House bill establishes watchdog of bank examiners
A bill recently introduced in the House of Representatives would establish an independent office charged with investigating banks' complaints about regulatory examiners. Reps. Shelley Moore Capito, R-W.Va., and Carolyn Maloney, D-N.Y., sponsored the Financial Institutions Examination Fairness and Reform Act, H.R. 3461 in an effort to ease regulatory burdens on community banks. The act, however, isn't limited by asset size. Of the nearly 400 bank failures since 2007, more than 320 have been smaller, community banks saddled with commercial mortgage defaults and bad bets on local housing developments during the boom. A House subcommittee last week rejected a similar bill to allow banks to count recently modified mortgages as accruing as long as the borrower hadn't been delinquent in the last six months. Capito and Maloney kept the language from the previous bill and expanded it. According to H.R. 3461, regulators cannot force a bank deemed well capitalized to raise additional capital for any modified mortgages counted accruing under the same legislation. The congresswomen also created the Office of the Examination Ombudsman, which would "investigate complaints from financial institutions, their representatives, or another entity acting on behalf of such institutions, concerning examinations, examination practices, or examination reports," according to the bill. The ombudsman would have jurisdiction over examiners at the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the still forming Consumer Financial Protection Bureau. The watchog would also hold quarterly meetings to review examination practices and report annually to the House Financial Services Committee and the Senate Banking Committee. The bill also allows banks to appeal any determinations found by an examiner to an administrative law judge. The bank has to file a complaint with the ombudsman with 60 days, and if the bank does, the examiner has to provide "any information relied upon by the agency in the final report." The hearing in court must be held within 60 days, according to the bill. The judge is not allowed to defer to the regulatory agency. The bill also forbids any regulator from retaliating against a bank for using any of these new powers. It goes even further. A regulator may not delay or deny any action "that would benefit a financial institution" because it is under appeal. The American Bankers Association backed the bill immediately, claiming it would provide needed transparency and balance in the examination process. "It also addresses some examiner decisions that have effectively and unnecessarily reduced the amount of capital available for increased lending — particularly to small businesses," said Frank Keating, CEO of the ABA. "We strongly urge its enactment, which would increase banks’ ability to help local businesses grow and create jobs." Write to Jon Prior. Follow him on Twitter @JonAPrior.