Top bank regulator announces abrupt resignation

Comptroller of the Currency Joseph Otting announced his resignation Thursday, vacating his perch at a powerful bank regulator as the pandemic-driven economic collapse threatens the financial system.

The Office of the Comptroller of the Currency (OCC) said in a statement that Otting would leave the agency on May 29, just more than halfway through his five-year term at the independent bank regulator. 

OCC chief operating officer and first deputy comptroller Brian Brooks will serve as acting comptroller until a full-time replacement for Otting is confirmed by the Senate. Brooks joined the OCC in 2018 after serving at chief legal officer at Coinbase, a cryptocurrency exchange, and the Federal National Mortgage Association, commonly known as Fannie Mae.

“It has been my distinct honor to serve the United States and this Administration as the 31st Comptroller of the Currency,” Otting said in a statement. “I am extremely proud of what the women and men of the agency have accomplished to promote economic opportunity, eliminate unnecessary regulatory burden, and operate the agency in a more effective and efficient manner.”

Otting’s announcement comes two days after several media outlets reported his plans to resign and one day after breaking from two other bank regulators to release new rules for how banks should comply with the Community Reinvestment Act (CRA), a 1977 anti-redlining law. 

Neither the comptroller nor the OCC have explained why Otting is stepping down, particularly as banks brace for widespread business closures, bankruptcies, foreclosures and loan losses that could threaten their ability to lend and roil the financial system.

Federal bank regulators and industry advocates say that while the U.S. banks are well capitalized and should be able to weather the downturn, weak points elsewhere in the financial system could cause broader issues.

The Federal Deposit Insurance Corp. (FDIC) said the stress of the pandemic on community banks was the reason it expanded the OCC’s final CRA rules to the banks it oversees.

Otting expressed confidence in the agency’s ability to handle those threats as they emerge, adding that “the agency and the nation are fortunate that the OCC has a deep bench.”

“Brian and the Executive Committee are extremely well suited to continue the agency’s important work and succeed in its mission of ensuring banks operate in a safe, sound, and fair manner,” he continued.

Otting has served as comptroller of the currency since November 2017. He was among the first federal bank regulators appointed by President Trump with an eye toward loosening regulations, including rules mandated by the Dodd-Frank Wall Street reform law.

Otting, a former bank executive, was the first former banker to lead the OCC in more than 30 years. His decades of industry experience endeared him to bank advocates and their allies in Congress, who praised him for his efforts to streamline regulations.

“His previous experience as a banker gave him a unique understanding of how the industry can best serve its customers and communities, while also maintaining safety, soundness and consumer protections,” said Rob Nichols, president of the American Bankers Association, the largest trade group for U.S. banks.

Rep. Patrick McHenry (N.C.), the ranking Republican on the House Financial Services Committee, praised Otting as “an advocate for modernization” that “made a lasting impact on our nation’s financial system during his time in public service.”

“His support for responsible innovation through financial technology has helped foster new ways to reach unbanked and underbanked Americans,” McHenry said in a Thursday statement.

But Otting’s tenure in the banking sector also evoked suspicion and concern among Democrats and industry skeptics.

Otting’s critics zeroed in on his tenure at OneWest Bank, where he served as chief executive and president while eventual-Treasury Secretary Steven Mnuchin chaired the bank. Brooks, Otting’s successor, was vice chairman of OneWest until joining Fannie Mae.

OneWest was established in 2009 when Mnuchin, Otting and a group of investors purchased the toxic assets of failed IndyMac Bank. The bank eventually foreclosed on more than 36,000 homes initially mortgaged by IndyMac, and Otting signed a settlement with federal regulators who accused the bank of automatically signing foreclosure papers without reviewing them properly. 

The Department of Housing and Urban Development approved a settlement last year between CIT Group, which purchased OneWest in 2015, and a California fair-lending nonprofit over claims that the bank OneWest violated the CRA and discriminated against black and Latino customers in the Los Angeles area.

House Financial Services Committee Chairwoman Maxine Waters (D-Calif.), who represents parts of Los Angeles, blasted Otting in a Wednesday statement after the OCC released the new CRA rules following reports about his departure.

“This confirms my long-held suspicions that his singular focus on CRA was simply a vendetta against a program and an agency that held him accountable for his poor management of OneWest’s CRA program,” Waters said. 

“Otting may be done with his rule dismantling CRA but this is by no means the end of the story. Congress will not let this final rule stand,” she said.