US Comptroller Prioritizes Risk-Based Supervision

In remarks delivered during the US Financial Stability Oversight Council meeting earlier this month, Comptroller of the Currency Jonathan Gould explained how the Office of the Comptroller of the Currency (OCC) is working to reverse what he called “counterproductive regulatory and supervisory constraints” put in place following the Global Financial Crisis.

He argued that past regulation left “capital that could have supported American businesses, home buyers, and farmers… on the sidelines,” while pushing activity outside the regulated banking system. Under his leadership, the OCC is seeking to restore “a risk-based supervisory approach” and to improve transparency. Gould also emphasized the need to tailor requirements for community banks, eliminating unnecessary examination activities and clarifying expectations where risks are low.

“We are also focused on strengthening supervision by putting it on a more firm legal foundation and refocusing it on material financial risks," he said. “This will decrease the chance that we miss obvious threats to a bank’s safety and soundness, as seemingly happened with Silicon Valley Bank.” Gould pointed to recent proposals that would narrow the focus of matters requiring attention and remove “reputation risk” from regulation and supervisory activity as examples of a renewed attention to “material financial risks.”

“Taken together,” he concluded, “these actions represent an initial, but not sufficient, effort to undo discretionary regulatory and supervisory policy choices made after the 2008 crisis that eroded effective supervision and threatened the relevance of the banking system.”