regulations. We 
can accomplish that mission and rationalize our regulatory 
framework so that the system can help create jobs and economic 
opportunity.
    My written testimony details the conditions of the Federal 
banking system, risks facing that system, and my partners. 
These priorities include modernizing the Community Reinvestment 
Act; to increase lending, investments, and financial education 
where it is needed most; and encourage banks to meet consumers' 
short-term, small-dollar credit needs to provide consumers with 
additional safe, affordable credit choices.
    My priorities also include enhancing bank security and 
anti-money laundering compliance so that banks can provide a 
more effective means to support law enforcement and comply with 
statutory and regulatory requirements more efficiently. I also 
support simplifying regulatory capital requirements, 
recalibrating the Volcker Rule, including that the agency 
operates in a safe-and-sound manner and operates effectively 
and efficiently.
    Today I want to discuss the importance of the quality of 
the work accomplished at the OCC. Since becoming Comptroller, I 
have been struck by the professionalism and caliber of the 
agency staff. The agency's 4,000 employees serve our Nation by 
performing the important task of supervising more than 1,300 
national banks, Federal savings associations, and Federal 
branches of foreign banks. While the vast majority of the 
institutions we oversee are small community banks, the system 
also includes the large, most globally active banks in our 
country.
    Successful supervision requires a corps of professional 
examiners supported by lawyers, economists, information 
technology specialists, policy experts, and others. Few 
Americans know the OCC, but the majority of them have a 
relationship with at least one of the banks we supervise. It is 
not an overstatement to say our Nation's banking system is the 
most respected in the world, due in large part to the quality 
of the supervision the OCC provides.
    The OCC is unique among Federal banking regulators. It is 
the sole regulator exclusively dedicated to prudential 
supervision. Undistracted by multiple mandates, we remain a 
laser focus on bank safety, soundness, and compliance. The 
agency takes a risk-based approach to supervise, tailoring its 
oversight to the risks and business models of each bank. At the 
same time, its broader national perspective provides value in 
identifying risk and concerns that may face similar banks or 
the broader system. Our risk-based approach allows us to adapt 
to the ever-changing environment and to prioritize our 
regulatory resources on the risks with the greatest potential 
to disrupt the industry and harm its customers. Our approach 
may mean lower risks receive less attention compared with more 
immediate concerns, but also the agency has the ability to 
adapt quickly.
    History demonstrates the value of an agency with such 
singular focus and mature capabilities regarding regulation and 
supervision.
    Following the crisis of 2008, our country's banking system 
recovered faster than the rest of the world because regulators 
and bankers together recognized losses and worked through 
troubled assets more quickly than our international 
counterparts. U.S. banks recapitalized faster, established 
stable liquidity, while other global economies lagged.
    Our economy recovery has been steady. We are now in the 
second longest period of expansion in our Nation's history, and 
banks have been part of that success. Our banks have capital 
and liquidity approaching historic highs. Credit and asset 
quality are near pre-crisis quality, and bank risk management 
is better than at any time in my 35-year career. This is a 
testament to good supervision as well as sound bank management. 
That strength helps bank realize their potential of being 
engines of job growth and economic opportunity.
    I congratulate the Chairman and this Committee on passing 
the Economic Growth, Regulatory Relief, and Consumer Protection 
Act. The act achieves common-sense, bipartisan reforms that 
eliminate unnecessary burdens, promote economic growth, and 
continue to safeguard core elements of safety and soundness in 
our system.
    I am fully committed to implementing the changes in the law 
as quickly as possible. I will work with my fellow regulators 
on a collaborative interagency basis where appropriate. When 
existing rules may conflict with the Economic Growth Act or the 
statute provides transition periods or where the law requires 
agency rulemaking for implementation, the OCC plans to 
supervise institutions consistent with the intent of the law, 
including with respect to the amendments to the stress testing 
requirements and will not enforce requirements on banks that 
the bill intends to eliminate.
    As a bank executive, I relied heavily on the judgment and 
experience and counsel of the OCC examiners. They helped me to 
identify issues and address them effectively before the 
concerns became serious problems. I felt the OCC examiners 
understood what we as bankers were trying to achieve and how we 
worked to meet the financial needs of our customers. I slept 
better knowing the OCC supervised my bank, and you can sleep 
better knowing that the men and the women of the OCC are on the 
job.
    In closing, I want to congratulate you, Chairman Crapo, on 
your leadership of this Committee, and thank you for allowing 
me the time to share my perspective as Comptroller. I look 
forward to your questions.
    Chairman Crapo. My first question is going to be on your 
horizontal review. I appreciate the letter you sent me earlier 
this week about the OCC's horizontal review of sales practices 
at large and midsize banks with significant retail customer 
sales activities. Can you just tell me about the OCC's findings 
and what you found and learned in this horizontal review?
    Mr. Otting. Sure. Chairman Crapo, in 2016 the OCC started 
what we call a ``horizontal review.'' It is frequently that we 
will do horizontal reviews amongst the agencies when we see 
particular risks that we think can be contained throughout the 
industry.
    We concluded that review in the fourth quarter of 2017. It 
was the primary focus of the agency over about an 18-month 
period. More than 40 national banks were involved in that, and 
we looked at the new account openings without customer consent, 
which included mortgages, auto, credit cards, checking 
accountable, savings accounts, money market accounts, and then 
any products that would be joined by those products, which may 
include overdraft protection or other items.
    The banks completed a look-back over a 3-year period, which 
included hundreds and hundreds and millions of new accounts. We 
sent the final letters to the bank CEOs on June 4th. We did 
follow up to the Chairman and Ranking Members of Congress with 
a recap on June 11th, which you referenced. The OCC did not 
find persuasive or systemic issues in regard to the improper 
account openings, but did find the need for banks to improve 
their policies, procedures, and controls. And I would say the 
key takeaway from this was that our focus of having 
institutions develop better controls and better policies around 
it, but we did not find the issues that this was systemic 
across the industry.
    With this horizontal, we issued over 250 MRAs, and 20 
percent of those have been closed. And to put that into a kind 
of context, we currently have 4,000 MRAs outstanding. So while 
substantial, it was not, you know, I think illustrative of it 
being a large issue.
    Our findings were that less than 20 accounts out of the 
hundreds and hundreds of millions, less than half of those were 
due to unauthorized account openings. And I would also make 
note that it was determined that where there was an account 
that was opened, the banks are creating reimbursements for 
those dollar amounts, and we feel every consumer will be 
reimbursed if they can document that account was opened 
inappropriately.
    Chairman Crapo. Thank you. So the short summary is that 
about 20,000 accounts were identified where the documentation 
was not present or could not be located out of around 300 
million accounts that were reviewed?
    Mr. Otting. Yeah, we actually think the numerator is more 
between 500 and 600 million.
    Chairman Crapo. OK. So 500 to 600 million reviewed and 
around 20,000 that were identified. And of those 20,000, is it 
a conclusion that all 20,000 of those were wrongly opened or 
just not documented?
    Mr. Otting. No, we estimate slightly half of those were 
opened inappropriately, and the other half there was missing 
documentation that the banks could not prove that they had the 
data to open the accounts.
    Chairman Crapo. All right. Thank you. I appreciate that, 
and I appreciate the attention that has been given to this 
issue.
    My last question will be related to the company-run stress 
test. You referenced this in your opening statement. As you 
know, the stress tests are due for financial companies with 
total assets between $10 billion and $50 billion in July, and I 
strongly encourage you and the other banking regulators to 
provide guidance to financial companies about how S. 2155 will 
be implemented and make sure that financial companies with less 
than $100 billion in total assets receive the relief the bill 
intends immediately, consistent with congressional intent.
    Can you commit to me that you will work quickly on 
implementing S. 2155 generally and to provide guidance on 
stress tests for financial companies with total assets of less 
than $100 billion specifically?
    Mr. Otting. Yes, Chairman Crapo, first of all, thank you 
very much. We have made that statement to the financial 
institutions. We have made that statement publicly. And then in 
regards to the overall implementation, we have created a 
critical path document that I have in my possession where we 
have harnessed resources within the agency. We have identified 
items that can be done within the agency, and then the ones 
that require interagency, and there has already begun a process 
of discussing and creating teams to work on the interagency 
activity. So we fully intend to dedicate the necessary 
resources to achieve that objective.
    Chairman Crapo. Thank you.
    Senator Brown.
    Senator Brown. Thank you, Mr. Chairman.
    At the hearing yesterday, Mr. Comptroller, you were asked 
if you believed discrimination exists. You said that because 
you have never personally observed it, you cannot say. But you 
have had ``friends from the inner city'' tell you it exists and 
you believe them. And you were asked if you have ever read 
about discrimination, you said that you did, but that writers 
are only correct about half the time, and then you said you do 
not read newspapers. These are unbelievable statements for any 
adult in America, especially one that took an oath of office 
like you did, but let me ask you a couple of questions.
    Does hiring through the old boys' network serve as a 
headwind for women and minorities, whether in banking or 
Government?
    Mr. Otting. My response to that would be I would not 
support those kind of activities. I think there are equal 
employment opportunity laws in this land that people adhere to, 
and I am not aware of any old boy network that I would 
associate with the banking industry. So I personally do not--
have not observed that activity, and I would also say, to 
answer your question, if there was a network like that, I would 
not support that, and----
    Senator Brown. Well, you cannot--I know you do not read 
newspapers. You could not go to the New York Times and say, 
``This is the good old boys' discriminating network.'' But let 
me give you an example. When you and Secretary Mnuchin and the 
rest of the OneWest board signed a consent order with 
regulators--we know about all the foreclosures that your bank 
did--signed a consent order over foreclosure misconduct, your 
nine-member board--I could read the names; I will not bother--
they were all men. I do not know if you set out to say, ``I am 
only going to hire men,'' but I have got to think the old boys' 
network that you ended up being part of would have something to 
do with it.
    So it begs the question to me that you have never seen 
discrimination, in your mind, but some friends from the inner 
city told you there was discrimination, so you believe them 
even though you only believe half of what you read in the 
newspaper. And then you are saying that you never saw any 
discrimination in hiring even though, coincidentally, all nine 
of the people on your board were men. I do not know if they 
were all white men. I assume--I do not make assumptions, but I 
know they are all men.
    So does that not suggest to you maybe there is an old-boys' 
network in hiring and that maybe people that look like you and 
me and Schatz and Van Hollen and Jones and Toomey and Rounds, 
that we might have an advantage in hiring because we know 
people that look like us and that is who usually gets hired for 
banks? Did that ever occur to you?
    Mr. Otting. First of all, I appreciate you do recognize 
that I signed that consent order right after I joined the bank, 
and I am proud to say that we diversified that board under my 
leadership. So I do not think it stayed in the format that you 
describe.
    Senator Brown. But they go there, these 10 men. I am not 
saying you did it. I am saying you do not seem to recognize 
that discrimination exists----
    Mr. Otting. What I said was----
    Senator Brown. ----because you have never seen 
discrimination.
    Mr. Otting. What I said was that under my leadership we 
diversified that board, and so that would give you an 
indication while I was there, the actions that I took. There 
are tools, trainings, and laws in place to avoid 
discrimination. There is lots of evidence of inequity in the 
world. I would tell you just because I have not personally 
experienced it that I am not saying it is not----
    Senator Brown. No, no, no. You did not say--you have said 
you did not personally--you said you have never seen it, but 
some friends in the inner city----
    Mr. Otting. No, that is not true. I mean, being part of an 
institution or bank over the course of my career, I have--there 
have been instances among employee groups----
    Senator Brown. That gives me a little more confidence.
    Mr. Otting. ----they get referred to HR. There are 
investigations, there is corrective action. What I was saying 
was I personally have never experienced it.
    Senator Brown. I think you said you personally did not see 
it, but----
    Mr. Otting. Well, then, let me correct the record.
    Senator Brown. OK. I think you said it a number of times. 
So why should--with your--I am sorry to say it this way, but 
your insensitivity generally to these issues just evidenced by 
your response to----
    Mr. Otting. That is not true.
    Senator Brown. Well, insensitivity----
    Mr. Otting. That is not----
    Senator Brown. I read your testimony in the House, but let 
me go to this: So, fundamentally, why should the public trust 
you to overhaul the Community Reinvestment Act, a product of 
the civil rights movement meant to address generations of 
segregation and exclusion, if you do not seem really--I mean, 
you just do not even seem certain that discrimination exists. 
In response to Congressman Capuano and Congressman Cleaver, you 
did not ever say, ``Yeah, discrimination exists. I know it 
exists.'' You had to come to the conclusion it exists because a 
``friend in the inner city'' told you it exists. So why should 
we trust you, the public, the Congress, the civil rights 
community, to address generations of segregation and exclusion 
by overhauling the Community Reinvestment Act the way it should 
be overhauled? Convince me.
    Mr. Otting. Thank you very much for that question. I think 
if you look at my top three agendas, two of those top three are 
redefining CRA and small-ticket lending, which go right to the 
core of what you are describing, the people in America that 
need the most help. I am all about expanding CRA into the low- 
to moderate-income areas across America, and small-ticket 
lending, when we took banks out of that space that offered a 
fair alternative to people, people ended up with check cashers, 
payday lenders, liquor stores. That is not the source where 
people can go and get quality bank products and get back into 
mainstream banking. So two or three of my core agenda items are 
focused right on those people you are describing.
    Senator Brown. So if you--OK. I hear you. If you cannot 
just directly say to a congressional hearing discrimination 
exists, will you make this promise? You are arguing now that 
you say, yes, you recognize that it does exist. Will you 
promise us to move forward on a CRA overhaul only if you have 
the full support of the civil rights community? Only if you 
have the full support of the civil rights community. I 
understand you said you are going to do an overhaul. Overhaul 
can mean a lot of things. It can be deregulation----
    Mr. Otting. They will be one of the----
    Senator Brown. ----it can be a lot of things.
    Mr. Otting. ----to provide us feedback through the ANPR, 
and they will be at the table discussing----
    Senator Brown. I understand they will be at the table, but 
some people are at the table and ignored by others at the 
table. Will you commit to this Committee----
    Mr. Otting. They will be at----
    Senator Brown. ----that if there is not consensus in the 
civil rights community, you will not move that direction on CRA 
overhaul?
    Mr. Otting. They will be at the table having discussions 
like all parties involved in the CRA----
    Senator Brown. That is the most you are going to commit?
    Mr. Otting. I stand by my answer.
    Senator Brown. OK.
    Chairman Crapo. Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. I cannot help but 
observe that there are more than a handful of Senate 
delegations from various States, including Pennsylvania and 
Ohio, which consist exclusively of middle-aged white males. It 
is not obvious to me that the voters of those States are all 
part of a good old boys' network.
    Let me raise a question about Madden v. Midland, a decision 
I am sure you are aware of. The Second Circuit Court of Appeals 
ruled that nonbank entities, when they purchase loans and debts 
originated by a national bank, will no longer be entitled to 
the Federal preemption from the State usury laws. This is a big 
departure from the practice and the precedent that had 
prevailed under the valid-when-made principle. Even the Obama 
administration argued that the Madden decision was wrongly 
decided. And the result of it, of course, is uncertainty on the 
part of a potential buyer of a bank asset, uncertainty as to 
whether or not these usury laws will apply.
    A dramatic reduction in credit access for low-income people 
has already occurred. Quite predictably, if banks cannot be 
confident that they can sell these loans, they are just not 
going to originate them in the first place. And Columbia 
Professor Robert Jackson, who is now a Democratic member of the 
SEC, found that borrowers with credit scores under 625 saw a 
52-percent reduction in credit access after the Madden 
decision.
    Now, the Second Circuit based their decision in part on the 
notion that they allege that the ability to sell these 
instruments to nonbank buyers--the inability to do so would not 
hinder national banks' operations.
    So my question for you, Comptroller Otting, is: Is it your 
understanding that the ability to buy and sell loans that banks 
originate is, in fact, an important part of how they manage 
their credit exposure, their business generally, and that it is 
good for consumers for banks to be able to sell these assets 
broadly, including to nonbank entities?
    Mr. Otting. Yes, I do agree. I also do agree, I think, that 
the Madden ruling was inaccurate. I think national banks need 
the ability to originate those credits per the National Banking 
Act and then be able to distribute and sell those loans. That 
does create a capacity in the marketplace for the originators. 
And a lot of banks are interested in that product, and so I 
think it expands the choices for consumers.
    Senator Toomey. And are there specific steps you could be 
taking at the OCC to try to solve the problems that are created 
by this decision?
    Mr. Otting. I would have to--I believe we filed a brief--we 
did file a brief in this matter supporting our position.
    Senator Toomey. OK. I would urge you to continue to pursue 
that as much as you can because I think this is simply making 
credit less available, especially to low-income borrowers, as 
long as this stands.
    The second point I wanted to raise is, as you are aware, 
there have been instances where regulators have used guidance 
issuance as a way to circumvent the Administrative Procedures 
Act and impose their will without going through the proper 
rulemaking. The CFPB did so in the case of the indirect auto 
lending rule, and Congress repealed that when the GAO 
determined that that guidance constituted a rulemaking. GAO 
also determined that the leverage lending guidance constituted 
a rulemaking.
    My question for you is--I would just like for the record 
for you to assure us that you do believe that a binding rule 
must go through the APA process, must go through the rulemaking 
process, and that a guidance issued by a regulator should not 
constitute a binding rule.
    Mr. Otting. I do agree that a rule should go through the 
binding process. I think there was one item, the leverage 
lending, that the OCC could be accused of using that as a rule. 
We have done an incredible amount of in-depth training and 
discussion within the agency with our examiners that that is 
this particular guidance. I have publicly said that on a number 
of occasions when I have had speeches to recognize that 
guidance is guidance and rules are rules. And so I think we 
have taken an aggressive posture to make sure that that is 
known within the agency.
    Senator Toomey. So just to be clear, if you believe that it 
is necessary to have a binding rule on leverage lending, you 
would pursue that through the Administrative Procedures Act?
    Mr. Otting. We would, correct.
    Senator Toomey. Thank you very much.
    Thanks, Mr. Chairman.
    Senator Brown [presiding]. Thanks, Senator Toomey.
    I just want to correct the record on the Ohio delegation. 
On the Democratic side, there are five members of the 
delegation. There are two African American women, one white 
woman, and two white men. So I----
    Senator Toomey. I said Senate.
    Senator Brown. Well, I am saying the delegation. And that 
is about the same--well, the delegation as a whole is about the 
same size as the OneWest board.
    Senator Schatz.
    Senator Schatz. Thank you.
    In October of 2017, the OCC made a pretty significant 
change in how OCC evaluates banks' performance under the 
Community Reinvestment Act, and this change is significant. It 
is a little technical, but it is baffling. Before the change, 
if a bank engaged in discriminatory lending practices, that 
activity logically impacted that bank's CRA rating. That is 
intuitive because the CRA was passed to stop discriminatory 
lending practices. But now the OCC has decided that a bank's 
discriminatory lending practices should not impact the CRA 
score if the discrimination is not related to CRA lending. 
Under this new approach, a bank that discriminates and engages 
in illegal activities, as long as it is lending outside of CRA 
lending, could get an excellent CRA rating. Why?
    Mr. Otting. I think the issue in October was it went from a 
2 downgrade to 1 downgrade. But I----
    Senator Schatz. Why?
    Mr. Otting. That was made at that particular time--it was 
prior to my arrival in the agency. I would be happy to look at 
that and follow up with you.
    Senator Schatz. You do not know why?
    Mr. Otting. I do not have the facts why that decision was 
made. It was prior to my arrival in the agency. I have been 
more focused on----
    Senator Schatz. So CRA was passed to stop redlining, 
correct?
    Mr. Otting. Yes. It was one of the reasons----
    Senator Schatz. Right, one of the reasons. And if a bank is 
engaged in discriminatory lending, the OCC would want to make 
sure that that stops?
    Mr. Otting. Oh, definitely.
    Senator Schatz. So then why would we ignore evidence of 
discriminatory lending practices when evaluating a bank's CRA 
performance?
    Mr. Otting. I do not think it would be ignored. Going 
through the process--if you understand what generally happens 
when we start a CRA exam, we review the HMDA data----
    Senator Schatz. So let me just read from the document: 
``This principle ensures that the CRA evaluation does not 
penalize a bank for compliance deficiencies or illegal credit 
practices unrelated to its CRA lending activities.''
    Mr. Otting. I apologize. I do not have that data in front 
of me. I would be happy to go back and review it and come back 
and either meet with you one-on-one or have our staffs discuss 
it.
    Senator Schatz. You do not know why this happened? You do 
not know that----
    Mr. Otting. It happened prior----
    Senator Schatz. Because, first of all, you said--hold on a 
second.
    Mr. Otting. It happened prior to my arrival.
    Senator Schatz. Hold on.
    Mr. Otting. I have not focused on that----
    Senator Schatz. Not 6 years prior to your arrival.
    Mr. Otting. Yeah. Probably 60 days before my arrival.
    Senator Schatz. Sixty days?
    Mr. Otting. Yes.
    Senator Schatz. And we are here to talk about CRA, and you 
do not know why this happened or exactly what happened, because 
you just said it downgraded it in terms of the score, but it 
actually says ``does not penalize a bank for compliance 
deficiencies or illegal credit practices related to its CRA 
lending activities.'' So the question becomes: Why would we do 
that if the CRA is established for the purpose of preventing 
discriminatory practices?
    Mr. Otting. Senator Schatz, I would be happy to review that 
data.
    Senator Schatz. Well, what do you think?
    Mr. Otting. I have focused more on how can we make CRA more 
effective, how can we be more inclusive.
    Senator Schatz. OK. Now that you know a little bit about 
this, what do you think?
    Mr. Otting. My own personal viewpoint is that we should 
never allow discrimination in any kind of lending activities to 
occur, and if it does, it should have an impact on their CRA 
rating.
    Senator Schatz. Will you commit to revisiting this 
decision?
    Mr. Otting. Oh, absolutely.
    Senator Schatz. Thank you.
    Another question. Will you commit to providing the 
Committee with a comprehensive and detailed summary of the 
findings from OCC's sales practice review?
    Mr. Otting. Senator, there is a long legislative, 
regulatory, and case history protecting confidential 
supervisory information for good reason. Maintaining 
confidential supervisory information promotes more effective 
supervision and the orderly function of the national banking 
system. Maintaining the privileged and confidential information 
also protects the agency's prerogative to take additional 
supervisory enforcement action on that information----
    Senator Schatz. Who wrote that?
    Mr. Otting. Huh?
    Senator Schatz. Who wrote what you just read?
    Mr. Otting. I wrote it. I wrote it in conjunction with my 
staff. I view at this point in time we are in the middle of 
supervisory action, and to release that information would be 
inappropriate.
    Senator Schatz. I guess the problem is that one of the 
things that we are hearing is that the Wells Fargo problem is 
much more widespread than we had initially thought, that it is 
not confined to Wells Fargo. I understand that your supervisory 
procedures--that there is a tension here in terms of 
maintaining confidentiality, and I respect that. But there is a 
pretty significant issue if we find out that what happened at 
Wells Fargo was actually widespread across the economy and 
across the country, and because of this objective you have to 
maintain confidentiality and discretion, that American 
consumers are getting screwed and they do not get to find out 
about it until 18 months later or 3 years later. That is a 
problem.
    So what are you going to do about that part? How are you 
going to address that tension?
    Mr. Otting. First of all, I can assure you, based upon the 
data that I have personally reviewed, that that is not 
accurate. Your statement is not accurate. This was not systemic 
across the banking industry. There were isolated cases of it. 
And so I can assure you that as we go through the supervisory 
data that employees--and there has been----
    Senator Schatz. So you are able to talk a little bit about 
the data. So if these data change, if there is an indication 
that there is something more widespread, will you provide that 
information to the Committee?
    Mr. Otting. I would be happy to come back to the Committee 
and have a discussion.
    Senator Schatz. Should I take that as a yes?
    Mr. Otting. Yes.
    Senator Schatz. OK. Thank you.
    Chairman Crapo [presiding]. Senator Rounds.
    Senator Rounds. Thank you, Mr. Chairman. Comptroller 
Otting, first of all, thank you. I appreciate the opportunity 
here to visit with you.
    I was just curious earlier when Senator Brown had asked 
some questions concerning CRA, you mentioned the availability 
of or at least the need for the availability of some short-
term, small-dollar lending. I want to go into that a little bit 
because millions of Americans use small-dollar loans to pay for 
unexpected expenses, car repairs, medical bills, and it is 
pretty clear that there is a significant demand for these 
products, and having establish institutions actually offer them 
can provide the market with better alternatives and more 
competition than simply payday lending or in some cases where 
they are literally going to a loan shark to get a loan, because 
they are going to get it from someplace.
    I am just curious. While the banks probably have some 
additional clarity, can you talk a little bit about your focus 
and your thoughts about how to provide for that market for 
those small-dollar loans on short-term time periods?
    Mr. Otting. Sure. Senator Rounds, we issued a bulletin 
about 2 weeks ago to the national banks where we indicated to 
them that we encourage them to participate--there are two 
market segments here that people can get confused by. There is 
the 45 days or less, which generally is referred to as ``payday 
lending.'' That generally has one payment based upon a paycheck 
or an event occurring. And then there is the 46 days or more 
where generally there is some term associated where there are 
multiple payments usually from that. What we addressed in the 
bulletin was that 45 days or longer. And in 2013 banks 
basically exited that market, and for the life of me, I do not 
understand, if you take, you know, the banks out of a space 
that were providing a critical source of capital, that it did 
not end up being worse for consumers and they had less choice.
    So one of my initiatives was to get banks back into that 
space and do it in a fair and, I think, economically viable way 
for consumers, that they have an alternative from financial 
institutions. So I have personally met with all the large bank 
CEOs--I started doing this after I arrived--to encourage them 
that we would be releasing a bulletin, and many of the 
financial institutions now are looking at products. It does 
take a while to go through a risk management review as they 
bring these products back up online, but I am confident more 
banks will enter into that sector. And we also provided a lot 
of clarity for our smaller community banks that this is 
something that we want them to do.
    Senator Rounds. I think that probably is an unsung part of 
a major improvement in banking opportunities for a significant 
part of our population across the board.
    Mr. Otting. I agree.
    Senator Rounds. Let me ask also about ag lending a little 
bit. In the upper Midwest, in South Dakota, you know, we have 
suffered through some low commodity prices. We had a drought 
last year that significantly impacted our ability to actually 
raise crops. Credit is critical, and I think this year once 
