Banking Law

The weeping and wailing has already begun for the Office of Thrift Supervision. Fingered for liquidation (along with the federal thrift charter) by the Obama administration's "reform" plan that was announced yesterday, Reuters called it "The Saddest, Unloved Bank Regulator." Bank trade associations, on the other hand, rushed to its defense.

The bankers say eliminating OTS would wipe out a culture that understands the needs of small thrifts, which are obliged to channel most of their lending to housing-related activities.

"The vast majority of OTS-regulated thrifts have done a great job supporting housing," said Chris Cole, senior regulatory counsel at the ICBA. "We think the merger could have some impact on housing lending."

Needless to say, anything that helps to make more money available for mortgages at a time when home prices in many markets are in free fall is likely to have some appeal in Congress. Bankers have taken note.

"If we want to make housing a national priority, we need to keep issues like this in mind," said American Bankers Association spokesman Wayne Abernathy.

There are also questions about whether the OCC is the right agency to take over supervising small thrifts, given its current brief of overseeing larger national banks.

"Losing the OTS would be a mistake," said Jim Wheeler, a financial institutions partner at law firm Bryan Cave in Atlanta. "What Bank of America has in common with the S&L on the corner is nothing. They don't even speak the same language."

Apparently, Mr. Wheeler's PR representative found a full-fledged "biter" at Fortune when he threw that pithy line in the ocean of e-mail spam. Good for him.

Today's The Washington Post ran an article that indicated that OTS employees are taking the bad news in stride.

"These people have been through this before," the employee said. "Not only that. They've lived through the calls for the elimination of OTS" for "pretty much all 20 years of OTS's existence."

It's always preferable for the doomed to take their execution with good humor, refusing the blindfold, accepting the last cigarette, and sparing us any last words other than, perhaps, a heart-felt bit of classical Latin: "Morde Me."

While it has its defenders, the opponents of the OTS finally seem to have it cornered. The agency hasn't helped itself with its dismal list of large thrift failures, the backdating of capital contributions scandal, and its director's confession at a congressional hearing that AIG was its responsibility to oversee. I think that the best current federal thrifts might expect is that they can successfully wage a fight to save the federal thrift charter, which Obama also wants drive a stake through. While Barney Frank was quoted in the aforementioned WAPO story as calling for the abolition of the OTS, he's also on record over the past few days as rejecting the call to abolish the federal thrift charter. Today's American Banker (paid subscription required) quoted Frank as saying the charter will stay put, even if it has a new overseer.

Frank shut the door on scrapping the thrift charter, a move that he said did not make sense.

"We support putting the OTS and the OCC together into one agency, and you want to make sure the thrift charter isn't used to play games with, but I think it would be a mistake to abolish the thrift charter," Frank said.

Frank didn't elucidate the reasons that such abolition would be a mistake. I'll guess that they have something to do with housing, political action committees, and a boy named Sue.

Former OTS employees may find themselves stuck in a basement room next to the boiler in the offices of the new national bank regulator. I assume that they'll keep their retirement vesting dates.

The end of the road has not yet arrived and as acting OTS Director correctly advised his staff, the earliest the end could come would be later this year or early the next. At this point, however, it looks almost certain that, after twenty years of hanging on by a thread, the OTS' string is about to play out.

P.S. This is Bank Lawyer Blog's 1,000th post, which is further evidence that, indeed, "stuff" can be stacked this high.