John M. Reich was a Director of the Federal Deposit Insurance Corporation (FDIC). He was sworn in on January 15,2001,following an appointment by President of the United States Bill Clinton and served on the FDIC Board for eight years. Reich served as Vice Chairman of the Board of the FDIC from November 2002 until he was nominated on June 7,2005 by President George W. Bush to be Director of the Office of Thrift Supervision (OTS),and the U.S. Senate confirmed his nomination on July 29,2005. He also served as Acting Chairman of the FDIC from July to August 2001. As Deputy Chairman,2001–2005,Reich served as the Chair of FDIC's Audit Committee during a time when the General Accounting Office issued reportable conditions regarding information security at the Corporation.
Reich took the oath of Director of OTS on August 9,2005 and continued in that capacity as well as serving as a member of the FDIC Board of Directors until he resigned on February 12,2009 and stepped down February 27,2009.[1]
OTS During and After Reich
Under Director Reich,the Office of Thrift Supervision saw the failure or near-failure of at least five major institutions - IndyMac Bank,AIG,Washington Mutual,Downey Financial and Countrywide Financial. These constituted some of the largest financial failures in modern history to that point. OTS later acknowledged that in the case of AIG it failed to take regulatory actions it should appropriately have taken as early as 2004.[2] In the case of IndyMac,after Director Reich and OTS both denied responsibility for the failure,the Office of Inspector General of the United States Treasury found that OTS both inappropriately failed to act and inappropriately and knowingly allowed regulatory misconduct.
On June 17,2009,President Barack Obama announced his intention to disband the Office of Thrift Supervision as part of a program of regulatory reform,citing "loopholes that have allowed important institutions to cherry-pick among banking rules".[3]
Career highlights
Prior to coming to Washington,D.C.,Reich spent 23 years as a community banker in Illinois and Florida,including 10 years as president and CEO of the National Bank of Sarasota,in Sarasota,Florida,which he led as it grew from a two-office,$17 million institution to a $450 million institution with 19 offices.
Reflecting on his community banking experience,Reich,then Director of OTS,said in remarks to the New York Bankers Association,New York,NY,April 6,2006:[4]
I am deeply concerned that community banks will continue to disappear from our landscape,with local communities and consumers across the country being the ultimate losers. The loss of these community human resources not only impacts local banking relationships with small businesses and individuals,it reduces human resources available for leadership of community service organizations on which senior bank officers and their directors serve. There is an unquantified social cost to industry consolidation that is attributable to the weight of accumulated regulatory burden. This is a growing problem in communities across the country,with implications that are largely ignored by policymakers.
Reich also served 12 years on the staff of U.S. SenatorConnie Mack (R-FL),before joining the FDIC. From 1998 through 2000,he was Senator Mack's Chief of Staff,directing and overseeing all of the Senator's offices and committee activities,including those at the Senate Banking Committee.
Regulation and reform
An ardent foe of regulatory red tape,Reich dedicated much effort and public testimony toward reducing regulatory burdens on financial institutions and,beginning in 2005,led a three-year interagency review of all federal bank regulations,mandated under the Economic Growth and Regulatory Paperwork Reduction Act of 1996. Then Director of OTS,Reich championed more regulatory independence and discretion for his agency in the cause of efficiency and regulatory burden relief.[5]
On April 6,2006,Reich voiced his concern that banks were allowing an overall slippage in underwriting due to increased competition in certain market segments and geographical areas as banks tried to feed loan volumes after the real estate market peaked. He also cited the increased sales of alternative or nontraditional mortgage lending products like "interest-only" and "pay option" adjustable rate mortgage (ARMs). These loan products were legitimate and valuable,according to Reich,suggesting the main danger was from institutions with limited experience in these loans and managing the associated risks,particularly the inherent credit risks.[4] However,of the five leading issuers of option adjustable-rate mortgages,three —IndyMac Bank,Washington Mutual and Downey Financial —would fail.[6]Countrywide Financial,the largest,was forced to sell itself to Bank of America for a small fraction of its previous value or fail.[7][8]AIG Financial Products,regulated by OTS,would also fail,. AIG FP was a major issuer of Credit Default Swaps related to the securitized,outstanding interest of these and other subprime loans.[9]
On July 21,2008,following the failure of IndyMac but before the failures of Washington Mutual,AIG and Downey Financial,Reich described his agency's "Financial Institution Reform Initiative":[10]
I believe Congress should help create a level,scrupulous and well-regulated playing field so consumers and investors have confidence in the transparency,fairness and integrity of all mortgage originations. The standards of the under-regulated segments of the market must be raised to the level followed by the federally regulated segments. All entities that originate home loans should be required to comply with basic credit principles,such as conducting a reasonable assessment of each borrower's ability to repay.