again we are going to have the same challenges.
    Can you talk a little bit about what you are seeing, the 
observations of the reports that you have had with regard to ag 
lending, the challenges there and what you see as perhaps 
either modifications or things that we can do to perhaps 
improve our ability to actually lend to these producers during 
some tough times?
    Mr. Otting. I think there are two things kind of occurring 
that people are concerned. In addition to natural disasters, I 
think, you know, there is an expectation of softening of 
commodity prices. And then you get the kind of double whammy of 
an increasing of interest rates. So I think our examiners, you 
know, in that space are spending a lot of time talking to the 
banks about their plans with their customers to get them 
through this period of time. As you know, the volatility in the 
ag market, you know, we can have a couple rough years, and then 
hopefully followed by solid years that allows farmers to be 
recapitalized. But, you know, the intent is--what we are 
hearing is banks are prepared to work with their clients to get 
through these difficult periods.
    Senator Rounds. I guess the point I would like--I am glad 
you make it. These banks have to be able to work with their 
clients. They know them. They have had relationships that in 
many cases go for generations.
    The one thing I would not want to have happen is because of 
audit procedures or inappropriate guidance that these banks be 
pressured into not allowing them to do what they do best, which 
is to make appropriate judgment decisions about the extension 
of credit in what can be challenging cyclical times for ag 
producers. And it sounds like you are on board with that.
    Mr. Otting. Yes, I am.
    Senator Rounds. Thank you.
    Let me ask one last thing, just on cyberissues. Do you feel 
comfortable that, with regard to the financial institutions, 
there is a broad understanding of the critical need to protect 
our assets that are related or directly connected with our 
cyberlinks?
    Mr. Otting. Yes, on an annual basis, the national banks, we 
go in and part of our annual examination we look at the 
security perimeters. We look at the hardware, we look at the 
software, we look at the patchwork, and we make assessments of 
that for each individual bank, and if we see any deficiencies, 
we will generally issue MRAs for correction.
    We also look as part of that process, you know, at what 
does their recovery platform and program look like. I would say 
that we are confident that the banks that we provide oversight 
to, it is high attention both by management and boards. 
However, I would say, you know, the consumer today has become 
so reliant upon their debit card and credit card and carry a 
lot less cash that that would be the thing that would worry me. 
If we were down for a couple days, people could not buy gas in 
the morning, get Starbucks coffee, stop and get lunch, go to 
the grocery store because we have become such a card-based 
industry.
    There also is a lot of coordination amongst the 
interagencies with Treasury on cyber-related issues, and we are 
meeting tomorrow afternoon on this topic. So it is receive the 
attention, but it is the unknown, as you know, Senator Rounds, 
that gives us all angst, I think, as we try to manage our way 
through this.
    Senator Rounds. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Warren.
    Senator Warren. Thank you, Mr. Chairman. Thank you for 
being here today.
    So banks get charters from the Government, which entitles 
them to special privileges. In exchange the Government expects 
them to meet the credit needs of communities in which they 
operate. And that is the idea behind the Community Reinvestment 
Act, or the CRA.
    The OCC is responsible for enforcing that law, and you have 
said you are supportive of the intent of the law, but you think 
it needs to be updated, and I just want to explore a little bit 
about what that means.
    Last year JPMorgan Chase admitted that its African American 
and Hispanic borrowers systematically got mortgages with higher 
rates and fees than comparable white borrowers. And according 
to a new report, African Americans make up 47.7 percent of the 
population of Washington, DC, but they received only 2 percent 
of JPMorgan Chase's mortgage loans in the city in 2015 and 
2016.
    So are JPMorgan's practices consistent with the CRA's 
intent that banks ``meet the credit needs of their 
communities''?
    Mr. Otting. Based upon their rating that they have in their 
CRA, I would say at an overall organizational perspective they 
do. I think in Washington, DC, you are aware they do not have 
branches. They have a specific business line. I think the 
intent of JPMorgan is to open up a retail banking franchise, 
and I think that would aid some of the issues that you have 
described.
    Senator Warren. So you are saying that when they admit that 
African American and Hispanic borrowers systematically got 
mortgages with higher rates and fees than comparable white 
borrowers, that was OK? In fact, I see----
    Mr. Otting. I did not say that was OK.
    Senator Warren. ----that they were rated by your group as 
satisfactory or outstanding on every one of their publicly 
available CRA evaluations?
    Mr. Otting. I did not say the issue you described was 
satisfactory. I said as an overall organization they received a 
satisfactory rating.
    Senator Warren. So you get a satisfactory rating even if 
you are engaging in that kind of behavior?
    Mr. Otting. There is a multitude of factors that go into a 
CRA----
    Senator Warren. All right. Well, then let us look at 
another bank. A new report found that 54 percent of black 
families, 45 percent of Latino families who tried to get a 
mortgage from TD Bank are turned down. That is more than three 
times higher than the industry average. Are TD Bank's lending 
practices consistent with the intent of the CRA?
    Mr. Otting. I do not--I am not familiar with TD America's 
actual community reinvestment, but I would say from a fair 
lending perspective, the facts that you are submitting would 
indicate that they have fair lending issues.
    Senator Warren. Issues. It turns out that the regulators 
who report to you seem to think that it is all OK. TD Bank has 
received either a satisfactory or outstanding rating on every 
one of its publicly available CRA examinations in the past 20 
years.
    So let us take a look at one more bank: OneWest, which I 
know you are familiar with because you used to run it. 
Community groups filed a fair housing complaint against OneWest 
at HUD in 2016 citing widespread discrimination against Asian, 
black, and Latino mortgage applicants. While Latino borrowers 
took out 22.4 percent of mortgage loans in Southern California, 
only 8.4 percent of OneWest's mortgages went to Latinos. 
OneWest apparently avoided putting branches in minority 
communities and failed to maintain the foreclosed properties in 
minority neighborhoods.
    Mr. Otting, do you think your former bank's track record is 
consistent with the intent of the CRA?
    Mr. Otting. I do think that we were consistent with the 
intent. I think that you are looking at an incredibly small 
population that you based your statistical analysis on there, 
and that was our viewpoint from the beginning, that we were not 
in the mortgage business at that point in time.
    Senator Warren. Your bank had one out of 74 branches in 
Southern California, just one was in a majority minority 
neighborhood in that entire region. And this is the fundamental 
question about the CRA. You get that banking charter in return 
for serving the community. But evidently the community that 
OneWest wanted to serve was not the Latino community, the 
African American community, or the Asian American community.
    Mr. Otting. Could I offer a correction on one thing? We did 
not open but one or two branches the entire time. We inherited 
every one of those branches from failed institutions, and you 
are focusing on the lowest to low. If you looked at the low to 
moderate, we did have more dispersion into those markets.
    Senator Warren. I am sorry. I am just looking at the facts 
that are part of the public record here.
    Mr. Otting. The facts that maybe come from a particular 
organization that was trying to----
    Senator Warren. These are the facts that are in the public 
record. You had one out of 74 branches--no point in going back 
over the data. I am running out of time here. But, you know, 
what bothers me is, despite obvious attempts to avoid serving 
communities of color, OneWest passed all of its CRA exams. And 
so the problem I am facing here is that you say the CRA needs 
to be updated, and I am concerned that the man who ran OneWest, 
the man who said that the banks are his customers--the banks, 
not the American people--at the OCC, and the man who said 
yesterday in a hearing that he had personally never observed 
discrimination is not the right man to rewrite the Community 
Reinvestment Act.
    The CRA needs to be a lot tougher than it is today. The 
standards need to be higher. The enforcement needs to be more 
rigorous. Studies show all across this country that black and 
Latino borrowers get far less access to mortgage credit than 
comparable nonminority borrowers, and yet 98 percent of banks 
today are passing their CRA exams.
    If you weaken the CRA now, you are only going to push even 
more struggling families across this country out of the middle 
class.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Tillis.
    Senator Tillis. Mr. Otting, you did not get an opportunity 
to respond to that last loan, so before I ask you some 
questions, do you have anything that you would like to add with 
respect to the prior discussion with Senator Warren?
    Mr. Otting. No, I would say I--first of all, it will not be 
me who will do the CRA changes. It will be the communities to 
which the CRA is generally deployed. And I have been a big 
supporter of how we can drive further and deeper into the 
communities across America, and I think my track record stands 
for itself on those.
    Senator Tillis. Well, that was going to be my first 
question. When you get to the unbanked or underbanked 
communities that do need access to financing through lenders, 
what does the world look like a year or 2 years from now if you 
are successful with making that a priority?
    Mr. Otting. I think when you look at CRA today, there are 
three things we would like to solve for. Today we do not have a 
good economic measurement way that we can compare across 
different financial institutions in different markets. And so 
one of the frameworks that we have been talking about is using 
a balance sheet item, whether that is deposits, Tier 1 capital 
of total assets, and then an NCB could add up their CRA 
activities and come up with a percentage.
    Second of all, we would like to expand what qualifies for 
CRA today. It is narrowed down to predominantly residential 
mortgages and multifamily, and we think there are many more 
community activities plus small business lending is capped at 
$1 million of revenue.
    And then the third is we do CRA exams every 3 years, and it 
takes us 6 months to 24 months to turn those around. If we can 
fix the economic side of that, we can turn those around much 
faster.
    And then I would say with some of the small-ticket lending 
things that we are proposing that we have given banks insight, 
we want banks back into those--lending in those communities 
where Senator Rounds said, you know, we have a big void of 
banks playing a role in inner-city America of offering credit.
    Senator Tillis. Incidentally, do you think the banking 
regulatory reform act that we sent to the President that is now 
the law, do you think that that will also play a role in terms 
of easing the burden on the smaller banks and community banks 
and possibly getting lending flowing as you are working on the 
CRA?
    Mr. Otting. I definitely do. I think in a number of those 
instances, community banks that have been so focused internally 
on regulation now will be freed up to serve their customers in 
their community.
    Senator Tillis. Mr. Otting, when you were here for your 
confirmation hearing, I asked you how many tips there were on a 
spear, and I think we got it cleared out. There are two ends, 
but only one tip. And the reason I mention that is that we 
still have a lot of--we are at least getting to a more 
rationale framework for regional banks and smaller banks, 
community banks. But we still have a lot of confusion about 
just who is regulating what in the financial services industry. 
And I think you and I may have a difference of opinion on a 
single regulator for Volcker.
    I think Mr. Quarles is doing a pretty good job of engaging 
the other regulators, so I am trying to understand--that may be 
an issue that we will be at odds with each other. I am trying 
to understand why you would have a fundamental disagreement 
with Volcker coming under the Fed.
    Mr. Otting. Well, first of all, I do agree with you, we 
have a very good relationship with Randy Quarles. I think he 
has done an incredible job.
    The other comment I would make is that every week the FDIC, 
the Fed, and myself, the leaders meet. We have lunch once a 
month. We have an open forum to talk about any outstanding 
issues. So I think recently here we have really gotten strong 
momentum on our ability to work across the agencies.
    I think on particularly Volcker, if you look at where the 
activity is, it is probably 45 percent in banks and 55 percent 
of the holding company, and I think they have such a critical 
element that our examiners are responsible for not to have a 
voice in the final rule would be a fatal flaw.
    Senator Tillis. Speaking of the Volcker Rule and the 
proposed changes, what do you think those proposed changes are 
likely to do in terms of positive impact on the regulated 
community?
    Mr. Otting. I think it will bring clarity. It will bring 
clarity for the banks, and it will bring clarity for the 
examiners as we are trying to determine the proprietary trading 
element. I think, you know, I personally commend what the 
Committee and legislators did regarding the law of excluding 
banks of $10 billion or less. And over $10 billion we have gone 
to an accounting methodology. It may not be the best solution, 
but it is a solution that I think we can all get behind.
    Senator Tillis. I know we are running tight on time for 
votes, so I will just let you know that I am going to submit a 
couple of questions for the record. One has to do with a 
discussion on exempting investment and venture capital from the 
Volcker Rule, but we will send that as a question for later 
this week.
    Thank you very much of your time.
    Senator Brown [presiding]. Senator Jones.
    Senator Jones. Thank you. Mr. Otting, thank you for being 
here, and I am going to be short because I have got to get over 
to vote.
    Getting back to CRA is probably one of the most important 
things you are going to do for the folks of Alabama. So in the 
modern CRA exam, the type of action a bank takes is extremely 
important. Lending counts differently than investment, which 
counts differently than service. I think everybody tends to 
agree that we need to be encouraging and crediting more types 
of CRA-eligible actions, but there are concerns that if we 
start--about blurring those lines.
    My question to you is: What types of actions should count 
differently for CRA credit? What type of action like lending, 
investment, and service do you believe are more important to 
fulfill the CRA requirements?
    Mr. Otting. If your question is if we could place an 
emphasis, where would we like to see that emphasis?
    Senator Jones. Yes.
    Mr. Otting. Senator Jones, most CRA activity today is 
really single-family mortgages and multifamily in low- to 
moderate-income areas. And one of the bad parts of that is 
single-family mortgages often get packaged up in low- to 
moderate-income areas, and they can be sold amongst 
institutions. And so a new incremental dollar does not get 
created when that pool gets sold, but a bank will get credit. 
And I think we should bring a stop to that.
    Then I think there are some core areas that we should look 
at. Today if a small business is $1 billion in revenue, over 
that will no longer qualify for CRA credit. And I am a believer 
that if a business in East Los Angeles has $1.5 million of 
revenue and it is going to create 10 jobs and it is a heavily 
blighted area, we should give that CRA credit.
    I am also a believer in the inner cities of America. I 
understand the difference between church and state, but in most 
black and Latino communities, the church is where people go for 
their financial counseling and their job disciplines and help 
around training. And today if it has got a church associated 
with it, it is excluded from CRA. And I think what you need to 
do is isolate the community centers associated with churches 
and give them credit for CRA accordingly.
    Senator Jones. Thank you. You have made some comments--you 
know, I think banking has made great advances recently about 
trying to reach consumers outside their physical branches. But 
you have made comments that seem to de-emphasize the importance 
of branches. In Alabama that is really important. I mean, we 
have got so many communities that broadband does not touch, 
especially high-speed broadband. I think a lot of banking is 
personal in those communities.
    So what is your view on the importance of branches and how 
assessment areas should be calculated?
    Mr. Otting. I think assessment areas continue to be 
important in virtually all communities. I would say, Senator, I 
think assessment areas, though, have actually restricted CRA 
investment. I can give you an example. When I was running 
OneWest Bank, L.A. County was our assessment area, but we were 
also in Inland Empire, Venture, Riverside, and Orange County. 
And on one particular street, if the investment was on the 
south side, we did not get credit and on the north side we did. 
So I think you have to look at, you know, are we defining 
assessment areas too narrowly for people to invest in their 
community? I do believe around the branches we need to make 
sure that institutions are serving the communities around their 
branches. And then we have the whole issue of when entities do 
not have branches, where should they be doing their community 
development activities? And I think personally it should be 
where the customers are.
    Senator Jones. All right. Well, thank you.
    Mr. Chairman, I will yield the balance of my time so I can 
get over to the vote. We will have some questions for the 
record.
    Thank you, Mr. Otting.
    Senator Brown. Thank you, Senator Jones.
    Comptroller Otting, you said you want the OCC to be more 
responsive, you said, to our customers, which are the banks. 
How do the American people trust you to protect them from a 
financial crisis that cost them their jobs, their homes, their 
retirement, their neighborhoods if you say your customer is the 
banks, if you are there to serve the banks? How can they trust 
you to protect them from another financial crisis?
    Mr. Otting. I think, Senator Brown, most of those comments 
were isolated to when I was talking about that, you know, I 
want to partner with banks to get them deeper involved in the 
communities across America. What I mean by that is low- to 
moderate-income areas. I want them to be more active in 
participating in credit at the lower economic scale. I think we 
can partner with the banks and help encourage them to move in 
that space. We have well-defined risk assessments categories 
that are set forth, and when we examine a bank, these are done 
within the examination staffs that I have no influence on. And 
so I think you have to bifurcate between where we want to 
partner and what is our responsibility as an examiner.
    Senator Brown. Well, I hear you, and that is a pretty good 
answer. But in the context of you said we want more of a 
partnership with the banks as opposed to a dictatorial 
perspective under the prior Administration, you compared 
decisions by Comptroller Curry to the ``Wrath of Khan''. That 
suggests more--that suggests something different and your 
partnership term. I guess I would ask you this: After the 
global economy crashed a decade ago and the banks' contribution 
to that crash, they just had a record year, 13 percent increase 
in profits, had a decade mostly of more profits every year, 
double-digit percentage profits, and growth in most of these 
years. So it sounds to me like you think the banks have had it 
pretty tough, and it is mostly about deregulation for them.
    Mr. Otting. First of all, the comment on the ``Wrath of 
Khan'' had to deal with the leverage lending guidance, which we 
were not supposed to be using guidance as a rule. And what 
occurred there was they were implementing the leverage lending 
guidance as a rule, and I wanted it to be very clear that that 
is guidance, that it is not a rule, as was referenced earlier 
in this conversation.
    Regarding, you know, your point about deregulation of the 
bank, I do not--you know, I am comfortable with the framework 
of our regulation. I just think there are certain aspects that 
we can look at that it will be better for consumers, it will be 
better for the banks, and it will be better for the economy if 
we can remove things that I do not think aid the safety and 
soundness. Some of those are like BSA. I am a big believer 
people should not take bad money, put it into the system and 
take it out, but today we are producing 10 million pieces of 
paper that I do not think add value to the BSA process. If we 
can improve that, we can actually fix--correct and find the bad 
guys simpler, that is the thing I want to focus on.
    Senator Brown. The previous Comptroller was less 
concerned--he did not use the term ``partner'' as liberally as 
you did, but he was more concerned about fixing what led to the 
2008 collapse. He commissioned a study by experts and decided 
to remove bank examiners from the banks themselves and sent OCC 
staff back at OCC headquarters. One of your first acts as 
Comptroller was to reverse that decision, which you say was 
based on your personal experience, which to that point included 
about a month on the job at OCC. The New York Fed decided to 
move examiners out of the banks. The San Francisco Fed decided 
to move them out of the banks after they failed to catch the 
Wells Fargo fake account scandal.
    What do you know that the predecessors with more years of 
experience at two of the most important Feds in the country did 
not know?
    Mr. Otting. I do not think my 30 days was the relevant 
baseline to that. I think it was, you know, my roughly 35 years 
in the banking industry. And I would ask--I would be happy to 
share with you our model in the OCC so you understand that.
    We have three primary groups: we have a community bank 
model, we have a midsize model, and we have a large bank model. 
Our community bank model is actually done on regional offices 
where the examiners are actually domiciled in those regional 
offices. Our midsize bank, it is kind of a split between some 
are onsite and some are local. And our large banks are onsite.
    On the onsite bank examiners, just so you understand my 
comfort with this, is we do rotate those examiners every 5 
years, so an examiner cannot--and often we do it before the 5-
year period, because we were rotating these people amongst 
financial institutions across America.
    Second of all, we maintain both decentralized and 
centralized resident experts on various activities. So an 
examiner who does an examination is generally consulting BSA, 
CRA, compliance specialists, and there are those people looking 
over that work and often participating in those exams that are 
in a centralized environment. We have what we call a ``deputy 
comptroller'' that is assigned to each bank that provides 
oversight, that is actually not in the banks, that is offsite 
in the process. And my experience as a CEO of a bank, having 
onsite bank examiners that could go to any meeting they wanted, 
see any data they wanted, ride up and down the elevator with 
the employees and hear the chatter, what was going on in the 
bank, gave them the ears and eyes by being in that institution 
and what was going on. And I think other than one instance that 
I can remember in the last 5 to 7 years, that model has worked 
to our benefit.
    Senator Brown. Well, that was a good answer, again, but I 
hope you appreciate the suspicion and the skepticism and the 
lack of trust that American--that a broad swath, I think the 
overwhelming majority of the American people have toward banks 
and what the financial institutions, what Wall Street did to 
this country 10 years ago, what banks like OneWest did to this 
country--there was a long article in the Columbus Dispatch, a 
series of articles, I believe, about what your former bank--and 
I am not holding you responsible. I am not sure you were there 
at this exact, precise time, but what it did to force 
foreclosures more than there would have been with a different 
kind of institution, with robo-signings and other things. And, 
I mean, there is a reason that the public has a suspicion and a 
skepticism about the banking sector and the regulators. When 
this Administration--I mean, this Administration looks like a 
retreat for Wall Street executives, and when we see the 
Administration, the decisions they make on regulation, when we 
see the regulators that are put in place, so many of them come 
from Wall Street or come from banks, I would hope you would 
have an appreciation that when you do things like this and move 
the regulators into the banks, the public already thinks they 
are too close to you, the regulators are too close to the 
banks, anyway, and I hope you will have some appreciation.
    Let me move on to something else. Your OGE filings show 
that you purchased hundreds of shares in financial companies, 
including shares of a company the OCC supervises after your 
nomination was announced but before you took office. You then, 
to my understanding--and tell us if we are wrong--claimed the 
right to avoid an immediate tax hit on gains from the sale of 
those shares, meaning you loaded up on stocks, financial 
stocks, which are the ones we are most interested in, before 
your confirmation and then you deferred taxes on your 
purchases. Even if that is not illegal--and I do not know that 
there has ever been any--I am not saying there has been any 
prosecutorial action aimed at you. But even if it is 
permissible, why is it advisable to buy financial stocks after 
you are nominated for this position? Wouldn't it make more 
sense to tell your broker to stop purchases of financial stocks 
once you were under consideration for one of the most powerful 
bank regulating jobs in the country?
    Mr. Otting. First of all, I was in constant communication 
with the Treasury Department ethics department through this 
entire process. No one had ever at any point in time told me 
that was improper or illegal.
    Second of all, I would tell you that all of my proceeds 
were third-party managed. I had no input, no decisions, no 
involvement in any of those decisions. And so those decisions 
were being done entirely independent of any input or 
involvement of myself, and they constantly are rotating in and 
out of sectors and different stocks.
    What I would tell you is at the point in time that I was 
sworn in, you know, all of that activity was stopped, and then 
it took us a period of time to go through the dissolution 
process. But there was no, you know, bank stocks under the 
guidance of the OCC----
    Senator Brown. OK. I mean, to rely on the ethics people at 
this White House when a story just came out that one of two of 
the President's relatives' unpaid advisers made $80 million in 
his first year in office and all the stories with all the 
strongmen around the world and the discussions of the President 
making money and all that, all of those things, I do not really 
rely--I do not think you should rely on them on the ethics 
questions. But didn't it strike you as a little weird and that 
it would send a message to a skeptical public that you get 
nominated, you go and buy bank stocks after you are nominated? 
I mean, aren't we brought up to think at least it matters what 
people think about us that it could look like it is wrongdoing, 
it could look like you did it for the wrong reasons? I do not 
question your integrity here, but maybe your judgment. You buy 
stocks after you get appointed to a job like this. Didn't it 
occur to you that--sure, you run it by the ethics committees at 
the White House, whoever, whatever they are. But didn't it 
occur to you that you have some judgment to exercise here?
    Mr. Otting. Senator Brown, you may not be aware, but I 
began my nomination process in February of 2016, and I was 
sworn in and confirmed on November 27th of 2017--or excuse me, 
I have that backwards. In February--so almost 10 months that I 
was waiting to go through the process. So I would agree if this 
was a 30- or 60-day process it would have--but my investment 
advisers who has sole discretion on these investments were 
independently making those decisions.
    Senator Brown. I am just flabbergasted that that--because 
you had to wait 8 months, you could not buy stocks and you 
could not direct them to buy stocks somewhere else. I mean, you 
have made your mind up on this, but I am just flabbergasted 
that the ethics in this town now, ``because I had to wait 8 
months, I am going to buy financial stocks, then I am going to 
be the regulator here,'' and the ethics people at the White 
House with a capital E said it was OK.
    Let me ask another question. You approved recently a rule 
to weaken capital by $121 billion at the eight largest banks. 
FDIC did not sign on to this change. Are you at all concerned 
about risk to financial stability?
    Mr. Otting. First of all, we have a rule that is out for 
comment, and we will expect to get those comments back. You are 
also aware the Economic Act will change some of the provisions 
of that because of some of the institutions that we were 
looking to figure out what to do with the custody banks in the 
Economic Act. That is resolved. So I do not think the way it is 
currently formatted today will be the way that it is 
implemented, because it would be a little bit of double 
counting.
    Senator Brown. But you approved it that way.
    Mr. Otting. Yes, but I also want you to be aware that 
number would be as if in its single element the leverage ratio 
was the sole determinant. But that is actually a backstop 
capital ratio, and there are other ratios that will be more----
    Senator Brown. Well, why do you think it is----
    Mr. Otting. Because you have----
    Senator Brown. I am sorry, Mr. Otting. If you argue that it 
does not do damage to do this, which I guess you are arguing, 
why would it be something that you would want to do. Why should 
the bank--so the banks can be more profitable? Is that the 
reason? Have more money?
    Mr. Otting. Because the leverage ratio treats all risk 
equally, and by focusing on the leverage ratio and that being 
the hindrance, it potentially could force a bank into higher-
risk issues at the expense of lower-risk issues.
    Senator Brown. Are you arguing the eight largest banks are 
not doing well?
    Mr. Otting. No, I am not arguing that.
    Senator Brown. OK. I guess the question is: Why weaken 
capital now in the ninth year of a recovery with potential 
trouble ahead when the banks are more profitable than ever? You 
know, this recovery does not last forever. It started with the 
auto rescue. We have had--that is 8 years, 8-plus years, 90-
some months of job growth. Job growth admittedly was less in 
the first year of the Trump administration than it had been in 
the number of years prior to that. So it does not really matter 
who gets credit for it, but the recovery will end at some 
point. Don't you want the banks to be prepared for what they 
were not prepared for in 2007 and 2008? And does relaxing 
capital standards, doesn't it speak to that?
    Mr. Otting. The Federal Reserve--and I think Mr. Quarles 
made this comment that, you know, we felt it was $400 million 
