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February 25, 2019

U.S. GAO published a report presenting results of its assessment of the ways to reduce the risk of regulatory capture at OCC, a U.S. agency that supervises over 1,300 financial institutions with assets under supervision totaling USD 12 trillion. In its review on the regulatory capture in financial regulation at OCC, GAO identified certain weaknesses and, therefore, made nine recommendations to OCC.

The report examined the extent to which OCC has policies that encourage transparency and accountability in the large bank supervision process; address employees’ conflicts of interest that could threaten their independence; and promote an agency-wide focus on supervisory independence and mitigating the risk of capture. GAO reviewed OCC policies, analyzed examination work papers, and interviewed supervisory staff. GAO also analyzed the conflict-of-interest data as well as the enterprise risk management framework of OCC. 

The recommendations to OCC are related to improving the documentation of its supervision process, checking for conflicts of interest, periodically assessing the ethics program, and expanding its approach to addressing the risk of capture across the agency, among others. The report states the following:

  • OCC has some policies that encourage transparency and accountability in its large bank supervision processes; however, weaknesses in documentation requirements may make large bank supervision more vulnerable to regulatory capture. Maintaining a complete and transparent record of decision making and important communication with banks could improve OCC’s ability to mitigate capture-based decisions.
  • OCC also has some policies to mitigate conflicts of interest, but implementation is hindered by issues related to collection and use of data and lack of program assessments. Improving data collection and assessing policies, controls, and guidance that identify and address conflicts of interest could help OCC ensure that its ethics program is operating effectively.
  • OCC leadership has taken some steps to demonstrate support for supervisory independence, but its approach to mitigating regulatory capture is narrow. For example, OCC only considers two factors when assessing the risk of capture: the tone of its media coverage and the extent to which examination staff rotate among banks. OCC does not analyze other relevant factors, such as employee movement to and from industry or its supervision practices, which can impact this risk. Without expanding its approach to addressing the risk of regulatory capture, OCC may be missing opportunities to identify other ways in which this enterprise-wide risk may affect the agency.

OCC agreed with one recommendation, disagreed with five, and neither agreed nor disagreed with three of the recommendations. GAO maintains that the recommendations are valid. OCC agreed with the  recommendation to revise instructions for conducting examination work paper reviews and communicate the revisions to employees. OCC stated that it is in the process of updating the instructions and plans to disseminate them to employees in 2019. These actions, if fully implemented, would address this GAO recommendation. Appendix III of the report presents the letter that contains response of OCC to the GAO recommendations.


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Keywords: Americas, US, Banking, Banking Supervision, Regulatory Capture, Risk Management, GAO

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