In those same remarks,he described the role he felt his agency should play:
Selecting a strong regulator to monitor this new level playing field is critical for protecting consumers and restoring market confidence. I won't pretend to be a disinterested party,but I know that the OTS has the most extensive expertise of any regulatory agency in the oversight and supervision of mortgage banking operations and I believe the OTS is in the best position to assume federal authority to regulate the currently unregulated players in mortgage banking.
Role In IndyMac Bank controversy
The failure of IndyMac Bank on July 11,2008,was the fourth largest bank failure in United States history.[11] Prior to IndyMac's failure on July 11,2008,the bank had come to rely heavily on higher cost,less stable,brokered deposits,as well as secured borrowings,to fund its operations. The bank had focused on stated income and other aggressively underwritten loans in areas with rapidly escalating home prices,particularly in California and Florida.[12]
On June 26,2008,Senator Charles E. Schumer publicly released letters he had previously sent to Reich's agency and others,suggesting that IndyMac bank was in danger of failing and that the danger was being ignored. In the weeks that followed,Director Reich blamed Schumer's release of the letters for instigating IndyMac's collapse.[13]
On July 21,2008,Reich described "interference with the regulatory process by reporting and disseminating speculation about the condition of financial institutions,thereby undermining public confidence in those institutions and causing serious harm" as a contributor to the failure of IndyMac as well as Fannie Mae,Freddie Mac and Lehman Brothers.[14]
On December 22,2008,Reich removed his agency's western director,Darrel W. Dochow for allowing IndyMac to backdate a capital infusion of $18 million from its parent company so that the bank would appear "well capitalized" in its 10-Q for the period ending March 31,2008. According to a source with knowledge of the incident,at another point Mr. Dochow limited the scope of a review by OTS regulators of IndyMac's portfolio of loans and other assets,overruling the advice of others in the agency.[15] Mr. Dochow played a central role in the savings-and-loan scandal of the 1980s,overriding a recommendation by federal bank examiners in San Francisco to seize Lincoln Savings,the giant savings and loan owned by Charles Keating. Mr. Reich called the backdating irregularity "a relatively small factor" in the collapse of IndyMac.[16]
On February 12,2009,Reich resigned,announcing he would step down February 27.[1]
On February 26,2009,the Treasury Department's inspector general released a report citing laxity at the OTS under Reich for adding significantly to the $10.7 billion in FDIC losses from the IndyMac failure,as well as the estimated $270 million in losses suffered by uninsured depositors. The report concluded that,under the law,OTS should have taken Prompt Corrective Action against IndyMac in May,2008.[17]
Commenting on the report,Inspector General Eric Thorson dismissed Reich's claim that Senator Schumer's letters caused the failure. Marla Freedman,the assistant inspector general for audit,detailed a pattern of excess risk-taking and abuse of the lending process at IndyMac and the OTS's consistent and concurrent failure to act. Mr. Reich said in a letter to the inspector general that he agreed with the agency's filings.[18]
On February 27,2009,Reich stepped down amidst the continuing audit of backdating at IndyMac and four other institutions.[19] Scott Polakoff,OTS senior deputy director and chief operating officer,hired under Mr. Reich,became acting director on his departure.
On March 26,2009,Polakoff was removed and placed on leave by United States Secretary of the TreasuryTimothy Geithner,amidst an announced further review and investigation of the backdating scandal by the U.S. Treasury's Inspector General.[20]
Role in AIG Controversy
In a May 2006 congressional hearing,Reich addressed the issue of OTS's regulating of international financial holding companies through its special office of Complex and International Organizations. Reich said he was working to ensure that the financial companies under his watch wouldn't be burdened by added "regulatory scrutiny" in Europe. Among other things,he said the OTS designation meant U.S. companies operating in Europe could avoid testing "the qualifications of key personnel" and requirements to keep more cash and assets in reserve to cushion against losses.