when you take into account all the other ratios. So I do agree 
we want the industry to be well capitalized. We want them to 
understand their risks, and we want them to have high-quality 
liquidity to get through the next cycle.
    Senator Brown. Going back to the whole issue of skepticism 
and cynicism about you, us--I mean, I will throw all of us into 
this. It is not just the regulators. It is the Senate, it is 
the House. It is the CEOs that make tens of millions of dollars 
while a bank teller makes $12, $13 an hour. At my high school 
reunion 2 years ago, I sat across from a bank teller who had 
done it for 30 years, and she makes $30,000 a year after 30 
years. So with the skepticism people have toward bank 
executives and the cynicism and bank regulators, I just do not 
think that giving them more--I mean, they have done so well in 
the last few years thanks in part to the bailout with taxpayer 
dollars. They have done so well with the tax cut. They have 
done so well with the Crapo deregulation bill that my 
colleague, the Chairman, introduced and go through the Senate 
with Wall Street's loud approval. We are doing--it is just one 
thing after another we see you doing and Vice Chair Quarles 
doing and probably the FDIC starting to do, one thing after 
another that the banks ask for. And if we keep doing things the 
banks ask for, particularly since that is almost surely because 
the economic cycle is going to contribute to problems 1 year, 2 
years, 5 years, 10 years down the road--maybe you and I will be 
gone by then, but it just continues to create--to contribute to 
that cynicism.
    Let me ask one more question, and I think colleagues will 
be back. Let me go back to CRA. You have said that your CRA 
proposal will simplify the CRA to judge banks based on one 
ratio, not the multipart test used today. How do you verify 
that banks are meeting unique credit needs of different 
communities if you measure CRA based on one specific blunt 
ratio?
    Mr. Otting. Well, I think the ratio starts actually to make 
a determination at a macro level, is that institution 
dedicating enough of whatever you choose it to be to the 
communities to which they operate? So there will be other 
factors that will be important in that overall element, 
including things like, you know, where are you lending, what 
type of activities that you are doing. We also are proposing 
like a two times multiple for equity investments because one of 
the things we see a deficiency in, a lot of the CVFIs need 
equity. They can get debt, but they cannot get equity. And so 
we want to encourage financial institutions to participate in 
some of that activity.
    Senator Brown. OK. Thank you. And thank you for bearing 
with us.
    Mr. Chairman, thank you.
    Chairman Crapo [presiding]. All right. Thank you for your 
patience with us, Mr. Comptroller. I had a couple further 
questions, and we do expect another Senator to come back who 
has got some questions. And then we will probably be close to 
the end of the hearing.
    Comptroller, I understand that some of the national banks 
are contemplating eliminating their holding companies because 
they engage in only traditional activities directly permissible 
for the bank. For example, national banks used to need to have 
holding companies to be able to branch interstate, but the law 
has changed, and that has not been the case for some time.
    While the process for the dissolution of a holding company 
is fairly straightforward, there are some challenges because of 
certain antiquated provisions in the National Bank Act. Can you 
describe those challenges and what the OCC or Congress might do 
to address them?
    Mr. Otting. Yes, thank you very much, Senator Crapo. We 
have seen a significant increase in interest of banks that are 
predominantly doing core banking-related activities across 
America with our current structure of requiring multiple 
boards, multiple compliance, multiple BSA-related activities at 
both the holding company and the board--or, excuse me, and the 
bank, that a lot of banks are looking at, you know, can we 
consolidate any activities in the holding company into the bank 
and then have dissolution to the holding company.
    You know, it is our viewpoint today there are a couple of 
these that are in the queue today that we feel we have the 
authority that we can do work-arounds. I do believe there would 
be some legislative actions in the future that would make that 
easier as more banks decide to do that. There are two primary 
ones that, as you know, the current provisions do not require a 
bank to file the SEC documentation around financial data, and 
banks are concern if they do consolidate into the bank, that 
they would not have that as a vehicle to get their information 
into the hands through the normal practice and procedures. And 
so we have worked with the SEC, and we think we have a 
memorandum of understanding of how to accomplish that for banks 
that want to accomplish that. That was one of the, I think, 
significant issues.
    And the other significant issues, you know, the way that 
the Bank Act requires if an entity wants to issue new shares, 
any incremental amount of new share would require a vote of all 
shareholders. And at the holding company, they can authorize 
the issuance of shares, and so this would require a vote for 
each individual share issuance. And that probably today I would 
say would be the primary concern that most banks would have 
about eliminating the holding company.
    Chairman Crapo. All right. And so you will work on trying 
to facilitate those changes that can be achieved regulatorily?
    Mr. Otting. Yeah, I think we have shared with your staff, 
you know, some of the recommendations on that, and we would 
be--I do think this has the potential to be sizable in numbers 
as others go through that process and then recognize the 
ability to reduce their regulatory burden.
    Chairman Crapo. All right. And, again, I think you said 
this, but with regard to what Congress might need to do, it 
would be helpful to have your suggestions as to what is beyond 
the authority of the agency.
    Mr. Otting. Right.
    Chairman Crapo. One other question--well, a couple other 
questions. I was encouraged that the regulators recently issued 
a proposed rule on Volcker, and I am sure you will receive many 
comments and letters, and it is my hope that you will review 
them carefully as you consider the impact of the proposal on 
firms' trading and fund activities, including their investment 
portfolios.
    I also hope you will look for additional opportunities to 
simplify the rule's operation by rationalizing metrics 
reporting and narrowing the scope of covered funds, among other 
items.
    Can you commit to carefully review the comments received on 
the Volcker Rule and adjust the proposal to address legitimate 
issues raised by commenters?
    Mr. Otting. Absolutely. That is part of our normal process. 
We do expect to get a sizable amount of comments back on this. 
This was a five-agency Notice of Proposed Rulemaking, which, 
you know, in itself was kind of a miracle. But we were able to 
kind of get it through the process. And I think one of our big 
challenges historically is how do we examine against the 
Volcker Rule on the proprietary trading. And I think we at 
least have a solution that we will build on in the years to 
come.
    Regarding the covered funds, you know, one of the 
provisions that the Volcker Rule did is that banks used to 
invest in various funds in their communities that then funneled 
capital into generally small businesses, and small businesses 
often have a tough time going from where they are 100 percent 
owned by a family to being a public company, and that created a 
bridge for a lot of those companies, and that activity has been 
virtually eliminated. And so I think, you know, maybe not today 
but in the long run we can look at that and say, you know, is 
there a source of capital that is needed in the market to be 
able to help businesses continue to grow, that, you know, 
someday we may bring back in, and I think that is perhaps what 
you were referencing in your comments.
    Chairman Crapo. Yes, and I appreciate that. I also 
appreciate the fact that you and the other agencies finally got 
together and made some progress on this. And I do not want this 
to be misunderstood. I appreciate the progress that has been 
made. I just think that more can be made, and I was hopeful to 
see a little more out of the ultimate outcome.
    One last thing from me, and I apologize that I had to step 
out because of the votes, but I know that there were a lot of 
questions on CRA, and I suspect you did not get to give your 
full answers in response on some of them. Is there anything you 
would like to make clear or add to what you have said with 
regard to the questions you have received on the CRA today?
    Mr. Otting. Yes, thank you very much. You know, I have been 
either a user or an implementer of CRA at financial 
institutions for over 25 years. I have designed programs that 
are specific markets, and I have been involved in markets where 
across the United States where CRA is used. We today, you know, 
in 40 years have created an incredibly complex, difficult 
system for financial institutions to understand. Often the week 
before the CRA team comes in from their examinations, they do 
not know if they are going to get a good rating or bad rating. 
Often they find that products that they thought qualified, that 
they made investments in or made loans against do not qualify. 
And so I think the ability to bring clarity--we are at a point 
in time where we can bring clarity to the CRA process, which I 
think will encourage more institutions to go deeper into their 
communities and remove the restrictions that I think 
historically have caused CRA to be held back.
    There are three primary things that we are trying to solve 
for. The first is to come up with a more objective way to 
measure a financial institution's success and commitment to 
their communities. I talked about using a balance sheet item 
and adding up all the CRA activity and using that item to be 
able to come up with a percentage. I think that has universal 
appeal.
    The second part is we really feel we should expand the 
products and services that do qualify under CRA. We have 
narrowed it very narrowly now to mortgages in multifamily in 
low- to moderate-income areas, and I think we can expand that 
to more small business lending, more community centers, and 
encouraging banks to do more. And we will give banks a read on 
the front end if they want to make an investment so they are 
not kind of making it and then hoping it qualifies.
    And then the last thing, which is, you know, exams are done 
every 3 years, and every 3 years it usually takes us 6 to 24 
months to issue a CRA report. If a bank wants to close a branch 
or open a branch or enter a new product line or make an 
acquisition or divestiture, often they are challenged by some 
certain community groups about whether they are in compliance 
with CRA. If we can fix the first one, I think that can solve 
the third part of this, and we can allow banks then to be--we 
can encourage banks to be able to say that they are in 
compliance with CRA on a continual basis if they report that 
data.
    So I am highly encouraged--I just want to instill it is a 
false narrative if anybody thinks we are trying to bring CRA 
down. We actually think this is an opportunity to partner with 
community groups and banks to make CRA better.
    Chairman Crapo. All right. Thank you very much. I 
appreciate that.
    Senator Cortez Masto, you are next. I have not been able to 
vote on the second vote yet, so I will ask you to be very brief 
if you can because we have got a couple of Senators here and we 
need to wrap up. So to the extent you can keep it to right at 5 
minutes or less, I would appreciate it.
    Senator Cortez Masto. Absolutely.
    Chairman Crapo. I apologize for that.
    Senator Cortez Masto. Thank you. Thank you, Mr. Chair. 
Thank you, Mr. Otting, good to see you again.
    So, clearly, the concern that you have seen from many of my 
colleagues with respect to the Community Reinvestment Act and 
ensuring there is no discrimination in lending, and I know the 
OCC is required to ensure that the banks comply with laws 
prohibiting the unfair and discriminatory lending, correct?
    Mr. Otting. That is correct.
    Senator Cortez Masto. And so with that, you are ensuring 
the banks----
    Mr. Otting. But, Senator, not with CRA. That is fair 
lending. Actually, there are fair lending exams done based upon 
the HMDA data. So fair----
    Senator Cortez Masto. That you do.
    Mr. Otting. That is correct.
    Senator Cortez Masto. Correct. Thank you. And so in 
ensuring that there is no discrimination, let me ask you this: 
Are you ensuring that the banks are complying with the Fair 
Housing Act?
    Mr. Otting. Am I ensuring that they are complying with the 
Fair Housing Act?
    Senator Cortez Masto. Correct.
    Mr. Otting. Yes, we are.
    Senator Cortez Masto. And are you ensuring they are 
complying with the Equal Credit Opportunity Act?
    Mr. Otting. Yes, we are.
    Senator Cortez Masto. And has your office reported any 
violations of those acts to DOJ?
    Mr. Otting. Yes, we have.
    Senator Cortez Masto. So they are actively looking at that 
now. Thank you very much.
    Let me ask you this: Going back to the CRA enforcement, it 
is my understanding you have instructed your bank examiners to 
change how they consider CRA bank exams. Is that true?
    Mr. Otting. Not to my knowledge.
    Oh, we are--I believe we are sending out a bulletin today. 
So there are bulletins that we send out where we update 
procedures, and it either is--yeah, we have been holding a--we 
frequently will provide Q&A or bulletins as updates, and so we 
have been holding, hoping we were going to get the ANPR out, 
and so there were some updates that went out, if that is what 
you are referencing, to our CRA----
    Senator Cortez Masto. Updates in how the bank examiners 
will be and the criteria they will be looking at when they are 
engaging in these exams? Is that what----
    Mr. Otting. No, no.
    Senator Cortez Masto. OK.
    Mr. Otting. The criteria has been--you know, for banks over 
$1,236,000,000, there is a point system that is lending 
investments and then a service----
    Senator Cortez Masto. Well, let me ask you this, because I 
am just trying to get to something specific, and I only have so 
much time, so I appreciate--and I want to let my colleagues 
also ask--my understanding is that the bank examiners consider 
the CRA when they are engaged in these bank exams. Isn't that 
correct?
    Mr. Otting. We actually do specific CRA----
    Senator Cortez Masto. And are they looking to ensure that 
there is no discriminatory lending going on as part of the CRA 
review?
    Mr. Otting. So what occurs in a CRA exam is we do a HMDA 
review first to ensure that we can rely upon the information 
that the financial institution has given us. It does not mean 
that they are doing a fair lending exam at the same time they 
are doing a CRA exam.
    Senator Cortez Masto. But are they still looking at data 
points that may----
    Mr. Otting. Yes, the HMDA----
    Senator Cortez Masto. Well, let me ask you this: As part of 
their CRA exam, are there any concerns that they look at data 
points that they look at to ensure there is no discrimination 
in any manner whatsoever? They do not look a any of that, any 
of the HMDA points, there is nothing in the mortgage lending or 
anything that they look at to ensure there is no 
discrimination? Because that is what I am hearing you tell me, 
that your bank examiners do not look for that.
    Mr. Otting. Let me be clear.
    Senator Cortez Masto. OK.
    Mr. Otting. So prior to a CRA exam starting, we do a HMDA 
review to determine the accuracy of the data. If there are 
items that are discovered in the HMDA that would lead our 
suspicion that there is not--that there are fair lending 
questions, then we are required by statute to do within 12 
months a fair lending examination. We are also frequently doing 
fair lending examinations independent of CRA.
    Senator Cortez Masto. OK. And so knowing this--and I know 
the OCC supervises about 1,000 banks, correct?
    Mr. Otting. 1,300.
    Senator Cortez Masto. OK. And how many of those banks, if 
you know, make fewer than 500 mortgage loans or home equity 
loans?
    Mr. Otting. We looked at that data, and it is less than 5 
percent.
    Senator Cortez Masto. OK. And then as you well know, 
Congress passed a law----
    Mr. Otting. Five percent of the volume, I am sorry.
    Senator Cortez Masto. OK. And Congress passed a law that 
exempted banks that make fewer than 500 mortgage loans from 
reporting publicly on much of the loan and borrower 
characteristics like points and fees, interest rate, and other 
indicators of loan quality. So how can you ensure without that 
data--let me finish my question.
    Mr. Otting. OK. I want to----
    Senator Cortez Masto. OK, and then you can clarify. I will 
let you clarify. How can you ensure that without that data that 
you are not determining that there is the presence of 
discrimination or not if you do not have all of the information 
you need to make that determination?
    Mr. Otting. So just as a point of clarification, those 
banks that will be excluded still have a HMDA lite that they 
have to file. The enhanced HMDA data is what the other 
financial institutions will submit.
    Senator Cortez Masto. No, I recognize that. That is why I 
opposed it. I think HMDA lite does not give us enough 
information to determine whether there is discrimination or 
not, and that is my question to you. Without that additional 
data, how do you ensure there is no discrimination?
    Mr. Otting. We have historically used the HMDA data to 
point us in the direction where we think that there is----
    Senator Cortez Masto. Do you still have access to all of 
the HMDA data or just the HMDA lite, like you called it?
    Mr. Otting. Well, only the institution--well, it has been 
being enhanced, and there is new enhancement based upon the 
CFPB's criteria. But what will occur is that data will come in 
to us for 95 percent of the volume; 5 percent of the volume 
will be HMDA lite.
    Senator Cortez Masto. OK. So you are only referring and 
utilizing HMDA lite data, is what I hear. And I know my time is 
up. I would defer to my colleagues.
    Mr. Otting. Five percent of the data.
    Senator Cortez Masto. Thank you.
    Chairman Crapo. Thank you very much.
    Senator Menendez? And, again, I did not think you had come 
in. I have not voted yet, so I need to ask you to please stay 
right to your 5 minutes if you can so I can wrap the hearing 
up.
    Senator Menendez. All right, Mr. Chairman. The second vote 
just began, and this is the problem with conducting hearings 
while voters are--I will object on the floor from now on to 
having committees meet while----
    Chairman Crapo. Well, then you can take your time, and I 
will ask them to hold the vote open. It is still a 5-minute 
timeframe.
    Senator Menendez. Mr. Otting, the horizontal review of 
sales practices that has been completed for which I understand 
you have reiterated here today that you are not going to 
publicly release detailed findings. I sent a letter this 
morning to you along with several of my colleagues on the 
Committee asking for more information, and I have to say the 
reality is that your citing confidential supervisory 
information is spurious. The OCC has provided public reports on 
unsafe and unsound banking practices before, namely, during the 
independent foreclosure review, after millions of Americans 
were harmed by unfair and predatory foreclosure practices. In 
that case the OCC provided critical information to the public 
explaining how mortgage services had failed to service 
distressed mortgage loans and outlined how those institutions 
would remediate borrowers.
    I am the Ranking Member of the Senate Foreign Relations 
Committee. I understand all about classified information. This 
is not classified. This is an effort not to have the ability 
for the public to understand that the institutions that they 
are banking at may very well have had the same practices as we 
have seen before.
    So, you know, when you were in front of this Committee for 
your confirmation last year, you refused to provide State-by-
State information on the number of OneWest foreclosures in our 
States, and today as Comptroller you refuse to provide 
information about consumers that have been harmed not only by 
Wells Fargo--of course, we know that--but by Wells Fargo-style 
sales practices.
    So I have to ask myself: Who are you trying to protect? Who 
are you trying to protect: hardworking American families or big 
banks?
    Mr. Otting. I am trying to protect American consumers, 
and----
    Senator Menendez. Well, you are not doing that when you do 
not disclose.
    Mr. Otting. Well, first of all, this is not an unsafe and 
unsound manner. You quoted unsafe and unsound manner, and you 
may have not been in the room when I gave the statistics, but 
out of between an estimate of 500 to 600 million accounts, we 
found 20,000 items. Of those----
    Senator Menendez. That is 20,000 too many.
    Mr. Otting. I would agree with you, 20,000----
    Senator Menendez. Why can't we know who the 20,000 are, 
what practices took place at those institutions?
    Mr. Otting. This is a regulatory matter. There are MRAs 
open that we continue to go through. I have publicly said that 
this was not a systemic issue in the industry, and as we work 
through the MRAs and clean these issues up, all consumers that, 
if they were harmed, will receive restitution.
    Senator Menendez. Well, I think that people should know the 
institutions that they are banking, whether they have these 
practices, whether they were among the 20,000 who were hurt or 
those who were not. And unless you know whether an institution 
was conducting those practices, you will not know whether that 
is an institution I should be banking with. So you are doing 
the consumer universe a huge discredit, and you seem to be 
shilling for the banks. I have to be honest with you.
    Let me ask you, do you believe--let me go to a different 
topic, because I could not believe the answers you gave 
yesterday at the House Financial Services Committee. Are you 
sitting before this Committee telling a Hispanic American that 
there is no discrimination in this society and that there is no 
discrimination in mortgage lending?
    Mr. Otting. I did not say that.
    Senator Menendez. OK. Can you tell me, is there 
discrimination in mortgage lending?
    Mr. Otting. I believe that there is. I think there is 
disparate impact that occurs in America. What I said was I had 
not personally observed it, but many people who----
    Senator Menendez. But when you were pressed consistently to 
say do you believe it, you did not give the answer you have 
given me today. So I am happy to see that you have finally come 
to the conclusion, whether you have experienced it, seen it, or 
not, that, in fact, there is discrimination in the mortgage 
lending field.
    Mr. Otting. I do not think that comment was right. When I 
was pressed yesterday, I said that people that I care about, I 
love, and I have friendships have told me that there is 
discrimination, and I believe those people.
    Senator Menendez. Will you commit today to retain 
assessment areas with a local geographical focus under the 
Community Reinvestment Act which helps ensure that banks are 
combating historic redlining and lending in low- and moderate-
income communities?
    Mr. Otting. I think there has to be a new look at 
assessment areas. I do think that around branches that we have 
to protect that banks are participating in the low- to 
moderate-income communities. But, Senator Menendez, my 
experience and other people's experiences is that assessment 
areas also can restrict investments. And so I just think we 
need to think through what is an assessment area.
    We also have financial institutions today that have no 
branches, but they have customers, and I think we need to think 
through what are we going to call--what is the assessment area 
for those institutions.
    Senator Menendez. Let me tell you, I will make sure, along 
with national leading civil rights groups, that you understand 
that there is discrimination in our society in this regard, and 
that you do not water down what limited protections already 
exist.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. And welcome.
    I am going to follow up on a couple of questions that have 
been asked. One was by Senator Warren regarding the case that 
was brought against OneWest for alleged discriminatory 
practices. To your knowledge, is HUD still engaged in an 
investigation of that complaint?
    Mr. Otting. Are you referencing the HUD on the financial 
freedom where OneWest Bank paid a fine?
    Senator Van Hollen. I am referencing the case that was 
brought with respect to the alleged discriminatory lending that 
was referenced by Senator Warren earlier.
    Mr. Otting. I do not know if that is a HUD issue. The 
accusation by community groups was that OneWest Bank, when you 
looked at effectively our fair lending data, we had out of 
proportions for the community. And I do not have it in front of 
me, Senator Van Hollen, but it was an incredible--I think it 
was less than 100 mortgages that they used to base that data 
on. So it was not a statistical relevant--I mean, we were low 
in certain particular areas, but it was not like you had a 
statistical relevant population in the narrative to make that 
accurate assessment.
    Senator Van Hollen. I guess my question is----
    Mr. Otting. But that was not a HUD----
    Senator Van Hollen. Was a complaint filed in that case? And 
has that issue been resolved?
    Mr. Otting. It was filed by a nonprofit organization.
    Senator Van Hollen. And is that case still pending, to your 
knowledge?
    Mr. Otting. To the best of my knowledge.
    Senator Van Hollen. It is still pending?
    Mr. Otting. Yes.
    Senator Van Hollen. Have you been questioned in that case?
    Mr. Otting. I have not.
    Senator Van Hollen. OK. Because the comments you made in 
the House yesterday obviously generated a lot of understandable 
concern, and in my State of Maryland, in Baltimore, a case was 
brought against Wells Fargo back in 2011 for pricing 
discrimination. Baltimore City alleged that Wells Fargo steered 
minorities into subprime loans, gave them less favorable rates 
than white borrowers, and foreclosed on hundreds of Baltimore 
homes, creating blight and high public safety costs. And in 
this case, in fact, Wells Fargo conceded that this had happened 
and paid a penalty of $7.5 million to the city of Baltimore.
    Do you have any reason to contest the conclusion that there 
was pricing discrimination in this case in Baltimore City?
    Mr. Otting. I do not.
    Senator Van Hollen. OK. I want to get to some of the issues 
of regulatory capture, and you and I have had an exchange of 
letters, and I welcome the opportunity to follow up even 
further on that. I believe that Senator Brown referenced the 
GAO report where they looked into the situation, and you are 
aware of the fact that there was a case where Wells Fargo 
alerted a bank to the fact that there was going to be an OCC 
investigation? Are you aware of that case?
    Mr. Otting. I think it was an OCC employee alerted Wells 
Fargo.
    Senator Van Hollen. I am sorry. Yes, an OCC employee 
embedded in Wells Fargo.
    Mr. Otting. That is what the allegations were, yes.
    Senator Van Hollen. And there was since a recommendation 
based on a 2013 study from outside peer groups recommending a 
separation; in other words, recommending that OCC employees not 
be embedded in banks because they would treat them too much 
like customers as opposed to being on the lookout for potential 
wrongdoing and hold people accountable. So my question is: You 
have decided not to pursue that recommendation. Did you do any 
kind of study that would contradict or conflict with the 2013 
finding?
    Mr. Otting. I covered this earlier, but I want to make sure 
that I have a chance to cover it with you. Just so you 
understand, we have three kind of models in the OCC: we have a 
community banking model, we have what we call a midsize bank 
model, and we have a large bank model.
    On the smaller end, we service those banks by regional 
locations in the OCC so examiners are not embedded in the 
banks. In the midsize bank group, we have a split where some 
are in and some are out. And in the large bank, we have them 
resident onsite at the large banks, and that is the category 
you want me to described, but I just wanted--so you understood 
it.
    Senator Van Hollen. Yeah, understood.
    Mr. Otting. So when I got here and examined it and also 
based upon my background and knowledge, I looked at the 
procedures and processes, and just so everybody is aware, every 
5 years we rotate--actually, it is less than 5 years. We rotate 
the examiner in charge of a financial institution, so we do 
have a rotation.
    Second of all, we have resident experts that are both in 
the field and in Washington that review all the examination 
papers and data for accuracy and make sure that no one could 
take data and make inappropriate conclusions. And then we also 
have what we call a ``deputy comptroller'' that is centralized 
and has oversight for that financial institution.
    So while it could happen, I thought that the controls were 
in place, and the fourth category from my experience as a CEO, 
having resident onsite examiners who have open architect access 
to anything going on in that bank, they can go to risk 
meetings, credit quality meetings, they can go to credit 
approval meetings, wander around the bank, be able to interact 
with people, I think actually provides better risk management 
by----
    Senator Van Hollen. I appreciate that. I think the issue 
here is that obviously there may be some benefits. The question 
is whether the benefits outweigh the risks, and there have been 
now a number of independent analysts that looked at this 
particular situation with respect to OCC and said it is too 
great a risk that you will have regulatory capture. And so my 
question was: Did you undertake any independent study----
    Mr. Otting. I did not. I reviewed----
    Senator Van Hollen. ----in reversing this conclusion?
    Mr. Otting. ----the situation, and I am only aware of one 
time where that has been----
    Senator Van Hollen. All right. Well, I look forward to 
following up.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Senator.
    Comptroller Otting, I appreciate you coming here before us 
today, but also putting up with the inconveniences that have 
been caused by us having to shift around for votes. We 
appreciate the work that you are doing and, again, appreciate 
the fact that you would come here and report to the Committee. 
I look forward to our further work with you.
    That does include all of the questions, and this hearing is 
adjourned.
    Mr. Otting. Thank you.
    [Whereupon, at 11:40 a.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
    Today, we will hear from Comptroller of the Currency Joseph Otting.
    Since being sworn in last November, Comptroller Otting has been 
focused on right-sizing regulations and furthering the mission of the 
OCC.
    Recently, the OCC, along with four other regulators, issued a 
proposal to make revisions to the Volcker Rule.
    In May, the OCC issued a bulletin related to short-term, small-
dollar lending.
    The OCC has also been looking at modifying and modernizing how 
regulators apply the Community Reinvestment Act.
    Comptroller Otting has also identified reviewing compliance with 
anti-money laundering laws as a priority of the OCC's.
    In addition, the Comptroller has said he expects the OCC to 
announce in July a final decision on a specialty bank charter for 
FinTech companies.
    I look forward to hearing more about some of these important 
initiatives today.
    In addition, the OCC will need to implement a number of provisions 
from S. 2155, the bipartisan economic growth legislation that President 
Trump signed into law on May 24th.
    Among the provisions that the OCC will need to write rules to 
implement are:

