Banking Law

OTS: The End of Days?

28 months ago, when Wachovia bought Golden West Financial, many predicted that if Wachovia dumped the thrift charter, the OTS would soon be out of business. I thought at the time that Wachovia would keep the thrift charter and they did. Unfortunately, not only has Wachovia recently been shopped out of existence by the FDIC, but the nation's largest thrift, Washington Mutual, recently swooned into receivership, and its assets and most of its liabilities--but not its thrift charter--into the eager arms of Chase.

As it did two years ago, the American Banker (paid subscription required) yesterday raised the prospect that the days of the OTS are numbered.

The failure of the largest thrift in the nation has sealed the fate of the Office of Thrift Supervision, observers said Friday.

Washington Mutual Inc. accounted for about 20% of the assets overseen by the agency and 12% of its budget. Its collapse and subsequent sale to JPMorgan Chase & Co., which said it would not keep Wamu's thrift charter, heightens concerns about the OTS' viability and spurred staunch defenders to rethink its future.

While the article notes that the agency's funding is set through 2009, its future at this point looks grim.

"Obviously OTS is fighting for its life, and [Wamu] going down doesn't help it any in its fight to save its existence," said L. William Seidman, a former FDIC chairman and now a CNBC commentator.

The Treasury Department has already recommended that the OTS be merged with the Office of the Comptroller of the Currency. It has also recommended killing the thrift charter.

This prospect has also grown more likely with Wamu's collapse, some said.

"The thrift charter is a specialization and concentration, and obviously that was thought to be a very safe one because it was in housing," Mr. Seidman said. "I doubt if we will have, within a few years, any thrifts. Everything will be a bank. Too bad, I like the OTS, but unfortunately they're in the dying end of the business."

I've been a skeptic of the demise of the federal thrift charter since its doom was supposedly sealed in 1989. Like the Energizer Bunny, it's managed to keep going and going and going. Nevertheless, with the bailout legislation looming, the public's thirst for making the entire banking industry "pay" in as many ways as possible for the same, and with Congress and the new Administration likely to try to demonstrate how they will never, ever let the situation get out of control again (just as they promised in 1989), the future of the OTS looks unprecedentedly bleak. Plus, as noted at the outset of this post, the OTS has pitiful long-term prospects of being able to fund its operations. If the federal thrift charter survives, it will be administered by either the OCC or, perhaps, by whatever Frankenstein's monster of a revamped federal banking regulator is created by a future Congress.

In the meantime, OTS Director John Reich is trying to put on a brave face.

On Friday, OTS Director John Reich defended the value of multiple federal banking regulators.

"We make each other better agencies," he said. "It's always better when there are more people at the policymaking table than a consolidation situation where one person, one agency director, is in charge without input from other agency heads."

To me, Mr. Reich is starting to sound very much as if he's whistling past a graveyard.

Full post as published by Bank Lawyers Blog on October 01, 2008 (boomark / email).