In a March 2007 report on financial regulation,the Government Accountability Office looked at the OTS and found "a disparity between the size of the agency and the diverse firms it oversees." The report noted a lack of specialized skills at the OTS,which had just one insurance specialist to oversee several insurers such as AIG.[21]
In March 2008,Acting Director Polakoff admitted told a U.S. Senate panel that the Office of Thrift Supervision "fell short" in its oversight of American International Group Inc. Polakoff admitted that the regulator "did not sufficiently assess the susceptibility of highly illiquid,complex instruments," to ratings downgrades and "should have directed the company to stop originating credit-default swap products before December 2005."[2] In response to a Senator Mel Martinez's remark that OTS might be "the regulator that we've been looking for",Polakoff acknowledged that OTS was "the one".[22]
Civic activities
Reich's community service includes serving as chairman of the board of trustees of a public hospital facility in Ft. Myers,Florida,and chairman of the board of directors of the Sarasota Family YMCA. He has also served as a board member for a number of civic organizations,and was active for many years in youth baseball programs in Sarasota,FL. In Washington,DC,Reich has served as an elder and trustee of the National Presbyterian Church,and chairman of the National Presbyterian Church Fund for Charitable Giving. In March 2009,he became a member of the board of directors of the Senior Housing Crime Prevention Foundation.
The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was created by the Banking Act of 1933, enacted during the Great Depression to restore trust in the American banking system. More than one-third of banks failed in the years before the FDIC's creation, and bank runs were common. The insurance limit was initially US$2,500 per ownership category, and this has been increased several times over the years. Since the enactment of the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010, the FDIC insures deposits in member banks up to $250,000 per ownership category. FDIC insurance is backed by the full faith and credit of the government of the United States, and according to the FDIC, "since its start in 1933 no depositor has ever lost a penny of FDIC-insured funds".
In the United States, banking had begun by the 1780s, along with the country's founding. It has developed into a highly influential and complex system of banking and financial services. Anchored by New York City and Wall Street, it is centered on various financial services, such as private banking, asset management, and deposit security.
Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial institutions:
Depository institutions – deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies;
Contractual institutions – insurance companies and pension funds
Investment institutions – investment banks, underwriters, and other different types of financial entities managing investments.
A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. The terms "S&L" and "thrift" are mainly used in the United States; similar institutions in the United Kingdom, Ireland and some Commonwealth countries include building societies and trustee savings banks. They are often mutually held, meaning that the depositors and borrowers are members with voting rights, and have the ability to direct the financial and managerial goals of the organization like the members of a credit union or the policyholders of a mutual insurance company. While it is possible for an S&L to be a joint-stock company, and even publicly traded, in such instances it is no longer truly a mutual association, and depositors and borrowers no longer have membership rights and managerial control. By law, thrifts can have no more than 20percent of their lending in commercial loans—their focus on mortgage and consumer loans makes them particularly vulnerable to housing downturns such as the deep one the U.S. experienced in 2007.
The savings and loan crisis of the 1980s and 1990s was the failure of 32% of savings and loan associations (S&Ls) in the United States from 1986 to 1995. An S&L or "thrift" is a financial institution that accepts savings deposits and makes mortgage, car and other personal loans to individual members.
The Community Reinvestment Act is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.
The Office of Thrift Supervision (OTS) was a United States federal agency under the Department of the Treasury that chartered, supervised, and regulated all federally chartered and state-chartered savings banks and savings and loans associations. It was created in 1989 as a renamed version of the Federal Home Loan Bank Board, another federal agency. Like other U.S. federal bank regulators, it was paid by the banks it regulated. The OTS was initially seen as an aggressive regulator, but was later lax. Declining revenues and staff led the OTS to market itself to companies as a lax regulator in order to get revenue.
Federal savings associations, in the United States, are institutions chartered by the Office of Thrift Supervision which is now administered by Office of the Comptroller of the Currency after the agencies merged. Institutions chartered by the OTS are still regulated according to the rules and regulations of Federal Savings Banks. Mortgages issued by Federal Savings Banks are pursuant to the provisions of the Home Owners' Loan Act, a U.S. federal statute. Although the activities of federal thrifts were once confined primarily to taking deposits from consumers and making residential mortgage loans, federal thrifts are now authorized to offer a wide range of financial products and services.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), is a United States federal law enacted in the wake of the savings and loan crisis of the 1980s.
All regulated financial institutions in the United States are required to file periodic financial and other information with their respective regulators and other parties. For banks in the U.S., one of the key reports required to be filed is the quarterly Consolidated Report of Condition and Income, generally referred to as the call report or RC report. Specifically, every National Bank, State Member Bank and insured Nonmember Bank is required by the Federal Financial Institutions Examination Council (FFIEC) to file a call report as of the close of business on the last day of each calendar quarter, i.e. the report date. The specific reporting requirements depend upon the size of the bank and whether or not it has any foreign offices. Call reports are due no later than 30 days after the end of each calendar quarter. Revisions may be made without prejudice up to 30 days after the initial filing period. Form FFIEC 031 is used for banks with both domestic (U.S.) and foreign (non-U.S.) offices; Forms FFIEC 041 and 051 is for banks with domestic (U.S.) offices only.