    The community bank leverage ratio, which exempts highly 
        capitalized banks from the international Basel III risk-based 
        capital requirements;

    The exemption from appraisal requirements for banks in 
        rural areas that suffer from shortages of qualified appraisers;

    The requirement that certain acquisition, development, and 
        construction loans not be subject to punitive capital 
        requirements;

    Reduced reporting requirements and extended exam cycles for 
        certain small banks;

    The requirement to promulgate regulations to remove central 
        bank deposits from the denominator of the supplementary 
        leverage ratio for certain banks;

    The exemption from stress testing for certain financial 
        institutions, including the immediate exemption for financial 
        companies with less than $100 billion in assets; and

    The provision permitting certain Federal savings 
        associations to elect to operate with the same powers and 
        duties as national banks without going through the onerous 
        charter conversion process.

    These provisions, and others in the legislation, right-size 
regulations for community banks, credit unions, midsize banks, and 
regional banks, making it easier for consumers and small businesses to 
get mortgages and obtain credit.
    Absent excessive regulatory burden, local banks and credit unions 
will be able to focus more on lending, in turn propelling economic 
growth and creating jobs.
    I look forward to engaging with the OCC, and with other agencies 
charged with implementing S. 2155, over the coming months to ensure 
that their interpretations are consistent with the intent of the 
Members of Congress that voted for the legislation and with this 
Committee's goal of promoting economic growth.
    Our economy is strengthening, and the positive effects of the 
banking bill and tax reform are just starting to be felt.
    Layered together, these policies and others are creating conditions 
in our country that enable growth.
    I look forward to building on this momentum moving forward.
                                 ______
                                 
                 PREPARED STATEMENT OF JOSEPH M. OTTING
         Comptroller, Office of the Comptroller of the Currency
                             June 14, 2018
Introduction
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
thank you for the invitation to testify today. I am pleased to have the 
opportunity to share my priorities as Comptroller of the Currency and 
update the Committee on the supervision, regulation, and enforcement of 
financial institutions within the regulatory purview of the Office of 
the Comptroller of the Currency's (OCC). I intend to work diligently to 
ensure that the institutions within the Federal banking system operate 
in a safe-and-sound manner, provide fair access to financial services, 
treat customers fairly, and comply with applicable laws and 
regulations. I am honored to serve as the 31st Comptroller of the 
Currency, alongside nearly 4,000 men and women who share a deep 
dedication to the agency's mission. During my tenure, I look forward to 
advancing financial institution regulation with a focus on promoting 
the long-term health of the institutions we supervise and improving 
their ability to serve their customers and meet their communities' 
needs. In my testimony today, I will share my views on the condition of 
the Federal banking system, the risks facing that system, and my 
priorities as Comptroller of the Currency.
    Before I turn to those topics, however, I want to congratulate 
Chairman Crapo on his leadership toward the successful enactment of S. 
2155, the Economic Growth, Regulatory Relief, and Consumer Protection 
Act (Economic Growth Act). The Economic Growth Act contains a number of 
important, bipartisan provisions that will have a meaningful impact on 
OCC-regulated institutions. Those include provisions reducing the 
number of community banks and savings associations subject to the 
Volcker Rule; a simpler capital regime for highly capitalized community 
banks and savings associations; allowing qualifying banks under $5 
billion in assets to file a simplified call report; expanding 
eligibility for an 18-month exam cycle to well-managed and well-
capitalized banks under $3 billion in assets; exempting certain 
mortgage loans for properties located in rural areas from appraisal 
requirements; and adding greater financial protections for our military 
servicemembers and veterans. The law also raises the thresholds for 
application of the Federal Reserve Board's enhanced prudential 
standards for bank holding companies to focus on the very largest 
companies, right-sizes stress testing requirements, and provides 
Federal savings associations with less than $20 billion in assets the 
flexibility to exercise the powers of national banks without changing 
charters, an important improvement championed by Senators Moran and 
Heitkamp, and suggested by the OCC.
    The OCC will work closely and cooperatively with our fellow 
financial regulators to ensure that all of these important reforms are 
implemented quickly so that financial institutions can continue to 
create jobs and promote economic opportunity in a safe, sound, and fair 
manner.
Condition of the Federal Banking System
    As of the end of the first quarter of this year, the Federal 
banking system comprised approximately 1,325 national banks, Federal 
savings associations and Federal branches of foreign banks (banks) 
operating in the United States. These banks range in size from small 
community banks to the largest most globally active U.S. banks. 
Approximately 1,061 of these banks have less than $1 billion in assets, 
while more than 60 have more than $10 billion. Combined, these banks 
hold $11.8 trillion or about 67 percent of all assets of U.S. 
commercial banks. These banks also manage almost $51 trillion in assets 
held in custody or under fiduciary control, which amounts to 42 percent 
of all fiduciary and custodial assets in insured U.S. banks, savings 
associations, and national trust banks. The Federal banking system 
holds two-thirds of credit card balances in the country, while holding 
or servicing almost half of all residential mortgages. Through their 
products and services, a majority of American families have one or more 
relationships with an OCC-regulated bank.
    Because of the reach of the Federal banking system and the 
essential role it plays in meeting the financial services needs of so 
many Americans, their businesses, and their communities, it is critical 
that the system operate in a safe-and-sound manner, provide fair access 
to financial services, treat customers fairly, and comply with laws and 
regulations. That is the unique mission of the OCC.
    The OCC employs nearly 4,000 people, two-thirds of whom are bank 
examiners, overseeing the Federal banking system. The majority of those 
examiners are dedicated to the daily supervision of community banks and 
work in offices and banks across the Nation.
Supervision by Risk
    The OCC applies a supervision by risk approach to the banks the 
agency supervises. Supervision by risk focuses on assessing risk, 
identifying existing and emerging issues, evaluating the effectiveness 
of a bank's risk management systems in appropriately controlling risk, 
and ensuring that bank management takes corrective action before 
problems compromise the safety and soundness of a bank. This approach 
requires an understanding of the operations of each bank or thrift and 
the systems each has in place to control risk, with consideration of 
the institution's size, scope of operations, complexity, and the risks 
presented by its business model.
    Our supervision by risk framework establishes an examination 
philosophy and structure that is used at all national banks, Federal 
savings association, Federal branches of foreign banks, and national 
trust companies. This approach includes a common risk assessment system 
(RAS) \1\ that evaluates each bank's risk profile across eight risk 
areas--credit, interest rate, liquidity, price, operational, 
compliance, strategic, and reputation--and assigns each bank an overall 
composite rating and component ratings on the bank's capital adequacy, 
asset quality, management, earnings, liquidity, and sensitivity to 
market risks using the interagency Uniform Financial Institutions 
Ratings System (informally known as CAMELS). \2\ Specific examination 
activities and supervisory strategies are tailored to each bank's risk 
profile. These strategies are updated and approved annually. While 
tailored to each individual bank's risk profile, they also incorporate 
key agency supervisory priorities for the coming year.
---------------------------------------------------------------------------
     \1\ See OCC Bulletin 2015-48, ``Risk Assessment System''. December 
3, 2015 (https://www.occ.gov/news-issuances/bulletins/2015/bulletin-
2015-48.html).
     \2\ See Comptroller's Handbook, ``Bank Supervision Process'' 
booklet, which explains UFIRS/CAMELS. (https://www.occ.gov/
publications/publications-by-type/comptrollers-handbook/bank-
supervision-process/pub-ch-bank-supervision-process.pdf).
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    To reflect the different expectations for controls and risk 
management between banks of varying sizes, operations, and complexity; 
our bank supervision programs and core examination procedures for 
determining a bank's RAS and CAMELS ratings are aligned across two 
primary lines of business: Midsize and Community Bank Supervision and 
Large Bank Supervision.
    Our community bank supervision program is built around local field 
offices in more than 60 communities throughout the United States. Every 
community national bank is assigned to an examiner who monitors the 
bank's condition on an on-going basis and who serves as the focal point 
for communication with the bank. The primary responsibility for the 
supervision of individual community banks is delegated to a local 
Assistant Deputy Comptroller, who reports to a district Deputy 
Comptroller, who in turn, reports to the Senior Deputy Comptroller for 
Midsize and Community Bank Supervision. This structure allows community 
and midsize banks to benefit from assigned teams with thorough 
knowledge of local conditions and support from national resources with 
broad industry insight.
    The frequency of on-site examinations for community banks follows 
the statutory provisions set forth in 12 U.S.C. 1820(d), \3\ with on-
site exams occurring every 12 to 18 months. The scope of these 
examinations is set forth in the OCC's Community Bank Supervision 
handbook \4\ and requires sufficient examination work and transaction 
testing to complete the core assessment activities in that handbook, 
and to determine the bank's RAS and CAMELS ratings. On-site activities 
are supplemented by off-site monitoring and quarterly analyses and 
discussions to determine if significant changes have occurred in the 
bank's condition or activities.
---------------------------------------------------------------------------
     \3\ 12 U.S.C.  1820(d) prescribes the annual examination 
requirement. As noted earlier, that provision has been amended by the 
Economic Growth Act to expand eligibility for an 18-month exam cycle to 
well-managed and well-capitalized banks under $3 billion in assets.
     \4\ ``Community Bank Supervision'' booklet of the Comptroller's 
Handbook. October 2017 (https://www.occ.gov/publications/publications-
by-type/comptrollers-handbook/community-bank-supervision/index-ch-
community-bank-supervision.html).
---------------------------------------------------------------------------
    The OCC's Large Bank Supervision program is centralized and 
headquartered in Washington, DC. It is structured to promote consistent 
uniform coordination across institutions. As part of the Large Bank 
program, the OCC assigns examination staff who are resident on-site at 
the institution and who conduct on-going supervisory activities and 
targeted examinations in specific areas of focus. This process allows 
the OCC to maintain an on-going program of risk assessment, monitoring, 
and communication with bank management and directors. Given the volume 
and complexity of the literally millions of transactions that flow 
through large banking organizations each day, it is not feasible to 
review every transaction in each bank, or for that matter, every single 
product line or bank activity in each supervisory cycle. Nonetheless, 
the scope and frequency of the OCC's targeted examinations and our 
constant, day-to-day supervision ensure that examiners complete 
sufficient work and transaction testing throughout the year to complete 
the core assessment activities set forth in the OCC's Large Bank 
Supervision handbook, \5\ and to determine the bank's RAS and CAMELS 
ratings. The on-site teams at each bank are led by an Examiner-in-
Charge, who reports directly to the Deputy Comptrollers in our Large 
Bank Supervision Office, and in turn, to our Senior Deputy Comptroller 
for Large Bank Supervision. On-site examiners are supported by 
specialized examiners in the OCC's lead expert program and the 
Compliance and Community Affairs unit which provides a horizontal view 
across the industry, a focus on particular risks, and can quickly share 
insight from that broader perspective.
---------------------------------------------------------------------------
     \5\ ``Large Bank Supervision'' booklet of the Comptroller's 
Handbook. October 2017 (https://www.occ.gov/publications/publications-
by-type/comptrollers-handbook/large-bank-supervision/pub-ch-large-bank-
supervision.pdf).
---------------------------------------------------------------------------
    Supporting OCC examination staff is a nationwide network of 
lawyers, economists, accountants, compliance, and administrative and 
policy experts who together make the OCC the world's preeminent 
prudential supervisor. This network of experts brings a broad national 
perspective to complement the deep local expertise of the assigned exam 
teams.
    The quality of that supervision contributes to the strong condition 
of the Federal banking system today. The system has rebounded from the 
crisis. Capital and liquidity are near historic highs. Bankers 
understand the risks facing their banks better than at any point in my 
35-year banking career. Return on equity and asset quality are 
approaching precrisis levels. Bank profitability improved in 2017 when 
compared with 2016 on a pretax basis. OCC-supervised banks reported 
healthy revenue growth in 2017 compared with 2016. Net income was flat 
for banks with total assets less than $1 billion and declined 8.5 
percent for the Federal banking system because of the effect of the Tax 
Cuts and Jobs Act. Pretax income rose 4 percent in 2017 for the Federal 
banking system and more than 7 percent for banks with assets less than 
$1 billion. That improvement continued into the first half of this 
year, and the economic environment is expected to continue to support 
loan growth and bank profitability through 2019.
Risks Facing the Federal Banking System
    Despite the relative strength of the banking system and health of 
the economy, the regulators' job is to peer over the horizon and assess 
any gathering storm clouds. The OCC publishes its view of risks facing 
the banking system twice each year in its Semiannual Risk Perspective. 
\6\ Our objective is to provide transparency around trends and 
potential risks so that the industry takes these risks into account and 
adjusts their practices accordingly. The most recent edition of the 
report, published on May 24, primarily focuses on credit, interest 
rate, operational, and compliance risks.
---------------------------------------------------------------------------
     \6\ See ``Semiannual Risk Perspective'', Spring 2018, at https://
www.occ.gov/publications/publications-by-type/other-publications-
reports/index-semiannual-risk-perspective.html.
---------------------------------------------------------------------------
Credit Risk
    At this point in a long economic expansion, asset quality metrics 
are, as is typical, very good, and changes in risk appetite and 
external factors are the primary drivers of credit risk and future 
performance. While overall credit quality remains strong, bankers must 
remain vigilant about the potential effects of competition and undue 
complacency on the quality of new loans and credit risk management. 
Recent reviews of underwriting indicate that satisfactory policies and 
practices exist to guide lending decisions and that, thus far in this 
economic cycle, banks as a whole are operating within established risk 
tolerances. Competition for quality loans remains strong, however, and 
examiners note evidence of eased underwriting, increased commercial 
real estate concentration limits, and a higher level of concerns 
related to policy exceptions. The accommodating credit environment 
warrants a continued focus on underwriting practices to monitor and 
assess credit risk and prevent lender complacency.
    Overall lending grew 3.6 percent within the Federal banking system 
in 2017. That growth continues the positive trend of the last several 
years, albeit somewhat slower in 2016 and 2017 than in previous years. 
Commercial loan growth for large banks, which hold more than 83 percent 
of all loans, fell to 4.2 percent, down from the 10-percent level 2 
years ago. Although loan growth has slowed, growth rates still 
represent a healthy economy. Midsize and community banks continued to 
experience significant loan growth, particularly in commercial real 
estate and other commercial lending, which grew almost 9 percent last 
year. Such growth heightens the need for strong credit risk management 
and effective management of concentration risk.
Interest Rate Risk
    At the same time, rising interest rates also pose a number of 
potential risks for some banks. Although rising interest rates 
generally increase net interest margins at small banks, bank investment 
portfolios with concentrations of long-duration and low, fixed-rate 
assets could erode in value as interest rates rise, particularly if 
they increase more abruptly than expected. Rising interest rates also 
likely will increase the cost of deposits because of competitive 
pressures particularly for banks with total assets of $250 billion or 
more that are subject to additional regulatory liquidity requirements. 
\7\ Banks should be modeling these potential risks as part of sound 
balance sheet management.
---------------------------------------------------------------------------
     \7\ See OCC Bulletin 2014-51 (https://www.occ.gov/news-issuances/
bulletins/2014/bulletin-2014-51.html), which describes the Liquidity 
Coverage Ratio final rule and provides a link to that rule.
---------------------------------------------------------------------------
    Credit risk is also likely to increase as interest rates rise. 
Rising interest rates will often increase debt service costs and may 
affect credit affordability as well as repayment capacity of some 
financially stretched customers.
Operational Risk
    Operational risk remains elevated as banks adapt business models to 
the evolving banking environment, transform technology and operating 
processes, and respond to increasing cybersecurity threats. The speed 
and sophistication of cybersecurity threats show no signs of abating. 
Banks face constant threats from bad actors seeking to exploit 
personnel, processes, and technology. Some of these threats target 
large quantities of personally identifiable information and proprietary 
intellectual property to facilitate fraud and misappropriation of funds 
at the retail and wholesale levels. Other threats are aimed at 
disrupting or otherwise impairing operations. Failure to maintain 
proper controls over cybersecurity can lead to material negative 
effects on financial institutions, consumers, and national and economic 
security. Banks also continue to rely on third-party relationships to 
support a significant number of key services and operations because of 
the greater economies of scale and advanced technical resources that 
allow them to manage operations better and more efficiently. Banks need 
to manage risks associated with using third parties \8\ through 
appropriate due diligence and risk oversight to ensure controls 
protecting the confidentiality, integrity, and availability of systems 
and data are maintained. Increasing consolidation among large 
technology service providers has created third-party concentration 
risk, in which a limited number of providers service large segments of 
the banking industry for key financial services. Operational events at 
these larger service providers could affect large parts of the 
financial industry, if not properly managed by the service providers 
and the banks that rely on their services. The OCC and the other 
Federal banking agencies continue to prioritize supervisory activities 
related to these large service providers.
---------------------------------------------------------------------------
     \8\ See OCC Bulletin 2013-29, ``Third-Party Relationships'' 
(https://www.occ.gov/news-issuances/bulletins/2013/bulletin-2013-
29.html).
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    Cybersecurity and operational issues have a greater potential to 
affect individual consumers, business, and communities than ever 
before. As innovation and technology moves us toward greater 
interconnectedness and reliance on online transactions, outages and 
breaches generate greater disruption in how we conduct our lives and 
businesses. Extended outages of bank websites and applications, 
automated teller networks, or payments systems can paralyze commerce 
and undermine overall confidence in our system. To avoid these 
consequences, banks, retailers, nonbank service providers, and 
regulators must be vigilant in working together to protect the system 
and improve its resiliency.
Compliance Risk
    Compliance risk remains elevated as banks manage risks in an 
increasingly complex environment and work to comply with evolving 
regulations.
    The dynamic nature of money-laundering and terrorist-financing 
methods present challenges for banks to comply with the Bank Secrecy 
Act (BSA) requirements. Banks offer new or evolving delivery channels 
that increase customer convenience and access to financial products and 
services, and they must maintain a focus on refining or updating BSA 
compliance programs to address vulnerabilities in these new delivery 
channels that criminals seek to exploit. At the same time, recent 
changes to the regulatory framework implementing the BSA increase the 
burden of complying with the law. One example involves the Financial 
Crimes Enforcement Network's (FinCEN) new requirements for conducting 
customer due diligence and documenting the beneficial ownership of 
companies conducting financial transactions. While these new 
requirements enhance the transparency and confidence of financial 
transactions, they place significant new burden on financial 
institutions.
    Other complex and constantly changing regulations also strain bank 
compliance management systems and change management processes, which 
increases operational, compliance, and reputation risks. Recent 
regulatory changes in the consumer compliance area include changes in 
the requirements under the Home Mortgage Disclosure Act and Military 
Lending Act, and implementation of the integrated mortgage disclosures 
under the Truth in Lending Act and the Real Estate Settlement 
Procedures Act. Banks need consumer compliance risk management and 
audit functions sufficient to promote ongoing compliance with 
regulations, even those that change on a frequent basis.
My Priorities as Comptroller of the Currency
    As Comptroller, my short-term priorities have focused on 
initiatives to help banks promote job creation and economic opportunity 
while continuing to operate in a safe, sound, and fair manner. These 
priorities include modernizing the regulatory approach to the Community 
Reinvestment Act (CRA), encouraging banks to meet consumers' short-
term, small-dollar credit needs, enhancing our supervision of BSA/anti-
money laundering (AML) compliance and making it more efficient, 
simplifying regulatory capital requirements, and reducing burden 
associated with the Volcker Rule. At the same time, we continue to 
enhance the agency's effectiveness and efficiency.
Modernizing Our Approach to the CRA
    During the four decades since the CRA became law, the regulatory 
approach to implementing that law has become too complex, outdated, 
cumbersome, and subjective. We have an opportunity to modernize the 
regulatory framework around CRA to better serve its original purpose 
and encourage more investment and banking activity supporting the 
people and communities needing it most.
    As a banker for more than 30 years, I saw firsthand the benefit of 
CRA activities and how they make communities more vibrant. I believe in 
the power of community reinvestment to reinvigorate financially 
distressed areas and to give residents of those neighborhoods new hope 
and new economic opportunities. I have been involved in directing 
hundreds of millions of dollars in community development, reinvestment, 
and support for groups that provide important services to their 
communities, and I want to expand the types of activities eligible for 
CRA consideration to include more small business lending and community 
development activities and strengthen the CRA regulatory framework to 
benefit future generations.
    Stakeholders from all perspectives have called for modernizing the 
current regulatory framework for the CRA. Members from both sides of 
the aisle have described their frustration with some of the CRA 
regulatory framework's current limitations. Many have complained of 
significant administrative burden, lack of incentives for investment, 
and failure to adapt to advances in banking such as interstate 
branching and digitization of services. Others have complained about 
the limited opportunity for bank activities to qualify for CRA 
consideration. Bankers and community groups alike criticize the length 
of time between the issuance of CRA performance evaluations, the 
unwieldly length of performance evaluation reports, and the lack of 
transparency, clarity, and flexibility with respect to regulatory 
requirements and processes. The complaints I hear most frequently are 
that the current approach to evaluating CRA performance is too 
subjective and costly.
    To begin the process of modernizing the CRA, the Federal banking 
agencies are discussing an Advanced Notice of Proposed Rulemaking 
(ANPR) soliciting comments from stakeholders on how best to modernize 
the CRA regulatory framework. We have an opportunity to consider a 
transformational CRA framework that would: (1) expand and provide 
clarity regarding the bank activities that receive CRA consideration; 
(2) revisit the concept of assessment areas; and (3) increase the 
transparency of how bank CRA performance is measured by using 
quantitative standards that are applied consistently.
    First, we should expand the types of activities that qualify for 
CRA consideration. Over the years, opportunities for CRA consideration 
have focused heavily on single- and multifamily residential lending. 
While necessary for a vibrant community, residential lending is not the 
only activity that can have a meaningful impact in these communities. 
Communities also need more small business lending, student lending, 
economic development opportunities, and in some cases, additional 
opportunities for consumers to access credit including responsible, 
short-term, small-dollar consumer loans. These activities deserve more 
consideration during CRA evaluations. We have the opportunity to 
encourage banks to help neighborhoods become communities where families 
can make a living and not just reside.
    Second, we need to revisit the concept of assessment areas. 
Limiting assessment areas to a bank's branch-based footprint has become 
an impediment to investment and providing capital in areas of need that 
the bank may serve. I have seen situations where projects have not 
received CRA consideration merely because they were on the wrong side 
of a street. I have also seen needy communities go unserved or have 
much needed resources delayed because of a lack of clarity in current 
regulations. In reconsidering assessment areas, we need to broaden our 
thinking to include all areas where institutions provide their services 
rather than only narrow geographies defined by branches and deposit-
taking automated tellers.
    Third, we need to develop a metrics-driven approach to evaluating 
CRA performance using clear thresholds. Such changes could make facts 
and data regarding a bank's CRA activity more transparent and available 
to the public more frequently. Establishing clearer, more transparent 
metrics for what banks need to do to achieve a certain CRA rating would 
allow stakeholders to understand how a bank is working to meet the 
credit needs of its community, provide a more objective base for 
examiner ratings, and allow regulators to report on aggregate activity 
to show a bank's overall performance. Clear thresholds would minimize 
subjectivity, encourage consistency, and promote transparency in 
contrast with today's evaluations that may rate similar activities 
differently from bank to bank and make comparisons across institutions 
difficult and less meaningful. This type of change would also help 
regulators to make decisions that rely on CRA data more quickly and to 
produce more concise and meaningful performance evaluations.
    The ANPR will solicit comments on all possible approaches to 
modernizing CRA, including modest changes to the existing CRA framework 
and more transformational changes. It also will seek feedback on 
allowing community banks to retain a more traditional approach based on 
their business models.
    Once published, I encourage all stakeholders to provide their 
thoughts on how to improve our approach to the CRA regulatory framework 
to better encourage banks to meet the credit needs of their 
communities, including those in low- and moderate-income neighborhoods, 
consistent with the safe-and-sound operation of these institutions. I 
recognize that there are many people and organizations with decades of 
experience in this important field. I look forward to publishing the 
ANPR and reviewing the comments received as we move ahead.
Encouraging Banks To Meet Consumer's Short-Term, Small-Dollar Credit 
        Needs
    Millions of Americans rely upon short-term, small-dollar credit to 
make ends meet, but have few choices in this area. According to one 
study, U.S. consumers borrow nearly $90 billion every year in short-
term, small-dollar loans typically ranging from $300 to $5,000. \9\ 
Consumers need safe, affordable choices, and banks should be part of 
that solution. While banks may not be able to serve all of this market, 
they can reach a significant portion of it and bring additional options 
and more competition to the marketplace while delivering safe, fair, 
and less expensive credit products that support the long-term financial 
health of their customers.
---------------------------------------------------------------------------
     \9\ Refer to Center for Financial Services Innovation, ``2017 
Financially Underserved Market Size Study'', pp. 44-47, for revenue and 
volume data on pawn loans, online payday loans, storefront payday 
loans, installment loans, title loans, and marketplace personal loans.
---------------------------------------------------------------------------
    That is why the OCC clarified its position in a bulletin published 
on May 23, 2018, that encourages banks to offer responsible short-term, 
small-dollar installment loans to help meet the credit needs of their 
customers. \10\
---------------------------------------------------------------------------
     \10\ See OCC Bulletin 2018-14, ``Installment Lending: Core Lending 
Principles for Short-Term, Small-Dollar Installment Lending'' (https://
www.occ.gov/news-issuances/bulletins/2018/bulletin-2018-14.html).
---------------------------------------------------------------------------
    Banks are well suited to offer affordable short-term, small-dollar 
installment lending options that can help consumers find a path to more 
mainstream financial services without trapping them in cycles of debt. 
When banks offer products with reasonable pricing and repayment 
structures, consumers can benefit from banks' other financial services 
such as financial education and the opportunity to build a positive 
credit record.
    Banks should consider the following three core principles when 
offering short-term, small-dollar lending products. \11\
---------------------------------------------------------------------------
     \11\ Refer to OCC NR 2017-118.

    All bank products should be consistent with safe-and-sound 
        banking, treat customers fairly, and comply with applicable 
---------------------------------------------------------------------------
        laws and regulations.

    Banks should effectively manage the risks associated with 
        the products they offer, including credit, operational, 
        compliance, and reputation.

    All credit products should be underwritten based on 
        reasonable policies and practices, including guidelines 
        governing the amounts borrowed, frequency of borrowing, and 
        repayment requirements.

    The agency's bulletin also highlighted reasonable policies and 
practices specific to short-term, small-dollar installment lending, 
including:

    Loans and terms that align with eligibility and 
        underwriting criteria. Products should be designed to achieve 
        reasonable borrower affordability and repayment.

    Loan pricing that complies with applicable State laws and 
        reflects overall returns reasonably related to product risks 
        and costs. The OCC views unfavorably an entity that partners 
        with a bank with the sole goal of evading a lower interest rate 
        established under the law of the entity's licensing State(s).

