The National Community Reinvestment Coalition expresses its strong support for the nomination of Professor Saule Omarova to serve as the next Comptroller of the Currency.
“Professor Omarova believes that financial institutions should be held accountable to serve the needs of the public, and she has a steadfast commitment to protecting our economy from reckless risk-taking,” said Jesse Van Tol, President and CEO of NCRC. “She will be a strong advocate for the public interest.”
NCRC believes that she will strengthen the Community Reinvestment Act (CRA) and ensure that the OCC keeps a watchful eye to protect American households from reckless levels of financial risk when it reviews financial institutions’ applications for a federal charter.
Strengthening the supervision, examination, and enforcement of the Community Reinvestment Act
We believe that under her leadership, the OCC would do more to elevate the role of the CRA. Opportunities exist for regulators to sharpen how they implement the CRA. For example, only a handful of banks receive “needs to improve” or “substantial non-compliance” on their exams. The vast majority of banks receive a rating of “outstanding” or “satisfactory,” so CRA rating inflation is a real thing. Further, years can pass between exams. Although regulators have more recently emphasized the importance of the CRA during merger reviews, we call on Professor Omarova to make CRA review an ongoing activity, to elevate the weight of fair lending practices in all supervision, and to make CRA enforcement a higher priority. More nuance in the ratings and exams is needed to accurately reflect distinctions in bank performance.
A charter is a privilege and it comes with a community reinvestment responsibility
Professor Omarova rightfully contends that a banking charter is a privilege and comes with a requirement to meet, in her phrasing, “public policy goals.” She has written that if banks are to act as allocators of credit, then they should be held to directing some of those funds to address workforce and industrial policy. For example, her scholarship encourages banks to meet needs for public services in Flint, Michigan, or for workforce training in rural Appalachia. She regularly refers to a charter as a “franchise.”
In her extensive scholarship,Professor Omarova has called for a reorientation of the role of a financial regulator. In addition to her belief that banks have strayed from serving the needs of the public, she holds that many regulators have been “captured” by the revolving door in Washington. Perhaps the most interesting of her proposals to address regulatory capture is found in her call for an “Independent Council of Experts” (Council). The Council’s purview would be to hold financial institutions and regulators accountable. To achieve that aim, the Council would have subpoena power and the opportunity to publish reports. We appreciate the imagination behind the Council. The Council would be an official body with the implicit authority of the OCC.
Professor Omarova understands the threat posed when banks take on too much risk
Of all of the topics she has explored in her scholarship, perhaps none rises in importance above Professor Omarova’s focus on systemic risk. Broadly speaking, she believes that the current regulatory scheme puts the onus of risk on the hands of the regulators – leaving banks to attempt to take on as much risk as can be permitted and tasking regulators to apply restraint.
Recent history shows how that can be a problem. Excessive risk-taking led to the Great Recession. The triggering event occurred when Wall Street firms such as Lehman Brothers sold complex financial instruments secured by risky subprime securities. Significantly, the pain caused by excess risk spread to the entire economy. The government stepped in to protect the banks but millions of people lost their homes or their jobs. NCRC strongly supports the nominee’s stance for increased public oversight of the regulators and financial institutions, including the so-called shadow banks, so that financial institutions are not taking excessive risk. Better data and the Council the nominee recommends are critical for increased public oversight.
Conclusion
In conclusion, NCRC has several reasons to support Professor Omarova. She understands the need to strengthen the CRA, she believes that banks have an obligation to use their franchise to put capital where it can serve the public interest, and she will apply strong scrutiny to excessive risk-taking. Finally, we note that if confirmed, she would be the first woman and the first person of color to serve as Comptroller.