IndyMac, a contraction of Independent National Mortgage Corporation, was an American bank based in California that failed in 2008 and was seized by the United States Federal Deposit Insurance Corporation (FDIC).
Bank regulation in the United States is highly fragmented compared with other G10 countries, where most countries have only one bank regulator. In the U.S., banking is regulated at both the federal and state level. Depending on the type of charter a banking organization has and on its organizational structure, it may be subject to numerous federal and state banking regulations. Apart from the bank regulatory agencies the U.S. maintains separate securities, commodities, and insurance regulatory agencies at the federal and state level, unlike Japan and the United Kingdom. Bank examiners are generally employed to supervise banks and to ensure compliance with regulations.
The government interventions during the subprime mortgage crisis were a response to the 2007–2009 subprime mortgage crisis and resulted in a variety of government bailouts that were implemented to stabilize the financial system during late 2007 and early 2008.
American Sterling Bank was a bank based in Sugar Creek, Missouri. On April 17, 2009, the bank was shut down by the Federal Deposit Insurance Corporation as a result of a bank failure and its assets were sold to Metcalf Bank.
All regulated financial institutions in the United States are required to file periodic financial and other information with their respective regulators and other parties. Thrifts are required by the Office of Thrift Supervision (OTS), among other requirements, to file a key quarterly financial report called the Thrift Financial Report (TFR) to be filed electronically with the OTS. In 2007, there had been a proposal that thrifts convert to filing a similar report, the Report of Condition and Income commonly referred to as the Call Report, which banks prepare and file with the Federal Deposit Insurance Corporation. Since thrifts continue to file TFRs today, the proposal was dismissed or set aside for the time being.
The 2007–2008 financial crisis, or Global Financial Crisis (GFC), was the most severe worldwide economic crisis since the Great Depression of 1929. Predatory lending targeting low-income homebuyers, excessive risk-taking by global financial institutions, and the bursting of the United States housing bubble culminated in a "perfect storm".
Wall Street and the Financial Crisis: Anatomy of a Financial Collapse is a report on the financial crisis of 2007–2008 issued on April 13, 2011 by the United States Senate Permanent Subcommittee on Investigations. The 639-page report was issued under the chairmanship of Senators Carl Levin and Tom Coburn, and is colloquially known as the Levin-Coburn Report. After conducting "over 150 interviews and depositions, consulting with dozens of government, academic, and private sector experts" found that "the crisis was not a natural disaster, but the result of high risk, complex financial products, undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street." In an interview, Senator Levin noted that "The overwhelming evidence is that those institutions deceived their clients and deceived the public, and they were aided and abetted by deferential regulators and credit ratings agencies who had conflicts of interest." By the end of their two-year investigation, the staff amassed 56 million pages of memos, documents, prospectuses and e-mails. The report, which contains 2,800 footnotes and references thousands of internal documents focused on four major areas of concern regarding the failure of the financial system: high risk mortgage lending, failure of regulators to stop such practices, inflated credit ratings, and abuses of the system by investment banks. The Report also issued several recommendations for future action regarding each of these categories.
Joseph M. Otting is an American businessman and government official. He served as the 31st Comptroller of the Currency from November 27, 2017 to May 29, 2020.
Regulator shopping is the choosing of a government or state regulating agency or body that imposes on the choosing entity regulatory treatment more favorable than that which would be obtained from another regulating agency or body that also has the authority to regulate the choosing entity. Regulator shopping may be an example of a "race to the bottom" practice.
1 2 "Archived copy"(PDF). Archived from the original(PDF) on 2011-07-21. Retrieved 2009-04-09.{{cite web}}: CS1 maint: archived copy as title (link) Remarks of John M. Reich, Director, Office of Thrift Supervision, to the New York Bankers Association, New York, NY, April 6, 2006, PDF
↑ "Archived copy"(PDF). Archived from the original(PDF) on 2011-07-21. Retrieved 2009-08-16.{{cite web}}: CS1 maint: archived copy as title (link) Reich Senate Testimony, PDF File
↑ "Archived copy"(PDF). Archived from the original(PDF) on 2011-10-05. Retrieved 2011-11-26.{{cite web}}: CS1 maint: archived copy as title (link) Remarks to American Bankers Association Summer Meeting, PDF File
↑ "Archived copy"(PDF). Archived from the original(PDF) on 2009-04-19. Retrieved 2010-03-18.{{cite web}}: CS1 maint: archived copy as title (link) Audit report, Treasury Office of Inspector General PDF
↑ Los Angeles Times Federal regulators ignored problems at IndyMac, report finds
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