    Analysis that uses internal and external data sources, 
        including deposit activity, to assess a consumer's 
        creditworthiness and to effectively manage credit risk. Such 
        analysis could facilitate sound underwriting for credit offered 
        to consumers with an ability to repay but who do not meet 
        traditional standards.

    Marketing and customer disclosures that comply with 
        consumer protection laws and regulations and provide 
        information in a transparent, accurate, and customer-friendly 
        manner.

    Loan servicing processes that assist customers, including 
        distressed borrowers. To avoid continuous cycles of debt and 
        costs disproportionate to the amounts borrowed, timely and 
        reasonable workout strategies should be used.

    Timely reporting of a borrower's repayment activities to 
        credit bureaus. Borrowers should have the ability to 
        demonstrate positive credit behavior, build credit history or 
        rebuild credit scores, and transition into additional 
        mainstream financial products.

    The Pew Charitable Trusts praised the OCC's action when announced 
by saying the action encourages ``the other Federal bank and credit 
union regulators to follow the Comptroller's lead and institute the 
necessary standards to ensure the development of safe and affordable 
small installment loans that will save millions of borrowers billions 
of dollars a year.'' The OCC also is working with Congress to encourage 
the banking sector to offer additional short-term, small-dollar lending 
products to meet consumer needs.
Enhancing BSA/AML Compliance
    The BSA and AML laws and regulations exist to protect our financial 
system from criminals who would exploit that system for their own 
illegal purposes and from use of that system to finance international 
terrorism. Bank regulators, law enforcement, national security 
personnel, and bankers must continually adapt to increasingly 
sophisticated criminals and other illicit actors who take advantage of 
the Nation's banks and financial system. While regulators and the 
industry share a commitment to fighting money laundering and other 
illegal activities, the process for complying with current BSA/AML laws 
and regulations has become inefficient and costly. Banks spend billions 
each year to comply with BSA/AML requirements. We need to reform the 
BSA/AML to be more efficient while improving the ability of the Federal 
banking system and law enforcement to safeguard the Nation's financial 
system from criminals and terrorists.
    In May, the Federal banking regulators met to discuss ideas on how 
to improve our approach to implementing BSA/AML laws and regulations 
and presented those recommendations to the Department of the Treasury 
and FinCEN.
    There are several improvements that the OCC believes could be 
addressed through regulation and others that would need legislative 
relief. Opportunities include:

    Allowing regulators to schedule and scope BSA/AML 
        examinations on a risk-basis and identifying ways to conduct 
        associated examinations in a more efficient manner.

    Considering changes to the threshold requiring mandatory 
        reporting of Suspicious Activity Reports (SARs) and currency 
        transaction reports and simplifying reporting forms and 
        requirements.

    Working with law enforcement to provide feedback to banks 
        so that they understand how SARs and other BSA report filings 
        are used and can provide the most useful information.

    Exploring the use of technologies to reduce reporting 
        burden and provide more effective access and information to law 
        enforcement and national security personnel.

    I look forward to working with my fellow banking regulators, 
Treasury, FinCEN, law enforcement, and national security personnel in 
the coming months to identify changes we can implement to reduce the 
burden of complying with BSA/AML laws while also improving how we 
protect our financial system. I also look forward to working with 
Members of this Committee who are interested in improving the BSA/AML 
laws.
Simplifying Regulatory Capital and the Volcker Rule
    Following the financial crisis, bankers, regulators, and 
policymakers responded by appropriately focusing on improving the 
quality and quantity of capital and liquidity in the banking system. As 
a result, today's financial institutions have capital and liquidity 
near historic highs. At the same time, calculating regulatory capital 
has become too complex. Even some of the most seasoned bankers need the 
assistance of a capital expert to understand and explain how the 
various categories of capital are counted. This results in regulatory 
and business inefficiency and places an unnecessary burden particularly 
on well-capitalized community and midsize banks.
    In late October 2017, Federal bank regulators proposed a rule 
intended to reduce burden by simplifying several requirements in the 
agencies' regulatory capital rule. \12\ Most aspects of the proposed 
rule would apply only to banking organizations that are not subject to 
the ``advanced approaches'' in the capital rule, which are generally 
firms with less than $250 billion in total consolidated assets and less 
than $10 billion in total foreign exposures. The proposal would 
simplify and clarify a number of the more complex aspects of the 
existing capital rule. The Federal banking agencies received a number 
of comments on various aspects of the proposal and are working together 
to consider what changes to the proposal would be appropriate in light 
of the different ideas and suggestions provided in the comments. 
Additionally, one area of the proposal--the treatment of acquisition, 
development, and construction loans--has been superseded by the 
Economic Growth Act. As we move forward with our efforts to simplify 
and clarify our regulatory capital requirements, the agencies will, of 
course, make any changes necessary to conform our capital rules to the 
new law.
---------------------------------------------------------------------------
     \12\ 82 FR 49984 (October 27, 2017).
---------------------------------------------------------------------------
    In April of this year, the OCC and the Board of Governors of the 
Federal Reserve System proposed a rule that would further tailor 
leverage ratio requirements to the business activities and risk 
profiles of the largest domestic firms. \13\ Currently, firms that are 
required to comply with the ``enhanced supplementary leverage ratio'' 
are subject to a fixed leverage standard, regardless of their systemic 
footprint. The proposal would instead tie the standard to the risk-
based capital surcharge of the firm, which is based on the firm's 
individual characteristics. The resulting leverage standard would be 
more closely tailored to each firm. Importantly, the Economic Growth 
Act includes a provision (section 402) that requires the agencies to 
make changes to the calculation of the supplementary leverage ratio for 
banking organizations engaged in custody, safekeeping, and asset 
servicing activities. As we move forward with the changes required by 
the new law, we will need to consider whether the proposed 
recalibration of the enhanced supplementary leverage ratio remains 
appropriate, or whether additional fine tuning will be necessary.
---------------------------------------------------------------------------
     \13\ 83 FR 17317 (April 19, 2018).
---------------------------------------------------------------------------
    I also look forward to working with fellow regulators to update 
regulations to implement additional relief authorized in the Economic 
Growth Act. Among those provisions are section 201 which allows banks 
that exceed a ``community bank leverage ratio'' (tangible equity to 
average total consolidated assets of 8 percent to 10 percent) to be 
deemed to be in compliance with current leverage and risk-based capital 
provisions. This will greatly reduce regulatory burden for well-
capitalized, qualifying institutions.
    Similarly, the agencies have been working to simplify the Volcker 
Rule \14\ to ease associated burden, particularly for those community 
and midsize banks that do not pose systemic risk to the Nation's 
financial system and typically do not engage in the type of activities 
that the statute was intended to address. I also applaud the changes 
made by the Economic Growth Act to reduce the number of banks subject 
to the Volcker Rule and want to thank the many Members of this 
Committee who supported this reasonable exemption.
---------------------------------------------------------------------------
     \14\ 12 U.S.C. 1851; 12 CFR 44.
---------------------------------------------------------------------------
    For those entities that remain subject to the rule, the OCC is 
committed to adding clarity and reducing unnecessary burden, as 
appropriate. In August 2017, the OCC sought public comment about what 
should be done to improve the current regulation implementing the 
Volcker Rule \15\ and specifically invited input on ways to tailor the 
rule's requirements and clarify key provisions that define prohibited 
and permissible activities. The agency also sought input on how the 
Federal regulatory agencies could implement the existing rule more 
effectively without revising the regulation. The OCC has used comments 
to inform its dialogue with other Federal regulatory agencies.
---------------------------------------------------------------------------
     \15\ 82 FR 36692 (August 7, 2017).
---------------------------------------------------------------------------
    The OCC has worked collaboratively with the other Federal 
regulatory agencies responsible for the Volcker Rule to develop a 
proposed rule that would clarify and streamline the current regulation. 
These proposed changes focus on reducing the subjectivity, and 
associated uncertainty, of the current rule. A key objective is to 
provide clear lines that enable firms to quickly and easily determine 
whether activities are subject to the rule. In this regard, the 
proposal seeks to eliminate the test that looks to the subjective 
intent of a transaction for purposes of determining whether it is 
proprietary trading and to focus on objective factors. For example, a 
trading desk that operates within a prescribed profit and loss 
threshold would be presumed to be operating in compliance with the rule 
unless the appropriate agency determines otherwise.
    In addition, the proposed rule focuses on appropriate burden 
reduction by seeking to calibrate the regulation to the type and level 
of risk presented. For example, a bank with only moderate trading 
activities would be eligible for streamlined versions of the market-
making and hedging exemptions relative to a bank that has significant 
trading activities. For banks with the most limited trading activities, 
there would not be any ongoing obligation to demonstrate compliance, 
although the rule's substantive restrictions on proprietary trading and 
covered funds activities would still apply. We believe these changes 
will reduce burden, particularly for smaller and midsize banks that 
remain subject to the Volcker Rule following the recent statutory 
amendment. We believe these changes will also improve the agencies' 
implementation of the Volcker Rule by allowing regulators to focus on 
the activities that were at the core of the statutory prohibitions.
    Each of the five agencies involved in writing the rules 
implementing the Volcker Rule has adopted the proposal, and I look 
forward to working with my fellow regulators to finalize changes to the 
Volcker Rule later this year.
Agency Effectiveness and Efficiency
    Ensuring that the OCC operates as effectively and efficiently as 
possible allows the agency to succeed in its mission, to be a 
responsible steward of every assessment dollar collected, and to 
maintain a professional and inspiring workplace for the men and women 
who contribute to the economic security of our Nation by supervising 
its banks.
    Since I arrived at the OCC, we have greatly improved the agency's 
decision-making processes. Over the years, the OCC had developed a 
centralized and bureaucratic approach to decision making that required 
multiple officials and many layers of review to approve examiner 
guidance, internal policies, and public issuances. We have 3 months of 
data that tell us that the change is paying dividends. The average 
total time for executive managers to review documents and agency 
decisions is now less than 8 days, down from an average of nearly 22 in 
calendar year 2017. The revised process also pushes decision making 
down to appropriate staff. Under the revised process, for example, the 
Comptroller's approval has been required on 54 percent of the documents 
issued by the agency, compared with 97 percent of documents reviewed at 
the agency in 2017. This more efficient approval and coordination 
process reduces waste and allows more resources to be committed to 
executing decisions rather than coordinating their approval. We 
continue to look for opportunities to make that process even more 
efficient and reduce the time even further.
    The agency has also focused on reducing its costs through gaining 
efficiencies and making better use of technology. When I arrived at the 
OCC, I was greeted with 18-inches of three-ring binders for briefings 
the next day. Executives would arrive to meetings with their binders 
and coordination packages would be copied and bound for each required 
signature. Today, we have significantly reduced paper received by the 
front office and coordinate all materials electronically. Executives 
largely rely on electronic communication, and staff share information 
and document decisions online. Moving to an online-only system has 
saved an incalculable amount of paper and time--time spent under the 
old process assembling and delivering paper packages for each reviewer. 
Now, because comments are now provided electronically, we have 
eliminated the need to copy and scan comments by reviewers, decipher 
handwritten notes, and track down the commenter when follow-up is 
required. Recordkeeping is accomplished more quickly because all the 
documents are electronic and easily saved to the initiating office's 
system of records.
    The agency is also mindful of our responsibility to get the most 
out of every dollar assessed to the institutions we supervise and is 
working to reduce costs wherever it makes sense. At the beginning of 
fiscal year 2018, the OCC supervised 1,347 institutions and had 
authorized 3,945 full-time employees. After I became Comptroller, OCC 
management conducted a thorough budgetary review and identified 
efficiencies to fulfill our mission and lower our expected expenses by 
reducing the number of additional personnel we planned to hire during 
the year, prioritizing our work, completing that work more efficiently, 
and taking a closer look at actual versus planned spending for 
personnel travel and contracts. That effort reduced the amount we 
planned to spend in fiscal year 2018 by nearly $70 million, or about 5 
percent of our expected costs.
    As the agency looks ahead to fiscal year 2019, we will think even 
more critically and creatively about what we need to do our jobs 
successfully and reduce our anticipated costs further. There are many 
ways to save money and operate more efficiently and effectively, and 
currently none of them involve a reduction-in-force through layoffs or 
buyouts. As the agency plans its spending for fiscal year 2019 and 
beyond, we will seek to optimize our real estate strategy by shrinking 
our physical footprint and taking advantage of technology to reduce our 
costs. Our revised spending plan for the remainder of fiscal year 2018 
and the budgets I authorize in the future will continue to provide the 
resources necessary for the agency to succeed in its mission and to 
provide employees an engaging and fulfilling work experience. The 
agency will continue to invest in training and career development while 
providing a professional, supportive workplace so that the agency can 
attract and retain the experience and talent it needs.
Conclusion
    Thank you for the opportunity to provide my views on the condition 
of the Federal banking system, risks facings that system, and my 
priorities as Comptroller. I look forward to working with Members of 
this Committee, my fellow regulators, and the seasoned team at the OCC 
to address these important issues facing our Nation's banks and to 
further strengthen the Federal banking system.
    I again congratulate the Chairman on his leadership and I thank the 
Committee Members for their important and formative work resulting in 
common-sense relief for community and midsize banks that was passed 
into law last month.
        RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                     FROM JOSEPH M. OTTING

Q.1. Under your leadership, has the OCC experienced any 
reductions in staffing?

A.1. At the end of fiscal year 2017, the OCC employed 3,956 
staff. As of May 31, 2018, the OCC employed 3,838 staff.

Q.2. If so, what reductions were the result of attrition versus 
other forms of staff reduction?

A.2. Fluctuation in the number of employees reflects 
seasonality and ordinary attrition. The OCC has not conducted 
and has no plans to conduct a reduction in force or other forms 
of layoffs. The agency does intend to operate as effectively 
and efficiently as possible with sufficient staff to fulfill 
its mission.

Q.3. Is the OCC anticipating future reductions in staffing? If 
so, please explain the number of staff reductions implemented 
or expected, and please list the locations of the staff 
reductions, including the division within the OCC and the 
geographic location.

A.3. The OCC is in the process of developing its strategic plan 
for fiscal years 2019-2023 and its budget for fiscal year 2019. 
The agency intends to operate more effectively and efficiently 
in the future. The budget and staffing levels will be set 
sufficiently to fulfill the agency's important mission, but 
these levels have not yet been determined for fiscal year 2019 
and beyond.

Q.4. Also, please describe any other significant cost or 
expense reduction measures, including any reductions that could 
impact oversight of financial institutions. Finally, please 
describe any Administration recommendations or requests to 
reduce staffing or costs.

A.4. The OCC is in the process of developing its strategic plan 
for fiscal years 2019-2023 and its budget for fiscal year 2019. 
The agency intends to operate more effectively and efficiently 
in the future. The budget and staffing levels will be set 
sufficiently to fulfill the agency's important mission, but 
these levels have not yet been determined for fiscal year 2019 
and beyond. Finally, the Administration has neither instructed 
nor advised the OCC to reduce staffing or costs.

Q.5. Does discrimination in housing exist? Does discrimination 
in banking exist? Does discrimination in lending exist?

A.5. I do not condone discrimination and believe more can be 
done to provide credit and banking services mare fairly. This 
is one of the reasons I support changes to the Community 
Reinvestment Act (CRA) to encourage more lending and investment 
activity in our communities and to expand banking services to 
more consumers and businesses, particularly in low- and 
moderate-income communities. One of the reasons the CRA was 
enacted was to address redlining activity in the United States. 
Even today, there are observable differences in the approval 
rates and distribution of housing, banking services, and 
lending by race and other attributes.
    The OCC employs the tools and authority it has to combat 
discrimination. Examiners are required to complete a fair 
lending risk assessment for all OCC-supervised institutions 
during each supervisory cycle to guide the fair lending 
examination strategy for each bank. Using a risk-based process 
to identify banks and focal points for fair lending 
examinations, the Home Mortgage Disclosure Act (HMDA) screening 
process is intended to supplement the fair lending risk 
assessments. Using a combination of statistical analysis based 
on the HMDA data as well as a review of the data collected 
using the OCC Fair Lending Risk Assessment Tool, the OCC 
identifies banks that exhibit higher fair lending risk for 
which a fair lending examination is required within the 
following fiscal year. In instances where the OCC has 
identified evidence of redlining or discriminatory practices, 
it has taken supervisory action, and where appropriate, made 
referrals to the Department of Justice and Department of 
Housing and Urban Development in accordance with OCC policy.

Q.6. In your testimony, you noted that you diversified 
OneWest's Board. Please provide a list of Board members, along 
with each individual's gender, race, and ethnicity, for each of 
the years you were employed at the bank.

A.6. As discussed at the hearing, during my tenure at OneWest, 
we diversified the Board of Directors from the one that was in 
place when I arrived. Public information about the board 
members of CIT Bank, N.A., is available on S&P Global at 
https://platform.mi.spglobal.com/web/
client?auth=inherit#company/officers?id=4227407.

Q.7. In your testimony, you noted that you were ``not aware'' 
of an ``old boys' club'' in the banking industry.

A.7. I am not.

Q.8. What does research suggest regarding barriers to inclusion 
for women and persons of color in the banking industry?

A.8. While the banking industry is generally a leader in 
employee inclusion and diversity, current research suggests 
women and people of color continue to be underrepresented in 
the banking industry as a whole, and we should continue to 
encourage their participation.

Q.9. Do you believe you would be serving as Comptroller of the 
Currency if you did not have a prior relationship with 
Secretary Mnuchin?

A.9. I serve the country as Comptroller of the Currency because 
the President nominated me and the Senate reviewed my 
nomination and qualifications and voted to confirm me to this 
position.

Q.10. The Director of the Office of Minority and Women 
Inclusion (OMWI) at the OCC directly reports to the 
Comptroller, per Section 342 of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act of 2010. How many times have 
you met with the OCC OMWI Director? What specific objectives 
within the purview of the OMWI do you plan to accomplish during 
your tenure? What is your timeline for meeting your goals?

A.10. I meet at least monthly and more often as the need arises 
with the OCC's Executive Director for Workforce Diversity and 
Inclusion, Joyce Cofield. She and I also attend diversity 
meetings and events together, regularly.
    More diversity broadly at senior level positions at the OCC 
is one objective. In addition, I am particularly committed to 
enhancing the participation of more Hispanics at the OCC in 
terms of overall representation throughout the agency as well 
as at the most senior leadership levels to address the low 
participation of Hispanics in our workforce. Women also are 
underrepresented in the examiner discipline and we are 
considering ways to address this. Finally, I am proposing a 
summer internship program for 2019 in which local high school 
students from low- and moderate-income areas could participate 
to increase their awareness of career opportunities at the OCC.

Q.11. According to the OCC's most recent No FEAR Act 
disclosure, the OCC will receive 52 EEO complaints in 2018. In 
comparison, the OCC received 23 EEO complaints in 2017, 18 in 
2016, 15 in 2015, and 17 in both 2014 and 2013. What explains 
the jump in EEO complaints during your tenure?

A.11. The question incorrectly projects the number of 
complaints for 2018. The accurate projection is 26 not 52, 
based on the 13 complaints filed from October 1, 2017, to March 
30, 2018. This figure is not a significant increase over 2017 
and is still a low number for an agency of our size. I am 
committed to maintaining a workplace that is free from fear, 
harassment, and discrimination. The agency has made a concerted 
effort to make employees aware of all of the channels they have 
to voice concerns.

Q.12. The Comptroller has the discretion to waive confidential 
supervisory information disclosure restrictions generally 
applicable under 12 CFR Part 4 if the Comptroller determines 
such disclosure ``may be necessary or appropriate.'' As such, 
will you use this discretion to make additional information 
public regarding the OCC's horizontal review of sales practice 
violations? If not, why not?

A.12. I have previously provided a public summary of the OCC's 
horizontal review of sales practices. Information that remains 
confidential supports ongoing supervisory activity. Release of 
any additional confidential supervisory information could 
prejudice or adversely affect future supervisory actions.

Q.13. Please list the 40 national banks subject to the OCC's 
horizontal review of sales practice violations, which concluded 
in the fourth quarter of 2017.

A.13. The banks reviewed included the largest national banks 
and Federal savings associations with significant consumer 
sales activity.

Q.14. Why did the OCC select a ``look-back'' period of 3 years 
for the horizontal review given that Wells Fargo admitted that 
the bank's unauthorized account scandal dated back to the year 
2003?

A.14. The primary objective of the review was to determine 
whether systemic issues were occurring in the Federal banking 
system related to unauthorized account openings. Three years 
were sufficient for that purpose. While the look-back period 
was set by my predecessor, I agree with this timeframe.

Q.15. Your testimony noted that the OCC sent final letters to 
bank CEOs upon the conclusion of the horizontal review on June 
4th. Please provide the Committee with a sample of a final 
letter sent to a bank CEO.

A.15. Our formal communications with the institutions we 
supervise are confidential supervisory documents. However, a 
summary of our horizontal review was provided to the Chairman 
and Ranking Member in a letter dated June 11, 2018. The 
information provided in the June 11 letter was similar to that 
contained in the final letters to bank Chief Executive 
Officers.

Q.16. You noted in testimony that the OCC did not find 
pervasive or systemic issues in regard to improper account 
openings. Please explain why you view the OCC's findings to be 
nonsystemic.

A.16. Based on the hundreds of millions of accounts opened by 
the reviewed banks during the 3-year look-back period, neither 
the volume of accounts identified with issues nor the variety 
of root causes for those issues constituted a systemic issue.

Q.17. Please provide a copy of each of the five industrywide 
matters requiring attention.

A.17. The matters requiring attention (MRA) are confidential 
supervisory information. They generally involved deficiencies 
in policies, procedures, and controls as described in my June 
11, 2018, letter to the Committee Chairman and Ranking Member.

Q.18. (MRAs) the OCC issued as a result of the horizontal 
review of sales practice violations. If the OCC intends not to 
provide such documentation, what is the rationale for keeping 
industrywide information private? To what extent have the MRAs 
been addressed by the banking industry?

A.18. The MRAs are confidential supervisory information. They 
generally involved deficiencies in policies, procedures, and 
controls as described in my June 11, 2018, letter to the 
Committee Chairman and Ranking Member. The MRAs support our 
ongoing supervisory activities. Release of any additional 
confidential supervisory information could prejudice or 
adversely affect future supervisory actions. The OCC is 
monitoring banks' actions to correct issues identified in the 
horizontal review, and approximately 20 percent of the MRAs 
have been remediated to date. Failure to correct the issues in 
a timely and effective manner may result in additional 
supervisory actions, including public enforcement actions if 
warranted.

Q.19. Please describe in detail the methodology used to conduct 
the horizontal review. How did the OCC review 500 to 600 
million recently opened accounts, and determine that only 
20,000 were unauthorized? What was the sample size of the 
accounts reviewed? Did OCC examiners inspect account opening 
documentation or files for signatures? How did OCC supervisors 
determine if signatures were legitimate?

A.19. The general methodology used to conduct the horizontal 
review was described in my June 11, 2018, letter to the 
Committee Chairman and Ranking Member. The review was conducted 
in three phases. Phase 1 determined whether systemic or bank-
specific issues exist with regard to bank employees opening 
accounts on behalf of individual and small business customers 
without consent. In phase 2, examiners evaluated sales goals, 
strategies, incentive compensation, and quota programs to 
determine if they appropriately balance sales and revenue 
targets with risk management and customer satisfaction. Phase 3 
included large and midsize insured depository institutions with 
assets greater than $50 billion to determine if their risk 
management framework effectively controls risks associated with 
sales practices and incentive compensation programs. Specific 
review methods varied from bank to bank based on the risk 
characteristics and business portfolio of that bank. The 500 to 
600 million number represents an estimate of the total number 
of accounts opened by the participating banks during the 3-
year, look-back period.

Q.20. How did the OCC determine that of 20,000 authorized 
accounts, half were opened inappropriately and half were merely 
missing documentation? How did the OCC distinguish between 
those two categories?

A.20. The approximately 20,000 accounts with issues were 
identified through the 3-year look-back of accounts and 
supporting documentation used by the banks to open the 
accounts. More than half of the 20,000 accounts involved issues 
unrelated to the initial account authorization. In those 
instances where proof of authorization could not be provided, 
we determined the account merely lacked customer consent 
documentation if the consumer activated or used the product 
since opening the account. In other cases, known issues related 
to recordkeeping or system deficiencies were determined to be 
causes of poor or incomplete documentation.

Q.21. In a briefing with Senate staff conducted on June 8, 
2018, the Senior Deputy Comptroller for Large Bank Supervision 
indicated that the CARD Act of 2009 (Public Law 111-24) may 
have contributed to banks' creating unauthorized accounts. Why 
does the OCC believe that the CARD Act led to the creation of 
unauthorized bank accounts?

A.21. To clarify, the CARD Act added a signature requirement 
for applications to open a credit card account by a consumer 
who is under 21, which we understand some banks interpreted as 
requiring signatures only in those limited circumstances. 
Credit cards were the products most often associated with 
concerns regarding unauthorized account openings. However, 
banks involved in the horizontal review have implemented more 
robust account opening and closing policies, procedures, and 
controls designed to reduce the potential for inappropriate 
activities or unauthorized account openings.

Q.22. Less than a month into your tenure at the OCC, you 
reversed a decision by former Comptroller Curry to bring bank 
examiners to OCC offices instead of keeping them on-site at the 
banks they supervise. At the hearing, you said that you made 
this decision to keep bank examiners on-site based on your 35 
years of experience in the banking industry. It was unclear, 
however, what other perspectives, such as those of your fellow 
regulators, you considered in making this decision.
    Please describe the process for making this decision.

A.22. As I discussed at the hearing, I relied upon my 
experience and judgment to make the decision. The value of 
retaining on-site examiners outweighs any benefit of removing 
them from bank premises. Open, effective communication and 
early identification of concerns are the keys to effective 
supervision, both of which are supported by an on-site 
presence. My decision is further supported by the practices at 
the OCC to rotate examiners-in-charge after 5 years, to provide 
oversight by Deputy Comptrollers assigned to OCC Headquarters, 
and to depend on off-site lead experts who provide a horizontal 
view of risks and practices across the agency. Also, there has 
been no study to date regarding the cost of moving examiners 
out of banks or showing that moving examiners would reduce the 
perception of regulatory capture.

Q.23. Did you solicit the views of or consult any individuals 
at (i) the OCC; (ii) the Federal Reserve Bank of New York; 
(iii) any other banking regulatory agencies; (iv) any industry 
groups; (v) any banks; or (vi) any groups representing the 
interests of consumers? If so, please describe these 
communications and provide any copies of the communications to 
the Committee.

