Banking Law

Sheila Bair got warm and fuzzy with American Banker editor Barbara Rhem (paid subscription required) in discussing what she wants to accomplish during the end game of her stellar five-year term as head of the FDIC. No, surprisingly, she doesn't intend to spend the time giving away the balance of the insurance fund who delinquent borrowers who deserve a loan modification. Instead, she wants to wrap up rules for the resolution of the too-big-to-fail banks and "living wills" for the same. That should be a welcome relief to community bankers, or at least to those community banks that will remain standing at the end of her term. Then, she wants to write a book, apparently about her on-the-job training to be the executive director of a consumer advocacy group. Bankers can at least breath a small sigh of relief from the fact that she says she has no interest in becoming head of the CFPB, although there are worse alternatives. Much worse alternatives.

While Sheila was waxing mellow, the last samurai at the OTS, Acting Director John Bowman, was spitting bile in a speech he gave in Japan. The gist of his comments seems to be that, sure, we may have sucked, but we weren't the only bank regulators who sucked. Lots of them sucked. That's cold comfort to most of us who represent the "suckees."

Bowman also railed against too-big-to-fail.

"Institutions much larger than Washington Mutual - for example, Cititgroup and Bank of America, collapsed," he said. "However, the federal government deemed these larger institutions too big to fail and provided open bank assistance to prevent their failures. As I have said in the past, the OTS did not regulate the largest banks that failed; the OTS regulated the largest banks that were allowed to fail."

At that point, he got down to brass tacks and told us what's really been bugging him: strawberries.

Ahh, but the strawberries that's... that's where I had them. They laughed at me and made jokes but I proved beyond the shadow of a doubt and with... geometric logic... that a duplicate key to the wardroom icebox DID exist, and I'd have produced that key if they hadn't of pulled the Caine out of action. I, I, I know now they were only trying to protect some fellow officers...

He did have some encouraging words for federal thrifts, however.

Bowman also fueled fears that the elimination of the OTS will lead to the destruction of the thrift charter. Bowman said that the Dodd-Frank law eliminates the three main benefits of the charter - branching, preemption and consolidated supervisory authority - while retaining its limitations on commercial lending.

"The law provided uniform branching capability for banks as well as thrifts, weakened preemption authority and put an end to consolidated supervision by transferring responsibility for regulating thrift holding companies to the Federal Reserve," he said. "With the benefits of the thrift charter significantly decreased and its limitations retained, how attractive will the charter be for today's financial services enterprises? Again, only time will tell."

Bowman noted that many thrifts fear being regulated by the OCC.

"For the thrift industry in the U.S., there is an additional layer of anxiety and uncertainty about what the future will be like without a dedicated thrift industry regulator? Will the thrift industry prosper under the supervision of the OCC?" Bowman said.

Bowman said that state regulators are already targeting federal thrifts in an attempt to convince them to change charters.

"States are strongly arguing otherwise and are trying to persuade thrift managers to change charters to become state-chartered banks," he said. "Only time will tell how many OTS-regulated thrifts choose state supervision over the OCC, or decide to stay with the OCC, but eventually abandon their thrift charters in favor of national bank charters. "

John then accepted the "Panglossian Optimist of the Year" award from the Howard Beale Memorial Society, stomped a puppy to death, and stormed off stage screaming something about the OCC and the Seventh Level of Hell.

Meanwhile, the Ben Bernanke fan club cranked out a Youtube tribute to QE2.