A.23. No. I relied upon my experience and judgment to make the 
decision. My decision is further supported by the practices at 
the OCC to rotate examiners-in-charge after 5 years, to provide 
oversight by Deputy Comptrollers assigned to OCC Headquarters, 
and to depend on off-site lead experts who provide a horizontal 
view of risks and practices across the agency. Also, there has 
been no study to date regarding the cost of moving examiners 
out of banks or showing that moving examiners would reduce the 
perception of regulatory capture.

Q.24. Did you or any OCC staff conduct an economic or other 
analysis to support the decision? If so, please provide a copy 
of any such analysis to the Committee.

A.24. No, nor was there such a study conducted to determine the 
effect of moving examiners out of bank space to support the 
original recommendation in 2013.

Q.25. At the hearing, when asked why you purchased stock in 
financial companies after your nomination to lead the OCC, 
including banks regulated by the OCC, you noted that you played 
no role in these decisions, and that they were made by a third-
party money manager. Given the potential for at least the 
appearance of a conflict of interest--if not a conflict of 
interest itself--why not instruct your money manager to place 
all your holdings in a passive investment, such as a broad-
based index fund, or a blind trust? Wouldn't that better avoid 
the appearance of a conflict of interest?

A.25. I abided by all of the available guidance and ethics 
standards applicable to this and previous Administrations, and 
continue to do so.

Q.26. The OCC's proposal to weaken leverage limits for the 
biggest banks would, according to the OCC, reduce the required 
capital for the eight banks covered by the proposal by $121 
billion. This reduction would increase the likelihood that such 
banks fail and would likewise increase the magnitude of harm 
caused by their failure, potentially leaving taxpayers with the 
bill and increasing overall risks to financial stability.

A.26. The proposed changes would retain a meaningful 
calibration of the Enhanced Supplemental Leverage Ratio (eSLR) 
standards while not discouraging firms from participating in 
low-risk activities. The changes correspond to changes in the 
leverage ratio standard published by the Basel Committee on 
Banking Supervision in December 2017. It is unlikely that banks 
would release $121 billion in Tier 1 capital because of other 
binding constraints on liquidity and capital. The proposed eSLR 
standards along with current risk-based capital standards and 
other constraints applicable at the holding company level would 
continue to limit the amount of capital that global 
systemically important banking organizations (G-SIB) could 
distribute to investors, thus supporting the safety and 
soundness of G-SIBs and helping to maintain financial 
stability. I look forward to reviewing comments received on the 
proposal.

Q.27. Please provide a bank-by-bank breakdown of these 
reductions in capital across the eight national banks impacted 
by the proposal supervised by the acc.

A.27. As indicated above, it is unlikely that the national 
banks supervised by the OCC and affected by the proposal would 
release a combined total of $121 billion in Tier 1 capital. 
Other binding constraints on liquidity and capital, combined 
with current risk-based capital standards and other constraints 
applicable at the holding company level would continue to limit 
the amount of capital that these banks could release, thus 
supporting their safety and soundness and helping to maintain 
financial stability.

Q.28. What benefits would the OCC's proposal create?

A.28. The changes to the eSLR requirements proposed by the 
Federal Reserve and the OCC would tailor the requirement to the 
business activities and risk profiles of the largest banks. The 
proposed changes would retain a meaningful calibration of the 
eSLR while not discouraging banks from participating in low-
risk activities. With the proposed modifications, the eSLR 
would serve as a backstop to the risk-based measures rather 
than the primary binding constraint. In addition, the proposed 
changes are aligned with recent changes to the leverage 
standard published by the Basel Committee on Banking 
Supervision in December 2017. Aligning with the Basel standard 
creates a more level international playing field, reducing 
disadvantages faced by U.S. G-SIBs in competing with 
international counterparts.

Q.29. What costs would the OCC's proposal impose (e.g., risks 
to the Deposit Insurance Fund, or decreased financial 
stability)?

A.29. The change to the eSLR requirements is being proposed by 
the Federal Reserve and the OCC. \1\ We are unable to predict 
exactly how banks will choose to respond to these changes in 
regulatory capital under the rule and therefore to quantify the 
costs of the proposal. As part of the preliminary assessment of 
the potential effect of the rulemaking, OCC staff concluded 
that banks might respond to a decrease in minimum required 
regulatory capital in three ways. First, all else equal, banks 
affected by the rule will have improved capital ratios, and 
they can elect to operate with these higher capital ratios. 
Second, if capital at the higher ratios exceeds regulatory 
minimums and the bank's internal capital requirements, the bank 
con choose to return some of this capitol to shareholders in 
the form of stock buy-backs or increased dividend payouts. 
Third, banks can choose to increase their assets until they 
achieve their targeted capitol ratio.
---------------------------------------------------------------------------
     \1\ See https://www.occ.gov/news-issuances/news-releases/2018/nr-
la-2018-36a.pdf.

Q.30. How did the OCC determine that the benefits of its 
proposal would exceed the costs? Did the OCC perform any 
quantitative analyses? If so, please provide a copy of any such 
---------------------------------------------------------------------------
analysis.

A.30. The change to the eSLR requirements is being proposed by 
the Federal Reserve and the OCC. \2\ Staff at the OCC conducted 
a preliminary assessment of the potential effect of the 
rulemaking. Staff did not quantify the potential benefits of 
the proposal, however, as part of the assessment OCC staff 
determined that the proposed rule would help alleviate any 
unintended distortive effects of the SLR, particularly for 
custody banks, and address concerns that the eSLR is punitive 
because it does not make accommodations for low-risk business 
models or low-risk assets such as central bank deposits and 
U.S. Treasury securities. Second, the proposed rule would 
retain the original purpose of the SLR which is to be a non- 
risk-based measure of a banking organization's overall 
leverage, including off-balance-sheet exposures. Third, the 
proposal would make the institution's eSLR buffer proportional 
to an institution's systemic riskiness as measured by its G-SIB 
buffer. This proportional approach is in alignment with recent 
Basel III reforms endorsed by the Basel Committee on Banking 
Supervision's oversight body, the Group of Central Bank 
Governors and Heads of Supervision (GHOS), reducing 
disadvantages faced by U.S. G-SIBs in competing with 
international counterparts.
---------------------------------------------------------------------------
     \2\ See https://www.occ.gov/news-issuances/news-releases/2018/nr-
la-2018-36a.pdf.

Q.31. Asked during June 13th House Financial Services Committee 
hearing whether the current Volcker Rule has unacceptably 
``chilled'' market-making functions, you replied: ``I don't 
believe so.'' If the Volcker Rule is not unacceptably hurting 
market-making, then is the only benefit to the Volcker proposal 
---------------------------------------------------------------------------
a reduction in compliance costs?

A.31. Compliance cost and unnecessary burden on institutions 
that do not engage in the type of activities that section 13 of 
the Banking Holding Company Act (Volcker Rule) was intended to 
restrict are reason enough to revise the Volcker Rule. However, 
other reasons exist, which include providing greater clarity on 
the scope of activities that are covered by the rule and 
clarifying the compliance responsibilities for covered 
entities.

Q.32. How did the OCC determine that this reduction in 
compliance costs, or any other benefits, would exceed the 
benefits to financial stability and protection of the Deposit 
Insurance Fund that the current Volcker Rule provides? Did the 
OCC perform any quantitative analyses? If so, please provide a 
copy of any such analysis.

A.32. The OCC performed an analysis consistent with the 
Unfunded Mandates Review Act to evaluate whether the mandates 
imposed by the proposal may result in an expenditure of $100 
million or more by State, local, and tribal governments, or by 
the private sector, in any one year. The OCC also performed an 
analysis pursuant to the Regulatory Flexibility Act on whether 
the proposal will have a significant economic effect on a 
substantial number of small entities. The OCC determined the 
proposal would neither result in expenditures in excess of $100 
million, nor impact a substantial number of small entities. A 
copy of the OCC's analysis is attached.

Q.33. How does the OCC plan to surveil banks with below $100 
billion in assets for resiliency to economic shocks in the 
absence of stress testing? How does the OCC plan to test for 
correlated risks across this cohort of banks?

A.33. The OCC's examinations of the institutions we supervise 
will continue to include evaluations of capital adequacy and 
stress testing. OCC Bulletin 2012-16, ``Guidance for Evaluating 
Capital Planning and Adequacy,'' provides our examiners and the 
industry with our expectations in this area. This bulletin 
addresses the expectation for these institutions to ``have a 
forward-looking assessment of the bank's capital needs, 
including capital needs that may arise from rapid changes in 
the economic and financial environment.'' Similarly, OCC 
Bulletin 2012-14, ``Stress Testing-Interagency Stress Testing 
Guidance'' addresses sound practices for effective stress 
testing. Further, our OCC subject matter experts monitor for 
correlated risks across product types and economic conditions.

Q.34. Please provide a list of all OCC rulemakings mandated by 
S. 2155 and an expected timeline of when the OCC will propose 
the required rulemakings.

A.34. The OCC expects to be engaged in at least 11 rulemakings 
to implement the following sections of the Economic Growth, 
Regulatory Relief, and Consumer Protection Act (Economic Growth 
Act):

        Section 103. Exemption From Appraisals of Real Property 
        Located in Rural Areas

        Section 201. Capital Simplification for Qualifying 
        Community Banks

        Section 203. Community Bank Relief

        Section 204. Removing Naming Restrictions Section 205. 
        Short Form Call Reports

        Section 206. Option for Federal Savings Associations To 
        Operate as Covered Savings Associations

        Section 210. Examination Cycle

        Section 214. Promoting Construction and Development on 
        Main Street

        Section 401. Enhanced Supervision and Prudential 
        Standards for Certain Bank Holding Companies

        Section 402. Supplementary Leverage Ratio for Custodial 
        Banks

        Section 403. Treatment of Certain Municipal Obligations

    The OCC can issue a rule to implement section 206, 
providing greater flexibility for Federal savings associations, 
on its own. The remaining rulemakings are joint or coordinated 
rulemakings and will require interagency work. We are currently 
engaged in discussions with the other regulators to develop 
timelines for these rulemakings.

Q.35. In your Senate testimony, regarding the OCC's 2013 
leveraged lending guidance, you noted that you've emphasized to 
OCC examiners that ``guidance is guidance and rules are rules . 
. . so I think we've taken an aggressive posture to make sure 
that that is known within the agency.'' The OCC has not 
rescinded this guidance, and yet you've downplayed its 
importance as a supervisory directive. How are OCC examiners 
currently using the 2013 leveraged lending guidance in their 
exams? How does this differ from how it was used in 2013 
through April 2017?

A.35. Supervisory guidance outlines safe-and-sound banking and 
risk management principles and promotes transparency and 
consistency in the OCC's supervisory approach across banks. 
Guidance does not impose legally binding constraints on banks. 
The agency has stressed that examiners should focus on the 
deficient practice and the potential for the deficient practice 
to adversely affect the bank's condition or result in 
violations if not addressed. In some instances in the past, 
examiners may have inappropriately relied on guidance alone 
when citing compliance requirements and deficiencies. We have 
communicated extensively to OCC staff the differences between 
regulations and guidance.

Q.36. Regarding OCC deposit advance products guidance issued in 
2013, you noted that, ``banks basically exited that market, and 
for the life of me, I don't understand if you take, you know, 
the banks out of a space that were providing a critical source 
of capital, that it didn't end up being worse for consumers and 
they had less choice.'' Please provide any studies or research 
indicating that consumers were harmed following the issuance of 
this 2013 guidance and had less choice.

A.36. An example of analysis in this area was conducted by the 
Pew Charitable Trust. \3\ The Board of Governors of the Federal 
Reserve System also published a study in 2016 that stated 
nearly half of adults were unprepared to cover an emergency 
expense of $400. \4\ The general logic is that if you 
dramatically decrease supply for a product without reducing 
demand, the price of that product increases and terms often 
become less consumer friendly.
---------------------------------------------------------------------------
     \3\ See ``Regulators Should Let Banks Get Back to Small-Dollar 
Loans'', The Pew Charitable Trusts. January 7, 2016 (http://
www.pewtrusts.org/en/about/news-room/opinion/2016/01/ 07/regulators-
should-let-banks-get-back-to-small-dollar-loans) and ``From Payday to 
Small Installment Loans'', The Pew Charitable Trusts. August 11, 2016 
(http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2016/
08/from-payday-to-small-installment-loans#O-overview).
     \4\ See ``Report on the Economic Well-Being of U.S. Households in 
2015''. Board of Governors of the Federal Reserve System. May 2016 
(https://www.federalreserve.gov/2015-report-economic-well-being-us-
households-201605.pdf).
---------------------------------------------------------------------------
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                     FROM JOSEPH M. OTTING

Q.1. I think the Community Reinvestment Act serves a valuable 
purpose. It isn't perfect . . . but few things are. That said, 
the Administration is on the right track in considering some 
changes to how we implement that law. Let's face it the CRA was 
first enacted in 1971. A lot has changed since then.
    I want to focus your attention on the Opportunity Zones 
that tax reform created. We've got about 50 million Americans 
living in economically distressed communities around the 
country. These folks have a lot of potential, it's just the 
matter of unlocking it.
    That's why my Investing in Opportunity Act directed the 
Treasury Department and all 50 governors to designate 
``Opportunity Zones'' and invite more private investment into 
the places that need it the most.
    So there's a shared objective with the CRA-increasing 
economic activity in underserved communities. To me, it would 
make a lot of sense to incorporate these Opportunity Zones with 
the CRA. Please answer the following with specificity:
    Are you considering broadening CRA-eligibility to 
investments in Opportunity Zones? If so, could we give 
financial institutions CRA-credit for making such investments?

A.1. I would welcome considering making investments in 
Opportunity Zones eligible for CRA credit.

Q.2. What's your timeline on some of these proposed changes to 
the CRA?

A.2. I am working on an interagency basis with the intent to 
publish an ANPR as soon as possible. Comments from an ANPR may 
then inform an NPR, which is typically followed by a final 
rule.
    I would like to bring attention to a subject we have 
discussed in the past nonbank SIFI designations. Secretary 
Mnuchin and I agreed on the perfect analogy for the designation 
process how it stands: It is like getting a speeding ticket in 
a neighborhood with no speed limit signs. I know the 
Administration is reforming the process. That aside, it still 
does not make sense to me that a group of bank regulators like 
you are making designation decisions for insurance firms. It is 
not that you are not bright folks--it is just that banking and 
the business of insurance are totally different.

Q.3. I hope the Administration keeps that in mind as it 
continues with reforming FSOC. I'm concerned that 
implementation of the Volcker Rule as it stands could 
dramatically slow down or even halt capital investments in the 
financial services sector, despite enactment of S. 2155, 
Section 203. The last thing we should do is discourage capital 
investments in the lending arena that do not pose a risk to 
insured deposit funds, which is what the Volcker Rule was 
designed to protect against.
    Do you share this concern in regards to implementation of 
the Volcker Rule? If so, what is the OCC doing to rectify the 
situation?

A.3. The recent proposed changes to the Volcker Rule and the 
changes included in the Economic Growth Act would make 
significant improvement to the implementation of the rule by 
maintaining core prohibitions and protections while reducing 
burden on banks that do not engage in the type of activities 
that section 13 of the Bank Holding Company Act (the Volcker 
Rule) was designed to restrict and providing greater regulatory 
clarity for all banks. I look forward to reviewing the comments 
received on the proposed changes to the Volcker Rule.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR COTTON
                     FROM JOSEPH M. OTTING

Q.1. S. 2155, the Economic Growth, Regulatory Relief, and 
Consumer Protection Act was signed into law last month. Senator 
Jones and I were pleased that S. 2155 included our provision 
that clarified rules on High Volatility Commercial Real Estate 
(HVCRE), providing much needed, common-sense relief for 
acquisition, development or construction (ADC) loans. We're 
pleased that lower-risk loans and good business practices are 
no longer being penalized by vague, counterproductive 
regulations.
    As you are no doubt aware, those changes were effective 
immediately, and they supersede contrary provisions of the 
current HVCRE rule. As a result, the HVCRE rule currently on 
the books is inconsistent with the law.
    What steps are the OCC and the other Federal banking 
agencies taking to conform the HVCRE rule to what the law 
requires?

A.1. The OCC is working with the Federal Reserve and the FDIC 
to implement the new statutory requirements. With respect to 
HVCRE, the agencies noted that a depository institution would 
immediately be permitted to, consistent with the statute, risk-
weight at 150 percent only those commercial real estate 
exposures it believes meet the statutory definition of an HVCRE 
ADC loan. When reporting HVCRE exposures on Schedule RC-R, Part 
II of the Consolidated Reports of Condition and Income (Call 
Report), depository institutions may use available information 
to reasonably estimate and report only HVCRE ADC loans. 
Depository institutions may refine these estimates in good 
faith as they obtain additional information but will not be 
required to amend previously filed regulatory reports as these 
estimates are adjusted. Alternatively, a depository institution 
may also continue to report and risk-weight HVCRE exposures in 
a manner consistent with the current instructions to the Call 
Report, until the agencies take further action.

Q.2. What are you planning to do in the meantime to assure 
banks that you and the other Federal banking agencies will not 
enforce the current rule in a manner inconsistent with this 
legislation?

A.2. The OCC together with the Federal Reserve and FDIC issued 
a Statement Regarding the Impact of the Economic Growth Act 
which addresses how the agencies plan to enforce the HVCRE 
requirements until a rule is finalized. See https://
www.occ.gov/news-issuances/news-releases/2018/nr-ia-2018-
69a.pdf.

Q.3. The OCC's supervisory manual makes it clear that there is 
a difference between, on the one hand, a Matter Requiring 
Attention (MRA) which is based on a violation of law, and, on 
the other hand, an MRA which is based on the local examiner's 
opinion of actions which the bank might take to improve the its 
ability to deal with future, hypothetical concerns or threats.
    Will the OCC make it dear that the first kind of MRA is 
compulsory and could be subject to an enforcement action, and 
the latter is not, but rather a type of safe harbor or best 
practice?

A.3. The OCC uses MRAs to communicate the OCC's concern with a 
bank's deficient practices. In addition to a practice that 
results in a violation of law or regulation, deficient 
practices also include bank practices that deviate from sound 
governance, internal control, or risk management principles, 
and have the potential to affect the bank's condition if not 
corrected. The OCC's MRA policies indicates that MRAs are not 
used to communicate best practices or offer enhancements to a 
bank's practices that are not deficient.
    Examiners may discuss recommendations for best practices or 
enhancements with banks informally; the OCC does not track such 
recommendations or include them in the report of examination, 
and there is no expectation for bank management to take action 
in response to recommendations. The OCC's Office of Enterprise 
Governance and the Ombudsman, which operates independently from 
the bank supervision process, maintains a bank appeals process. 
Banks may appeal agency decisions through this process, 
including material supervisory determinations such as MRAs, 
compliance with enforcement actions, or other conclusions in 
the report of examination.

Q.4. Yes or no, can an OCC examiner issue a ``Matter Requiring 
Attention'' to a bank for not following agency guidance that 
has not been subject to review under the Congressional Review 
Act?

A.4. No. Agency guidance alone does not have the same force and 
effect as a statute or regulation. Guidance generally outlines 
safe-and-sound banking or risk management principles and 
promotes transparency regarding the agency's supervision. No 
single risk management system works for all banks. Therefore, 
examiners assess each bank's risk management consistent with 
the bank's individual circumstances and risks. MRAs focus on 
the deficient practice and its potential to adversely affect 
the bank's condition or result in violations if not addressed. 
Referring to supervisory guidance may assist bankers in 
implementing sound risk management principles for certain 
activities, depending on the bank's circumstances.

Q.5. Senator: In Acting Comptroller Noreika's letter on the GAO 
determination that the joint agency guidance on leveraged 
lending constituted a rule under the Congressional Review Act 
(CRA) and therefore must be submitted to Congress for review as 
required by law, the OCC acknowledged that guidance cannot be 
used to create a legal obligation. While it seems the OCC 
leadership is on its way to complying with the law under the 
CRA, it has been brought to my attention that this has not 
changed the mindset of bank examiners.
    To ensure bank examiners, and as importantly, bank 
compliance officers, understand that guidance is not legally 
enforceable, would you consider including a notice in 
examination and supervisory handbooks making clear that 
guidance cannot be the basis of enforcement actions?

A.5. We have communicated extensively with our examiners the 
important distinction between supervisory guidance and 
regulations. Supervisory guidance does not have the force and 
effect of law or regulation, but provides transparency about 
the factors the OCC considers when exercising its supervisory 
authority. Examiners will continue to base their criticism of a 
supervised institution on the institution's deficient practices 
or its failure to comply with a specific law or regulation.

Q.6. Senator: In today's economic environment, a growing number 
of Americans are having trouble making ends meet. The Federal 
Reserve found nearly half of the country could not cover a $400 
emergency expenditure, and many have few choices to turn to for 
help. Banks previously offered the deposit advance product 
(DAP) to help existing customers with proven income streams 
meet their critical needs, but in 2013 both the FDIC and OCC 
effectively regulated banks out of this space, pushing 
customers into the less regulated payday loan market.
    Given the need for small-dollar credit and the benefit of 
permitting access to product from a well-regulated industry, 
will you revisit the 2013 guidance to allow responsible actors/
banks to reenter this market?

A.6. The OCC rescinded that guidance in October 2017.

Q.7. Good actors and responsible banks/credit unions have left 
the small-dollar market as a result of overregulation: Where do 
consumers go to make ends meet considering this gap in the 
market?

A.7. I agree that guidance perceived as regulation caused 
certain banks to stop making demand-deposit advance loans in 
the short-term, small-dollar space, and no alternatives were 
apparently pursued by banks to service this space. As a result 
of the reduced supply, costs and features became less consumer 
friendly as consumers turned to available sources for such 
credit-payday lenders, check cashers, pawn shops. We need to do 
more as a Nation to encourage institutions to responsibly meet 
this consumer need. On May 23, 2018, the OCC issued a bulletin 
encouraging banks to offer responsible short-term, small-dollar 
installment loans and to remind banks of the core lending 
principles for prudently managing the risks associated with 
offering short-term, small-dollar installment lending programs. 
See https://occ.gov/news-issuances/bulletins/2018/bulletin-
2018-14.html.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                     FROM JOSEPH M. OTTING

Q.1. Are banks restricted from providing capital and credit to 
businesses because of limitations of providing this capital and 
credit under various fund structures? Does the current covered 
fund structure limit this availability of capital and credit? 
How do you plan on narrowing this definition so that banks can 
engage in the lending and capital injection that continues to 
grow and stimulate the economy?

A.1. The Volcker Rule (section 13 of the Bank Holding Company 
Act) restricts banking entities from engaging in certain fund 
activities and investments. The NPR issued by the OCC, Federal 
Reserve, FDIC, Securities and Exchange Commission and Commodity 
Futures Trading Commission (the Agencies) solicits comments on 
whether the regulatory provisions implementing this statutory 
provision--in particular the regulatory ``covered fund'' 
definition--has been imprecise and whether that has led to 
unintended consequences. The NPR requests comment on both the 
``base definition'' of covered fund in section 10(b) of the 
regulation as well as potential exclusions to this base 
definition. Banks may continue to engage in fund activities and 
investments that are not covered by the Volcker Rule and are 
otherwise permissible for national banks. I look forward to 
exploring this issue further together with my counterparts at 
the other Agencies. The Agencies welcome specific examples from 
commenters an the types of activities that have been limited by 
the regulatory definition.

Q.2. The Volcker Rule was never intended to penalize bank 
lending, it was intended to reduce risky activities of banks, 
specifically proprietary trading. Under the current rule, banks 
are restricted from providing credit via various partnership 
structures.
    Is that correct?

A.2. See response to Question 1 above.

Q.3. If the above is correct, does the OCC plan on addressing 
these limitations to promote lending?

A.3. See response to Question 1 above.

Q.4. Do you believe that the current definition of a covered 
fund is too broad?

A.4. See response to Question 1 above.

Q.5. If so, does the OCC plan on narrowing that definition so 
that the unintended consequences are eliminated?

A.5. See response to Question 1 above.

Q.6. I am aware of multiple examples where banks have passed on 
opportunities to engage in lending activities to entities since 
it was determined that such engagement would meet the current 
covered fund definition due to the recipients' business 
structure or strategy. However, to me, these examples do not 
appear to be consistent with the original intent of the Volcker 
Rule, and should not meet the definition of what a covered fund 
is.
    Are you aware of such scenarios?

A.6. I am not familiar with specific examples you might be 
referencing and welcome the opportunity to discuss them with 
you.

Q.7. Do you think that regulators should limit a bank's ability 
to provide services to companies through a fund structure 
limitation? Are there scenarios where we would want to limit a 
bank's ability to provide such services via a fund structure?

A.7. See response to Question 1 above.

Q.8. Why would we allow a bank to provide debt or equity 
financing directly from its balance sheet to a company, but 
restrict them by providing financing through a covered fund?

A.8. See response to Question 1 above. Even absent the Volcker 
Rule, national banks are generally restricted in their ability 
to provide equity financing subject to certain limited 
exceptions. National banks may not generally acquire equity 
investments in venture capitol funds unless the fund qualifies 
as a small business investment company (SBIC) or public welfare 
investment fund. Both SBICs and public welfare investment funds 
are currently excluded from the Volcker Rule covered fund 
definition. Other ``banking entities'' subject to the Volcker 
Rule may have additional authorities to provide equity 
financing to portfolio companies and fund structures such as 
venture capital funds.
    Senator: It is my understanding that under the Volcker 
Rule, a fund is considered ``covered'' if it avails itself of 
exemptions provided by the Investment Company Act, but that 
regulators have authority to exclude funds and have done so 
since first issuing regulations.

Q.9. Is that correct?

A.9. Section 13 of the Bank Holding Company Act generally 
restricts a banking entity from acquiring or retaining an 
ownership interest in or sponsoring a hedge fund or private 
equity fund. The statute defines hedge fund and private equity 
fund as an issuer that would be an investment company, as 
defined in the Investment Company Act of 1940, but for section 
3(c)(1) or 3(c)(7) of that Act, or such similar funds as the 
relevant agencies by rule determine. The current regulation 
includes the same definition referencing sections 3(c)(1) and 
3(c)(7) of the Investment Company Act of 1940. Consistent with 
the statute, the current regulation provides a number of 
exclusions, including for foreign public funds, loan 
securitizations, wholly owned subsidiaries, joint ventures, and 
small business investment companies, among others. The 
regulation also permits consistent with the statute certain 
additional covered fund activities, such as organizing and 
offering, underwriting, and market making with respect to a 
covered fund.

Q.10. It is my understanding that previous exclusions have 
included: foreign public funds; certain securitization 
vehicles; wholly owned subsidiaries; and joint ventures.
    Can you look into these exclusions and communicate to me if 
these situations can be exempted under your existing authority 
in the final proposal that you and the other Volcker Regulators 
are currently engaged on?

A.10. The NPR requests comment on whether the Agencies should 
provide new exclusions in order to more effectively tailor the 
covered fund definition. The Agencies specifically requested 
comment on whether to exclude funds that lack certain 
characteristics of hedge funds and private equity funds, among 
other types of issuers. The Agencies welcome specific examples 
from commenters on the types of activities that have been 
limited by the regulatory covered fund definition.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                     FROM JOSEPH M. OTTING

Q.1. As you know, the OCC is authorized to enforce the Military 
Lending Act (MLA), which is a bipartisan law enacted in 2006 
that sets a hard cap of 36 percent interest for most loans to 
the military. On July 22, 2015, the Department of Defense 
finalized MLA rules that closed prior loopholes that allowed 
unscrupulous lenders to prey upon servicemembers and their 
families. As part of the confirmation process, I asked whether 
you would support and enforce these strong MLA rules to the 
fullest extent possible. You responded that you ``would support 
and enforce strong MLA rules.''
    Since you have been confirmed, can you please tell us how 
you have lived up to this commitment?

A.1. I am committed to supporting and enforcing strong MLA 
rules. In May of this year, we issued OCC Bulletin 2018-11 with 
examination procedures to provide supplemental guidance to 
examiners regarding the MLA. \1\ The Handbook provides 
background information on the MLA and its implementing 
regulation, as well as examination procedures. The Handbook is 
to be used in conjunction with other examiner guidance to 
assist examiners in determining the scope of the examination 
based on risk. Should the OCC identify deficiencies or 
violations, we will use our supervisory and enforcement 
authorities to address them.
---------------------------------------------------------------------------
     \1\ See OCC Bulletin 2018-11, ``Comptroller's Handbook, Military 
Lending Act'', May 11, 2018 (https://www.occ.gov/news-issuances/
bulletins/2018/bulletin-2018-11.html).

Q.2. The OCC is also expected to enforce the Servicemembers 
Civil Relief Act (SCRA), but SCRA enforcement of the 6 percent 
interest cap on loans incurred prior to active duty or the 
SCRA's foreclosure protections has been inconsistent and 
subject to the discretion of our financial regulators. As part 
of the confirmation process, I asked how you would prioritize 
SCRA enforcement. You responded that you ``would be supportive 
of SCRA being part of the regulatory exam process and would 
endorse a horizontal review in the industry.''
    Since you have been confirmed, can you please tell us how 
you have lived up to this commitment?

A.2. The agency includes examinations for compliance with the 
SCRA in its regular supervision of national banks and Federal 
savings associations. I am committed to ensuring that we 
continue to supervise for compliance with that statute, and 
take supervisory action, including enforcement actions, when 
warranted.

Q.3. If changes are made to the Community Reinvestment Act that 
lead to financial institutions, including those that have an 
online presence, to take deposits from communities but actually 
make less of an effort to reinvest in these same communities, 
would you consider that to be a good or bad outcome?

A.3. I would consider that to be a bad outcome, and it is one 
of the reasons that I believe assessment areas should be 
expanded and better defined.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
             SENATOR MENENDEZ FROM JOSEPH M. OTTING

Q.1. Please provide the following information, disaggregated by 
institution, about the findings of the horizontal review of 
sales practices:
    The volume and type of misconduct uncovered.

A.1. Such detail beyond what was provided in my June 11, 2018, 
letter to the Committee Chairman and Ranking Member and my July 
9, 2018, to you would be confidential supervisory information.

Q.2. Whether, if any, Matters Requiring Immediate Attention 
were issued, and a description of when such misconduct 
occurred.

A.2. As stated in my testimony, there were more than 250 MRAs 
issued. Five types addressed broad weakness in policies, 
procedures, and controls. The remaining were bank specific. All 
reviewed banks received at least one MRA.

Q.3. The number of consumers impacted, disaggregated by State.

A.3. As stated during the hearing, the review identified 
approximately 20,000 accounts with potential issues, about half 
of those involved instances where proof of authorization could 
not be provided. The OCC is monitoring banks' corrective 
actions, including reimbursing consumers' applicable costs and 
fees when applicable.

Q.4. A description of any incentive compensation plans that may 
have encouraged the sales practice misconduct.

A.4. The review did not identify situations where the design of 
incentives or quotas resulted in widespread unauthorized 
account openings. In those limited instances where accounts 
were opened without authorization involving issues other than 
failure to maintain documentation, the most common factors 
included either short-term sales promotions without adequate 
risk controls, deficient account opening and closing 
procedures, or isolated instances of employee misconduct with 
no clear connection to sales goals, incentives, or quota 
programs. During the review, banks reassessed the design of 
their existing incentive programs and took steps to better 
balance sales, production, and revenue targets with risk 
management and customer satisfaction.

Q.5. A general summary of the Action Plans that the OCC 
required banks to create and the expected timeline of adoption 
of such Action Plans.

A.5. Action plans and timelines are specific to the findings of 
each bank and are confidential supervisory information. The OCC 
is monitoring bank compliance with action plans to ensure 
timely resolution.

Q.6. A progress report outlining banks' adoption of OCC's 
recommended inventory of practices to improve banks' management 
of sales practice risk.

A.6. The OCC continues to monitor banks' corrective actions.

Q.7. The amount of remediation payments required and the 
timeline for the completion of such remediation.

A.7. The OCC has not aggregated the dollar value of remediation 
payments. However, where unauthorized account opening or other 
inappropriate sales practices were identified, banks had 
already taken, or were in process of taking, remedial action. 
This could include closing the account, refunding or reversing 
any inappropriate fees or other customer charges, or correcting 
credit bureau information. In most cases, remediation has been 
completed or is underway now.

Q.8. Whether the banks that engaged in misconduct used, and/or 
seek to enforce, forced arbitration clauses in contracts used 
to create unauthorized accounts.

A.8. The review did not reveal any action by any bank to 
enforce forced arbitration clauses in contracts used to create 
unauthorized accounts.

Q.9. In your testimony on June 14, you said that the horizontal 
sales practice review included between 500-600 million accounts 
over a 3-year period.
    What is the 3-year period covered by the review?

A.9. The review covered 2014-2016.

Q.10. Given the fact that Wells Fargo was engaging in these 
practices as early as 2009, and perhaps earlier, shouldn't the 
OCC conduct a second review with a longer look-back period to 
capture any misconduct that occurred prior to the 3-year period 
covered by the review?

A.10. The purpose of the review was to determine whether such 
practices presented a systemic problem. A 3-year look-back 
period is sufficient for that purpose. My predecessor 
determined the 3-year look-back period, and I agree with this 
timeframe.

Q.11. During a Banking Committee staff briefing with OCC staff 
on June 8, 2018, OCC Senior Deputy Comptroller for Large Bank 
Supervision Morris Morgan said that the CARD Act's digital 
verification requirements were partially to blame for the 
creation of unauthorized accounts uncovered in the horizontal 
review. Please identify what provision of the CARD Act Mr. 
Morris was referring to, and please provide an explanation as 
to why that provision is related to the creation of 
unauthorized accounts.

A.11. To clarify, the CARD Act added a signature requirement 
for applications to open a credit card account by a consumer 
who is under 21, which we understand some banks interpreted as 
requiring signatures only in those limited circumstances. 
Credit cards were the products most often associated with 
concerns regarding unauthorized account openings. However, 
banks involved in the horizontal review have implemented more 
robust account opening and closing policies, procedures, and 
controls designed to reduce the potential for inappropriate 
activities or unauthorized account openings.

Q.12. During the aforementioned briefing on June 8, OCC staff 
stated that the horizontal review was conducted in conjunction 
with the CFPB, FDIC, and Federal Reserve. Did any of the other 
agencies involved in the review issue any MRAs connected to the 
review?

A.12. I am not aware that any other agency took any action or 
issued any finding against the banks they supervise based on 
their review. The other Federal agencies are better positioned 
to answer questions about their actions.

Q.13. On June 15, 2018, the OCC rescinded its guidance for how 
examiners should evaluate large banks for compliance with the 
Community Reinvestment Act. What is your justification for 
rescinding this guidance?

A.13. The guidance was outdated. Since its publication in 2000, 
the regulations have been revised twice (2005 and 2010), and 
the supplementary interagency Questions and Answers on 
Community Reinvestment have been revised numerous times.

Q.14. Do you believe that enforcement against discriminatory or 
unfair lending practices should work hand-in-hand with any 
revisions to the Community Reinvestment Act?

A.14. Fair lending laws (e.g., the Fair Housing Act, the Equal 
Credit Opportunity Act) and the CRA were enacted as separate 
statutes, and vary in terms of the banking regulators authority 
to take enforcement action. At the OCC, CRA evaluations and 
fair lending examinations are conducted separately, however, 
findings from one are considered during examinations of the 
other. Findings during a CRA evaluation can be used to 
prioritize and focus fair lending examinations. For example, 
the current CRA regulations require the OCC to determine 
whether assessment areas reflect illegal discrimination and to 
consider the effect of discriminatory or other illegal credit 
practices when assigning a bank's overall CRA rating. The 
agencies are discussing an ANPR to solicit input and feedback 
on ideas to revise or modernize the CRA.

Q.15. Do you believe that in some low income and hard-to-reach 
communities, physical branches are sometimes the only way to 
meet credit needs?

A.15. I believe branches remain an important part of bank 
services to their communities and for some services and some 
individuals. However, in same instances, internet banking, 
automated teller machines, loan centers, and FinTech may 
actually be better options.

Q.16. Will you commit to retain assessment areas with a local 
geographical focus under the Community Reinvestment Act, which 
help ensure that banks are combating historic redlining and 
actually providing access to credit in low- and moderate-income 
communities?

A.16. I have no intention to eliminate the concept of 
assessment areas. The intent is to identify a banks' assessment 
area more effectively to determine the geography in which a 
bank should be evaluated. That geography, however, may be 
better determined by considering where a bank provides its 
services, where its customers are located or through means 
other than where its branches or deposit-taking automated 
teller machines are located.

Q.17. The Treasury Report issued in April recommends that the 
Federal Reserve and FDIC adopt the OCC's new policy allowing 
banks with failing CRA ratings to merge or expand. Is it your 
opinion that regulators should allow banks with failing CRA 
ratings, which may be engaged in discriminatory lending 
practices; to merge and expand?

A.17. Applications should be considered based on their unique 
facts and circumstances. In some cases, denying an application 
based on a CRA rating alone could exacerbate the bank's ability 
to meet the credit needs of it's community.

Q.18. Comptroller Otting, when I asked you about the Dodd-Frank 
Section 956 incentive-based compensation rulemaking last July, 
you said ``If confirmed, I would urge all the regulators to 
work together to finalize the rule as required by statute.'' 
But nearly a year later, and we have still don't have a final 
rule. How is it that you have had time to revisit capital 
rules, revisit leverage rules, revisit the Volcker Rule--all of 
which were finalized after years of deliberation, public 
comments, and input from other regulators--and you have not had 
time to finish the incentive-based compensation rulemaking for 
the first time? When will this rulemaking be finalized?

A.18. There is much to do, and I am proud of the progress we 
have made in the areas you mention. As you know, the law 
requires a joint rulemaking or guidelines regarding incentive-
based compensation. I look forward to working with my fellow 
regulators to complete that rulemaking.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
                     FROM JOSEPH M. OTTING

Q.1. On May 25, 2018, I led 15 other Democrats in a letter to 
you, Chairman Powell, and then-Chair Gruenberg on the issue of 
potential new regulations on the Community Reinvestment Act 
(CRA). I think there's broad consensus on a number of ideas out 
there, making clearer which bank investments will qualify under 
the CRA, improving the consistency of CRA exams across banks, 
and adjusting the definition of a bank's assessment area to 
account for the technological innovations that have allowed 
banks to do significant business outside its branch footprint. 
But there are a couple of areas that the OCC, under your 
predecessor, Acting Comptroller Noreika, has led on that gave 
me and the 15 other Democrats some pause.
    First, I have concern about the new policy that expands 
banks' ability to grow their footprint even if they have a 
``less than satisfactory'' CRA rating. The prior policy was a 
strong presumption against expansion if a bank was failing to 
meet its CRA obligation. Given that one of the only formal 
consequences--and the most serious consequence--for the failure 
to receive a satisfactory rating on a CRA exam had been limits 
on expansion, I'm concerned that the change will cause banks to 
take their CRA obligations less seriously.
    Do you support the change made by your predecessor? If so, 
what incentive will banks have to comply with the CRA and what 
will be the consequences for failing to do so?

A.1. I think applications should be evaluated by the unique 
facts and circumstances of each application. Denying 
applications on a near automatic basis because of a low CRA 
rating could have unintended consequences and may adversely 
affect a bank's ability to meet the credit needs of its 
communities. We do need to revisit CRA, including how we incent 
banks to loan and invest where it is needed most, and consider 
consequences for failing to do so.

Q.2. OCC CRA guidance used to say that if you are a bank that 
is not meeting your consumer protection responsibilities, that 
will negatively affect your CRA rating. New OCC guidance 
considers whether there is a nexus between a CRA rating and 
evidence of a consumer protection law violation, suggesting 
that some consumer protection laws are not relevant to a bank's 
CRA rating. I find this suggestion troubling, given that the 
statutory purpose of the CRA is to require banks to demonstrate 
that they ``serve the convenience and needs of the communities 
in which they are chartered to do business''--they are hardly 
doing so if they are violating laws that protect those 
communities.
    Do you support the OCC's change? If so, why?

A.2. During my hearing I committed to reviewing the rationale 
for the previous policy change and am in the process of doing 
so. Consistent with the current regulations, the OCC considers 
violations of law that reflect discriminatory or other illegal 
credit practices in determining a bank's assigned rating. The 
regulations include specific examples such as violations of the 
Equal Credit Opportunity Act, the Fair Housing Act, or 
violations of the Truth in Lending Act provisions regarding a 
consumer's right of rescission.

Q.3. I've read reports about the OCC horizontal review that 
covered approximately 40 banks and their sales practices. I 
understand that the OCC has issued MRA letters to banks in the 
report about any found deficiencies covering more than 250 
specific problems, including a number of issues beyond sales 
practices. These reports are deeply troubling.
    Please describe the extent of problems that you saw.

A.3. I provided a summary of those findings in a letter to the 
Committee Chairman and Ranking Member on June 11, 2018, that 
included the following information. The review identified 
several common weaknesses in policies, procedures, and controls 
and in banks' risk governance frameworks related to account 
opening, account closing, account management, employee 
complaints, and employee fraud or misconduct. These common 
weaknesses were documented in MRAs issued to the participating 
banks. Most banks received MRAs regarding one or more of these 
common weaknesses. These MRAs were focused primarily on actions 
to strengthen operational risk governance and policies and 
procedures, and were not based upon findings related to 
unauthorized account openings. During the hearing, I confirmed 
that the review identified approximately 20,000 accounts with 
issues from among the hundreds of millions of accounts opened 
by reviewed banks during the 3-year look-back period. 
Approximately half of the 20,000 accounts involved issues 
unrelated to account authorization. In those instances where 
proof of authorization could not be provided, it was considered 
merely lack of documentation if a consumer continuously used 
the product since opening the account. In other cases, known 
issues related to recordkeeping or system failures were 
determined to be causes of poor or incomplete documentation.

Q.4. How many banks received MRA letters relating to your 
inquiry?

A.4. All of the reviewed banks received at least one MRA.

Q.5. Of those, how many would you say have very serious 
problems with their customer activities?

A.5. We take every MRA seriously. Failure to correct issues in 
MRAs in a timely and effective manner may result in additional 
supervisory actions, including public enforcement actions, if 
warranted.

Q.6. Are there issues other than sales practices that your 
inquiry surfaced that you find very troubling?

A.6. The key issues related to policies, procedures, and 
controls. The OCC also issued MRAs related to bank policies, 
procedures, and controls. Failure to correct issues in MRAs in 
a timely and effective manner may result in additional 
supervisory actions, including public enforcement actions, if 
warranted.

Q.7. Why did the conduct uncovered not warrant a consent order 
with any bank? Do you anticipate that one or more banks will 
have more significant regulatory consequences as a result of 
this inquiry, such as a consent order or a fine?

A.7. The supervisory process is an incremental one that 
typically begins with an examination and includes discussions 
around any concerns found, which may include the issuance of 
MRAs. Failure to correct issues in MRAs in a timely and 
effective manner may result in additional supervisory actions, 
including public enforcement actions, if warranted. We continue 
to monitor banks' corrective actions.

Q.8. I've read that you do not intend to disclose any further 
information about the review. The OCC has broad authority to 
make public information that is otherwise considered 
confidential.
    Given the widespread public interest in the subject--and 
the desire by banks who have not had any compliance issues to 
be in the clear--why have you decided not to release more 
information about the review?

A.8. We have ongoing supervisory actions regarding this matter. 
Releasing confidential supervisory information could prejudice 
or adversely affect potential future action by the agency.

Q.9. I'm interested in anti-money laundering compliance reform. 
Banks spend around $8 billion per year on AML compliance, which 
is nearly the cost to fund the entire FBI for a year. And for 
smaller banks, AML compliance costs are a disproportionately 
large share of their personnel and compliance expenses. And 
this Committee heard testimony earlier this year from law 
enforcement experts who agreed that the current system does not 
deliver outcomes that justify that kind of expense.
    What steps are you taking now to ease the compliance burden 
and strengthen the efficacy of the compliance regime?

A.9. I agree we need to make compliance with the Bank Secrecy 
Act (BSA) and anti-money laundering (AML) lows and regulations 
more effective and efficient. We particularly need to find ways 
to reduce burden on small, less complex banks with lower risk 
profiles. I have made modernizing the regulatory approach to 
BSA/AML compliance one of my top priorities and am actively 
working with other regulators, Treasury, and the Financial 
Crimes Enforcement Network to identify changes we can make to 
improve how BSA/AML compliance works. Changes may include 
greater use of technology and analytics, clearer guidance, 
providing greater flexibility for regulators to implement a 
risk-based approach for less complex and well run banks, and 
revisiting thresholds for Suspicious Activity Reports and 
Currency Transaction Reports. In most cases the OCC does not 
write the rules and in some cases revising the rules will 
require statutory relief. Whatever actions we pursue, we must 
be careful to maintain or improve the protection of our 
Nation's financial system and continue to provide law 
enforcement the information and data it needs to succeed in its 
important job.

Q.10. How and on what subjects are you working with other 
regulators to improve the AML system?

A.10. We are having dialogue on a variety of ways to improve 
BSA/AML compliance such as greater use of technology and 
analytics, clearer guidance, providing greater flexibility for 
regulators to implement a risk-based approach for less complex 
and well run banks, and revisiting thresholds for Suspicious 
Activity Reports and Currency Transaction Reports.

Q.11. Are there any aspects of AML reform that you believe 
merit congressional action?

A.11. We are working on an interagency basis on a number of 
opportunities to make compliance with AML regulations work more 
efficiently. At this time, the only items that may require 
Congressional action include increasing thresholds for 
Suspicious Activity Reports and Currency Transaction Reports.

Q.12. The policy behind the Volcker Rule is to reduce risky 
activities in banks, in particular high risk proprietary 
trading. This is a worthy goal, as we never want banks to go 
back to that type of risky trading. The rule aims to achieve 
this in part by prohibiting banks from investing in hedge funds 
and private equity funds. I've heard, however, that the current 
definition has captured investments that seem far removed from 
the statute's original concern--such as an incubator for women-
run businesses. It is critical to have an appropriate 
definition of ``covered fund'' that can balance the statute's 
command and goals, while ensuring banks can provide enough 
capital to companies looking to grow and innovate Under the 
current definition of ``covered fund'' in the Volcker Rule, 
there appears to be an inconsistency in the regulatory 
structure where banks are permitted to directly provide 
important types of capital and credit to businesses yet are 
materially restricted when doing so via a fund structure where 
the bank can diversify risk.
    Do you believe that fund structures can diversify a bank's 
risk compared to portfolio investments?

A.12. It is entirely dependent on the structure and underlying 
assets of the fund, as well as the individual institution. The 
recent NPR requested comment on a characteristics-based 
exclusion from the covered fund definition for issuers that 
lack certain characteristics of hedge funds and private equity 
funds or that do not engage in activities that section 13 of 
the Bank Holding Company Act was designed to address. The 
Agencies welcome specific examples from commenters.

Q.13. If so, does this suggest that regulators can broaden the 
scope of qualifying fund investments while improving safety and 
soundness?

A.13. As reflected in the NPR's robust request for comment on 
the covered funds provisions, the Agencies are exploring 
whether there is opportunity to permit a broader range of 
activities and investments consistent with section 13 of the 
Bank Holding Company Act.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR HEITKAMP
                     FROM JOSEPH M. OTTING

Q.1. What response have you received from lenders in light of 
the OCC's May bulletin encouraging national banks and Federal 
savings associations to offer short-term, small-dollar 
installment loans?

A.1. In speaking about this and other priorities, lenders, 
community groups, social and religious organizations and 
legislators, have applauded the action.

Q.2. Have you gotten commitment to see installment loans at a 
scale that you believe would provide consumers with a better 
option than what's currently available through payday lending?

A.2. I expect large regional banks will be the first to return 
to this space and will offer consumers responsible, affordable 
options to meet their short-term, small-dollar needs.

Q.3. Has the OCC heard from lenders who are looking to extend 
credit in Indian Country or seen certain installment products 
that look promising for getting more credit into these 
communities?

A.3. Through various publications, the OCC encourages national 
banks and Federal savings associations to engage in consumer 
and commercial lending and with nonprofit partners working in 
Indian Country. Examples of such publications can be found at 
the following: https://www.occ.gov/publications/publications-
by-type/other-publications-reports/cdi-newsletter/extending-
credit-indian-country-aug-2013/indian-country-ezine-table-of-
contents.html; https://www.occ.gov/topics/community-affairs/
publications/insights/insights-commercial-lending-indian-
country.pdf.

Q.4. Has the OCC run any analysis on what type of fee structure 
or interest rate would be necessary to achieve profitability 
for small-dollar loan-type products?

A.4. Loan pricing will be very bank specific to the cost and 
business goals of individual banks. Through our supervisory 
process, we will review and assess the appropriateness of 
pricing.

Q.5. Given the disruption in trade, rising interest rates, and 
depressed commodity prices, many farmers in North Dakota and 
across the region are carrying some of the highest levels of 
debt since the 1980's crisis. What is the OCC seeing in terms 
of the risk to our ag lenders and farmers in this environment?

A.5. Our most recent Semiannual Risk Perspective identifies 
agricultural lending as one of the risks that warrants further 
monitoring, stating that ``low or declining prices for grain, 
livestock, and dairy that result in lower cash flow and 
increased farm carryover debt for agricultural borrowers.'' \1\ 
The report also states ``In addition, while net farm income 
stabilized in 2017 due to improved yields, the outlook for 2018 
is not favorable. Net farm income in nominal dollars is 
projected to decline to the lowest level since 2006, driven 
primarily by a decline in revenues and increased fuel and oil, 
interest, and labor expenses.''
---------------------------------------------------------------------------
     \1\ See ``Semiannual Risk Perspective'', Spring 2018 (https://
www.occ.gov/publications/publications-by-type/other-publications-
reports/semiannual-risk-perspective/semiannual-risk-perspective-spring-
2018.pdf).

Q.6. Does the prospect of an increasingly high interest rate 
---------------------------------------------------------------------------
environment concern you?

A.6. Yes, interest rate risk is one of the four primary risks 
identified in our most recent Semiannual Risk Perspective. 
Rising interest rates pose risks that warrant monitoring. 
Multiple rate increases could negatively affect credit 
affordability, performance, and asset valuations. Additionally, 
in a rising rate environment, refinancing risk, underwriting 
behavior, and changing credit terms could limit future 
performance. There is also uncertainty in how bank deposits 
will react to increasing interest rates. Banks may experience 
unexpected shifts in liability mix or increasing costs that may 
adversely affect earnings or increase liquidity risk. Examiners 
will be working closely with banks to ensure their risk 
management activities effectively mitigate the risk associated 
with higher interest rates.

Q.7. What steps are you taking to work with lenders to help 
them assist our farmers with the operating credit they'll need 
to weather these challenges?

A.7. Examiners are working with bankers to appropriately 
identify risks in their portfolio that allows banks to 
proactively identify opportunities to work with borrowers 
early. Most OCC-supervised banks focused on agricultural 
lending have a long history with multiple economic cycles. 
Furthermore, the OCC issues publications related to rural 
development, for example, to encourage national banks and 
Federal savings associations to enter into partnerships with 
nonprofits to expand rural lending and educate them about 
applicable Federal loan guarantee programs. Examples can be 
found at the following: https://www.occ.gov/topics/community-
affairs/publications/fact-sheets/fact-sheet-usda-rural-housing-
finance-program.pdf; https://www.occ.gov/topics/community-
affairs/publications/insights/insights-usda-business-industry-
guaranteed-loan-program.pdf. Recently, the agency released a 
publication on the benefits of investments in rural broadband 
(https://www.occ.gov/topics/community-affairs/resource-
directories/rural-economic-development/bank-financing-for-
rural-broadband-initiatives.html).

Q.8. What are some of the activities that we should be 
encouraging banks to do that are limited by the covered funds 
section of the Volcker Rule?

A.8. The Volcker agencies are currently exploring the scope of 
covered funds provisions put forward in the implementing 
regulation. The recent Notice of Proposed Rulemaking (NPR) 
includes a robust request for comment on whether there are 
types of issuers or activities that have been inadvertently 
scoped into the Volcker Rule covered fund provisions and that 
may be excluded from the regulation consistent with the statute 
and safe-and-sound operations. In addition to requesting 
comment on the scope of the covered fund definition (see 
Question 9 below), the NPR requests comments on other aspects 
of the covered fund provisions, such as the scope of the so-
called ``Super 23A'' provisions. I look forward to exploring 
these issues further with my counterparts at the other 
agencies. The agencies welcome specific examples from 
commenters on these issues.

Q.9. Are we harming financial innovation by the broad 
definitions of covered funds in the rule?

A.9. I look forward to reviewing the comments provided to the 
questions asked about covered funds in the recently issued NPR. 
In particular, the NPR solicits comments on whether the 
regulatory covered fund definition has been imprecise and 
whether that has led to unintended consequences. I look forward 
to exploring this issue further with my counterparts at the 
other agencies and welcome specific examples from commenters on 
the types of activities that may have been limited by the 
regulatory covered fund definition.

Q.10. How can we ensure that banks are not proprietary trading 
while also allowing them to help companies that need capital to 
grow and innovate?

A.10. The recent proposed changes to the Volcker Rule and the 
changes included in the Economic Growth Act make significant 
improvements to the implementation of the rule by maintaining 
core prohibitions and protections while reducing burden on 
small and midsize banks and providing greater regulatory 
clarity for all banks.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
           SENATOR CORTEZ MASTO FROM JOSEPH M. OTTING

Q.1. Numerous studies, including a 2016 study from the Urban 
Institute, found that banks often charge single women 
significantly higher interest rates when they borrow money to 
purchase a home than single men. Women do, on average, make 
less money than men and have lower credit scores. But women are 
better credit risks. They tend to default on their loans less 
than men.
    In addition, another study from Center for Public Integrity 
and REVEAL found that in 61 metropolitan regions, there were 
significant disparities by ethnicity in mortgage acceptance 
rates.
    In your testimony before the House Financial Services 
Committee, you said you only believed about half of what you 
read on discrimination. Do you believe these two reports are 
accurate? Why or why not?

A.1. I have not read either report, but I am aware that such 
disparities exist. However, disparities alone do not indicate 
illegal discrimination has occurred in the underlying credit 
decisions.

Q.2. Please provide me a bibliography and links to research 
that OCC has led or reported on through your newsletters or 
other communications in the past decade regarding gender; 
racial, ethnic or other bias in mortgage lending or bank 
services in the past 2 years.

A.2. The OCC, through its Community Affairs Division, has 
issued numerous publications to encourage banks to serve 
underserved communities including ``Profitable Partnerships; 
Collaborating With Minority Depository Institutions''. These 
publications can be found at https://www.occ.gov/topics/
community/affairs/publications/index-ca-publications.html.

Q.3. Which of these documents have you read? Which of these do 
you agree with the conclusions?

A.3. I strongly support OCC developing publications on a wide 
variety of topics including encouraging banks to serve 
underserved communities.

Q.4. The Community Reinvestment Act was designed to equalize 
the financial playing field by encouraging banks to meet the 
credit needs of consumers in low-income neighborhoods, 
especially African American communities. Specifically, the CRA 
was designed to address discriminatory policies such as 
redlining. Under your leadership, the OCC is actively trying to 
change the Community Reinvestment Act. I am concerned that 
someone with such little familiarity nor sophistication about 
the long history of discrimination in lending and redlining is 
spearheading changes to CRA.

A.4. I have been involved in CRA lending and activities 
throughout my career of more than 30 years. I have a deep 
personal commitment to the goals of CRA and appreciation of its 
history and evolution. While CRA is color-blind, I strongly 
support increasing bank lending and activity in the communities 
and to the people who need it most, specifically in low- and 
moderate-income communities, which often are communities of 
color.

Q.5. Will you commit to make no changes to CRA enforcement 
until you have the support of the other regulators--the FDIC 
and Federal Reserve--and the consensus of community development 
and civil rights groups?

A.5. I support working jointly with fellow regulators at the 
Federal Deposit Insurance Corporation (FDIC) and the Federal 
Reserve whenever possible. I also support a broadly inclusive 
decision-making process that includes community development and 
civil rights voices. As Comptroller of the Currency, however, I 
have the responsibility and authority to act in the best 
interest of the Federal banking system and the consumers who 
depend on it to meet their banking needs and will act 
accordingly to fulfill that responsibility, including, when 
necessary, acting independently when I believe that is the 
right thing to do. In discussing CRA with hundreds of people 
across the country with diverse views, there is strong 
consensus regarding the need to update our approach to the CRA.

Q.6. I asked you about the number of banks supervised by the 
OCC which make fewer than 500 mortgage loans or home equity 
lines of credit in a year. You said those banks produce 5 
percent of the volume of mortgage loans.
    How many banks supervised by the OCC make fewer than 500 
mortgage loans or home equity lines of credit in a year?

A.6. Based on 2017 HMDA data, 733 national banks and thrifts 
(OCC-supervised banks) reported data to either the OCC or the 
Bureau of Consumer Financial Protection. Of these, 555 OCC-
supervised banks originated fewer than 500 closed-end mortgage 
loans. Overall, the banks that make fewer than 500 mortgage 
loans or home equity lines of credit in a year represent less 
than 5 percent of the total volume of those loan products.

Q.7. Congress passed a law that exempted banks that make fewer 
than 500 mortgage loans from collecting loan and borrower 
characteristics and reporting that data publicly. In our 
discussion, you said that examiners would only look at ``HMDA-
lite'' information, meaning, examiners would NOT consider the 
expanded HMDA information required under Dodd-Frank, which 
would include credit scores, points and fees, loan terms, etc., 
for lenders which made fewer than 500 mortgage loans or home 
equity lines of credit unless they gathered it separately as 
part of an examination.

A.7. Section 104 of the Economic Growth Act provides regulatory 
relief to depository institutions that have originated less 
than 500 closed-end mortgage loans or less than 500 open-end 
lines of credit in each of the two preceding calendar years by 
generally exempting them from certain additional disclosure 
requirements under the HMDA. Examiners continue to receive 
basic HMDA information on all institutions, and can gather any 
necessary additional data as part of fair lending examinations. 
For institutions with more than 500 mortgages, agencies will 
receive the additional information beginning in 2019.

Q.8. To clarify, for the majority of regulated banks, OCC 
examiners will no longer have access to detailed loan 
characteristics like points and fees, interest rate, credit 
score, and other indicators of loan quality through HMDA. They 
will only be able to find detailed loan and borrower 
information if they receive it separately as part of the 
institutional exam. Is that correct?

A.8. To clarify, the OCC will receive the additional HMDA data 
on 95 percent of the loans originated within the Federal 
banking system starting in 2019. For institutions that make 
under 500 closed-end mortgage loans annually that are now 
exempt from providing certain additional HMDA data as required 
by the recent rulemaking, the OCC will continue to have access 
to necessary additional bank data during its fair lending 
examination process.

Q.9. Please estimate how much more costly the exams will be for 
OCC now that they may need to stay on site longer to review a 
bank's loan portfolio loan by loan instead of building on the 
HMDA data? How much longer will exams need to remain at banks 
for such reviews?

A.9. I do not anticipate any increase in cost to OCC exams or 
spending additional time on-site as a result of changes in HMDA 
reporting resulting from the Economic Growth Act.

Q.10. The Treasury Department released recommendations last 
April for modernizing CRA. Currently, the only penalties for 
failed CRA ratings is the possibility of denial of merger or 
branch applications, and would only apply to the approximately 
2 percent of banks that fail their CRA exams. This is one of 
the few sticks that motivates banks to pass their CRA exams. 
But Treasury recommended eliminating this penalty for failing 
exams.
    With a lack of penalties, how do we ensure banks are 
improving their performance and fulfill their obligations under 
the law?

A.10. The statute, itself, does not provide enforcement 
authority to regulators as it is intended to encourage banks to 
meet the credit needs of the communities they serve, including 
low- and moderate-income communities. That is one of the many 
reasons we need to modernize the regulatory framework of the 
CRA to provide greater incentive for banks to lend and invest 
in the communities that need it most.

Q.11. Shouldn't there be a presumption that a bank with a 
failing CRA rating will not have its application approved until 
it passes its exam? If not what would be an incentive for the 
relatively few failed banks to improve their performance?

A.11. The facts and circumstances of each application should be 
evaluated on its merits. It would be counterproductive to deny 
an application that may increase services in low- and moderate-
income communities simply because of a less than satisfactory 
CRA rating.

Q.12. Currently, the CRA service test places primary emphasis 
on bank branches while still considering alternative service 
delivery. Bank branches remain vital, specifically for low and 
moderate income communities and must be given strong 
consideration even while alternative delivery channels develop. 
Deemphasizing bank branches on CRA exams could cause banks to 
pay less attention to neighborhoods where they receive deposits 
(redlining or not reinvesting in neighborhoods generating 
deposits for banks was the major concern of lawmakers when they 
passed CRA).
    Will bank branch presence remain the focus of the service 
test?

A.12. Branches remain a significant part of many banks' service 
models, but we must find a way to assess bank performance in 
those instances where banks provide services through other 
means or do not maintain a network of branches. In those cases, 
we should consider alternative ways of defining a bank's 
community. This could include considering where a bank's 
headquarters or major offices are, location of employees or 
where customers are located. Let me be clear, I do not intend 
to eliminate the concept of assessment areas. I hope they can 
be expanded and redefined to better capture a bank's service 
area.

Q.13. The Treasury report was unclear whether just investments 
should be considered outside of the current assessment areas or 
whether CRA exams should consider investments and retail 
lending.
    What is your view on whether CRA exams should consider 
retail lending and investments?

A.13. We should expand investments and activities eligible for 
CRA consideration and incentivize institutions to engage in 
qualifying activities that contribute to creating greater 
opportunity in the communities banks serve, particularly low- 
and moderate-income communities. This is a subject that we 
should solicit feedback on through the Advance Notice of 
Proposed Rulemaking (ANPR) process.

Q.14. The OCC examined the opening of 500-600 million new 
accounts during a 3-year period and found roughly 20,000 
without proof of authorization and other issues. Of those 
20,000, the OCC believes ``less than half'' were unauthorized. 
They found 252 MRAs.
    Were there any banks that you reviewed that did not have an 
MRA?

A.14. No. All banks had at least one MRA.

Q.15. How soon will harmed consumers see remediation?

A.15. Much of the required remediation has already been 
completed or is underway.

Q.16. Is the OCC considering any enforcement actions on its 
own, or in coordination with other agencies based on the 
horizontal review?

A.16. The agency is monitoring bank actions required to correct 
issues identified in the horizontal review through the normal 
course of our supervision process. Failure to correct issues in 
a timely and effective manner may result in additional 
supervisory actions, including public enforcement actions if 
warranted.

Q.17. Were incentive compensation practices part of the review? 
If so, did you provide MRAs for concerns that employees were 
compensated in ways that could lead to fraudulent acts? Please 
describe the compensation practices that would be concerning 
for incenting fraud.

A.17. In those limited instances where accounts were opened 
without authorization involving issues other than failure to 
maintain documentation, the most common factors included either 
short-term sales promotions without adequate risk controls, 
deficient account opening and closing procedures, or isolated 
instances of employee misconduct with no clear connection to 
sales goals, incentives, or quota programs.

Q.18. Senator: The Wells Fargo fraudulent account scandal, and 
the incentive-based cross-selling strategy that fueled it are a 
stark reminder of how important it is for financial regulators 
to finalize executive compensation rules. Section 956 of the 
Dodd-Frank Act directed regulators, including the Fed, to adopt 
joint rules aimed at prohibiting incentive compensation 
arrangements that might encourage inappropriate risks at 
financial institutions. The regulators made an initial proposal 
in 2011, then reworked the proposal and issued a new plan in 
2016. The proposal increases in stringency based on the 
financial company's asset size with enhanced requirements for 
senior executive officers and significant risk-takers.
    Given that this is not a discretionary requirement, but a 
mandatory one, what steps are you taking to implement and 
enforce this provision of the law?

A.18. The law requires the agencies to jointly issue rules or 
guidelines. The OCC remains committed to working with other 
regulators to complete the rule. In the meantime, OCC-
supervised institutions will continue to be subject to the 
compensation requirements in 12 CFR part 30, appendix A (and, 
for larger institutions, appendix D). The joint OCC, FDIC, and 
Federal Reserve Guidance on Sound Incentive Compensation 
Policies also continues in effect.

Q.19. On December 6, 2017, you halted the removal of in-house 
bank examiners stating, ``Upon review, it is not practical to 
continue the agency's efforts to move resident examiners out of 
on-site locations,'' You said, ``The agency will continue to 
review its locations and real estate strategy to ensure they 
support the agency's mission in the most operationally and cost 
effective manner possible.'' However, on the same day, the 
Government Accountability Office (GAO) released a report 
indicating that Federal Reserve had not taken enough steps to 
address regulatory capture and ensuring independence for its 
examiners. GAO has previously found that regulators should be 
independent of inappropriate influence, including undue 
influence from the industry they are regulating. While the 
Federal Reserve has taken observers offsite in order to avoid 
regulatory capture, you have decided to keep OCC regulators on 
site.
    What is your rationale for keeping regulators on site 
despite the evidence of regulatory capture?

A.19. Based on my experience and judgment, the value of 
retaining on-site examiners outweighs the benefit of removing 
them from bank premises. Open effective communication and early 
identification of concerns are the keys to effective 
supervision, both of which are supported by on-site presence. 
My decision is further supported by the practices at the OCC to 
rotate examiners-in-charge after 5 years, to provide oversight 
by Deputy Comptrollers assigned to OCC Headquarters, and to 
depend on off-site lead experts who provide a horizontal view 
of risks and practices across the agency.

Q.20. Why did the OCC issue a proposal with the Fed that would 
revise the enhanced Supplementary Leverage Ratio (eSLR) which 
according to the FDIC, could reduce bank capital by as much as 
$120 billion at the Nation's largest banks?

A.20. The changes to the eSLR requirements proposed by the 
Federal Reserve and the OCC would tailor the requirement to the 
business activities and risk profiles of the largest banks. The 
proposed changes would retain a meaningful calibration of the 
eSLR while not discouraging banks from participating in low-
risk activities. With the proposed modifications, the eSLR 
would serve as a backstop to the risk-based measures rather 
than the primary binding constraint. In addition, the proposed 
changes are aligned with recent changes to the leverage 
standard published by the Basel Committee on Banking 
Supervision in December 2017. Aligning with the Basel standard 
creates a more level international playing field reducing 
disadvantages faced by U.S. G-SIBs in competing with 
international counterparts. It is also unlikely that banks 
would release $121 billion in Tier 1 capital because of other 
binding constraints on liquidity and capital. The proposed eSLR 
standards along with current risk-based capital standards and 
other constraints applicable at the holding company level would 
continue to limit the amount of capital that G-SIBs could 
distribute to investors, thus supporting the safety and 
soundness of G-SIBs and helping to maintain financial 
stability.

Q.21. What are your views on research from the Federal Reserve 
that suggests that current bank capital requirements are on the 
lower end of what is socially optimal, and that regulators 
should consider raising them for the public's benefit and to 
mitigate future financial crises? Their research is backed by 
other research done by the Minneapolis Fed, FSB, Basel 
Committee, Macroeconomic Assessment Group, and the IMF.

A.21. While there has been research conducted in this area, I 
note that the recent proposed revisions to the eSLR 
requirements were approved by the Federal Reserve and are 
consistent with the leverage ratio standards published by the 
Basel Committee on Banking Supervision in December 2017.

Q.22. Will the OCC consider increasing capital requirements for 
the largest banks?

A.22. I have no plans to increase the overall capital 
requirements for the largest banks. The agencies will continue 
considering ways to simplify the capital rules for all of the 
banking organizations we regulate in order to reduce compliance 
costs. Some changes may affect banking organizations in 
different ways depending an the nature of their business and 
assets--for some, the capital requirements may increase 
slightly, for others, they could fall slightly--but we do not 
intend to significantly change overall capital levels.

Q.23. Are you concerned that granting a FinTech charter to a 
nonbank lending company or nonbank payments company would bring 
an end to the traditional separation of banking and commerce by 
allowing large commercial companies, like Amazon and Google, to 
obtain a national bank charter?

A.23. No. Granting a charter to a FinTech engaged in the 
business of banking does not change any of the legal and 
regulatory requirements prohibiting commercial firms from 
owning a bank. Further, we believe a FinTech charter is another 
way of providing consumers with more options and choices to 
meet their financial service needs.

Q.24. Recently, you expressed an unfavorable view of bank-non 
bank partnerships, where the ``sole goal [is] evading'' State-
law rate limits. Given that a primary purpose for a nonbank 
lending company seeking a FinTech charter would be to evade 
State-law rate limits, why is creating a FinTech charter less 
unfavorable than bank-nonbank partnerships?

A.24. I reject the premise of the question. I do not agree that 
evading State-law rate limits are a ``primary purpose'' for a 
nonbank lending company to seek a national bank charter. There 
are many other business advantages, such as access to 
customers, scalability, cost of funds, and more effective 
supervision.

Q.25. Senator: In reference to FinTech Charters and small-
dollar loans you have been quoted saying, ``that as long as 
FinTech firms don't take consumer deposits, they will pose 
little risk to the financial system.'' Yet, small-dollar loans 
pose risks directly to consumers.
    What measures will you have to protect consumers from being 
charged high interest rates or falling into debt traps?

A.25. With regard to FinTech lenders that became national 
banks, the new national bank would be subject to regular, 
rigorous examination and supervision, which nonbank lenders do 
not currently face. With regard to short-term, small-dollar 
loans, that lending is still subject to Federal consumer 
protection laws, and regulations, including the prohibition 
against unfair or deceptive acts or practices under section 5 
of the Federal Trade Commission Act.

Q.26. Senator: In a document released by the OCC titled 
``Exploring Special Purpose National Bank Charters for FinTech 
Companies'', the agency cited 12 U.S.C. 1, 12 U.S.C. 1461, 
and 12 U.S.C. 3102 as statutory authority to grant banking 
charters to FinTech companies. However, the plain language 
reading of the statute does not clearly indicate that your 
office has this authority.
    Can you specifically point out the section in the statute 
that gives your office authority to issue banking charters to 
FinTech companies?

A.26. Under the National Bank Act, the OCC has broad authority 
to grant charters for national banks to carry on the ``business 
of banking.'' 12 U.S.C. sections 21 and 27. The OCC has 
interpreted the ``business of banking'' to include any of the 
three core banking functions of receiving deposits, paying 
checks, or lending money. The Act does not require that a bank 
take deposits in order to be engaged in banking. Rather, under 
the Act, performing only one of these three activities is 
sufficient to be performing core banking functions. This is 
reflected in the OCC's regulation 12 CFR 5.20, which provides 
that, to be eligible for a national bank charter, a special 
purpose bank must either be engaged in fiduciary activities or 
conduct at least one of three core banking functions: receiving 
deposits, paying checks, or lending money.

Q.27. What concerns, if any, do you have about Bitcoin and the 
use of other virtual currency in the U.S. banking system? 
Should banks promote or discourage their use? What protections 
are needed to ensure these cryptocurrencies can't be used to 
evade anti-money laundering and antiterrorism financing laws?

A.27. Regulators should continue to push for transparency and 
safeguards to prevent criminals from using cryptocurrencies to 
evade anti-money laundering laws and regulations or to fund 
other crimes. We also believe it is important to ensure that 
consumer protections are in place as the use of virtual 
currency expands.

Q.28. I believe it is important to promote diversity at the 
various financial agencies, including the OCC, and in the 
financial services sector.
    What has OMWI Executive Director Cofield told you about 
discrimination at the OCC?

A.28. The OCC's OMWI office produces an annual report provided 
to Congress regarding the diversity of the OCC and briefs each 
business area on its diversity as it compares to the rest of 
the country and similar business functions elsewhere. The most 
recent report showed that as of September 30, 2017, the OCC's 
permanent workforce totaled 3,930 employees, a decline of 0.7 
percent below the 3,958 permanent employees at the end of 
fiscal year 2016. The participation rate of females (currently 
45.0 percent) in the OCC's workforce has remained fairly stable 
since fiscal year 2013 (a 0.6 percentage point decrease). 
Minority participation increased from fiscal year 2013 by 2.6 
percentage points to 34.7 percent in fiscal year 2017. At the 
end of fiscal year 2017, all major EEO groups were at or near 
parity with the 2010 national civilian labor force (NCLF) 
rates, with the exception of females and Hispanics. Although 
the OCC continues to work to address the law participation of 
Hispanics in its workforce, their overall participation rate 
remained below their NCLF rate (see table 2). In fiscal year 
2017, the OCC slightly increased its Hispanic participation 
rate to 7.0 percent, from 6.9 percent in fiscal year 2016, and 
this was an improvement from 6.6 percent in fiscal year 2013. 
Hispanic participation rates are below parity in the following 
occupational positions--economists, bank examiners (females), 
and ``all other series.'' Similarly, females across EEO groups 
in bank examiner positions participated below their 
occupational civilian labor force (OCLF) rates, and White 
females in economist and ``all other series'' positions 
participated below their respective OCLF and NCLF rates. \1\
---------------------------------------------------------------------------
     \1\ See OMWI Annual Report to Congress, FY2017 (https://
www.occ.gov/about/who-we-are/occ-for-you/diversity/and-inclusion-
programs/omwi/omwi-annual-report-fy-2017.cid).

Q.29. What steps can the OCC take to promote diversity within 
the financial system, especially with respect to the firms the 
---------------------------------------------------------------------------
OCC regulates?

A.29. Pursuant to the Dodd-Frank Act, the OCC and other OMWI 
directors collaboratively published a policy statement on June 
10, 2015. The standards identified in the policy statement 
offer guidance and a framework to enable an entity to 
voluntarily assess its diversity policies and practices in the 
following key areas:

    Organizational commitment to diversity and 
        inclusion

    Workforce profile and employment practices

    Procurement and business practices--supplier 
        diversity

    Practices to promote transparency of organizational 
        diversity and inclusion

    Entities' self-assessment process

    In July 2016, the Office of Management and Budget approved 
the collection of voluntary self-assessment information from 
institutions. During the second quarter of fiscal year 2017, 
the OCC sent letters to 382 chief executive officers of 
institutions with 100 or more employees. Approximately 14.7 
percent of the institutions provided their diversity self-
assessments. The OCC OMWI director, along with OMWI directors 
at other agencies, conducts various outreach to institutions to 
engage them, discuss diversity, and solicit feedback on the 
diversity self-assessment process and perspectives of the 
institutions.

Q.30. Some of the biggest concerns regarding ``Small-Dollar 
Loans,'' formerly known as ``Payday Loans,'' are that consumers 
end up in ``debt traps'' in which consumers are borrowing one 
loan to pay off another. Recently, your office published a 
bulletin titled ``Core Lending Principles for Short-Term, 
Small-Dollar Installment Lending'' dated May 23, 2018, but 
fails to discuss this issue in detail. In your testimony, you 
mention that consumers benefit when banks offer ``reasonable 
pricing and reasonable repayment structures.''
    What kinds of measures will you put in place to ensure that 
banks aren't charging too high interest rates?

A.30. Loan pricing should reflect overall returns reasonably 
related to product risks and costs and should comply with all 
applicable laws and regulations. If necessary, we can use our 
supervisory and enforcement powers to address unfair or 
deceptive acts or practices prohibited by the Federal Trade 
Commission Act, violations of other relevant consumer 
protection laws and regulations, and unsafe and unsound 
practices. Interest rates are determined based on the State 
where the national bank is located.

Q.31. Please indicate how a bank can offer a small-dollar loan 
at a ``reasonable price'' with a ``reasonable repayment 
structure.''

A.31. Banks can offer short-term, small-dollar loans in a 
responsible manner by following the three core principles 
included in the May bulletin: \2\
---------------------------------------------------------------------------
     \2\ See OCC Bulletin 2018-14, ``Installment Lending: Core Lending 
Principles for Short-Term, Small-Dollar Installment Lending''. May 23, 
2018 (https://www.occ.gov/news-issuances/bulletins/2018/bulletin-2018-
14.html).

    All bank products should be consistent with safe-
        and-sound banking, treat customers fairly, and comply 
---------------------------------------------------------------------------
        with applicable laws and regulations.

    Banks should effectively manage the risks 
        associated with the products they offer, including 
        credit, operational, compliance, and reputation.

    All credit products should be underwritten based on 
        reasonable policies and practices, including guidelines 
        governing the amounts borrowed, frequency of borrowing, 
        and repayment requirements.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
                     FROM JOSEPH M. OTTING

Q.1. The OCC's actions on the Community Reinvestment Act 
represent an excellent opportunity to modernize CRA rules--but 
there is also great risk at taking a step backwards. One area 
that I am especially concerned with is the potential that you 
undertake this effort alone--without the Federal Reserve and 
without the FDIC.
    Will you commit to working and moving forward with the 
other regulators on an advanced noticed of proposed rulemaking? 
On the next step, a NPR? And on the final step of official 
rulemaking?

A.1. I support working jointly with fellow regulators at the 
FDIC and Federal Reserve whenever possible. I also support a 
broadly inclusive decision-making process that includes 
community development and civil rights voices. As Comptroller 
of the Currency, however, I have the responsibility and 
authority to act in the best interest of the Federal banking 
system and the consumers who depend on it to meet their banking 
needs and will act accordingly to fulfill that responsibility, 
including, when necessary, acting independently when I believe 
that is the right thing to do.

Q.2. The reports of the opening of unauthorized consumer 
accounts is extremely alarming for me.
    What exactly is the timeline and procedure the OCC will 
follow in following up on the Action Plans that the OCC 
required banks to create? Once an Action Plan is created, what 
steps will the OCC take to ensure it is properly implemented? 
What are the regulatory options the OCC is considering if a 
plan is not properly developed or is not properly implemented?

A.2. OCC is monitoring banks' corrective action through the 
normal course of supervision, which for large and most midsize 
banks is a continuous process. While timelines vary based on 
the findings of particular banks, failure to correct identified 
deficiencies in a timely and effective manner may result in 
additional supervisory action, including public enforcement 
actions if warranted.

Q.3. Payday lending is an issue that is of great importance to 
me and to the State of Alabama. I believe your comments to 
encourage banks to enter small-dollar lending has merit--but I 
remain concerned on the lack of certainty about whether banks 
would be required to follow an ability to repay standard.
    You have previously mentioned banks offering products to 
consumers who ``have the ability to repay,'' but you don't 
offer specifics on how this would be measured. Does the OCC 
plan to move forward at any point with further guidance on 
these standards?

A.3. The OCC published core principles in its May bulletin, \1\ 
but banks may identify unique and individual means to assess 
customers' ability to repay. The OCC does not want to stifle 
innovation or discourage lending by being overly prescriptive.
---------------------------------------------------------------------------
     \1\ See OCC Bulletin 2018-14, ``Installment Lending: Core Lending 
Principles for Short-Term, Small-Dollar Installment Lending''. May 23, 
2018 (https://www.occ.gov/news-issuances/bulletins/2018/bulletin-2018-
14.html).