Sheila Bair vs. John Dugan

“The overwhelming share of increased actual and projected costs for the fund have been caused by actual and projected failures of smaller banks, not larger ones.”

–John Dugan, the comptroller of the currency

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I don’t usually insert myself into personal disputes amongst regulators, but when one of them appears to be a bit of an asshat, I feel compelled to comment.

The spat in question is between Sheila Bair, the exemplary FDIC chairwoman, and the asshat being the speaker of the above WTF quote, John C. Dugan, the comptroller of the currency. I don’t know much about Dugan, other than some of the odd and indefendable statements he keeps making. He often misstates facts about the credit collapse, blames the wrong organizations for the subprime debacle, and otherwise seems to be a mouthpiece for the largest, most inept banking istitutions.

Some Dugan comments:

• “The overwhelming share of increased actual and projected costs for the fund have been caused by actual and projected failures of smaller banks, not larger ones.”

• The financial crisis stemmed in part from problems at small banks;

• Stiff new insurance fees on banks as unfair to the largest banks

• The responsibility for validating risk management models lies first and foremost with the institution itself. (OCC)

Bizarre.

Part of the problem lies with the OCC itself. Its an agency that has been committed to radical deregulation. When the NY Attorney General was looking into “discriminatory mortgage lending practices,” OCC filed suit to stop the NYAG from inspecting the lending records of national banks using state laws.

The OCC decision to allow banks to become commercial real estate developers failed to recognize the inherent risk involved. Even the NAR complained. A 2002 ruling by the regulatory agency prevented Credit Card insurance from being regulated by the appropriate state agencies. And why anyone at the OCC thought allowing national banks to underwrite insurance was a good idea is hard to fathom.

At just about every turn, the OCC has ruled in favor of radical deregulation, and against consumers. Why the Obama administration has retained Dugan (he’s been at the OCC since 2005) is beyond my comprehension. He is a classic Bush appointee — a regulator who is against regulating — who should have been dismissed at the earliest opportunity.

Banks are in the business of taking in deposits and then lending that money out again. If they cannot do that responsibly and profitably, then they should get out of the banking business and into real estate development or insurance underwriting. But so long as the FDIC is on the hook as the insurer of these deposit accounts, banks should not be allowed to stray from their core competency into other businesses.

Stick with banking.

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Previously:
My Experience at Indy Mac: Fraud, Corruption, Criminality (July 2008)
http://bigpicture.typepad.com/comments/2008/07/appraisers-wows.html

Office of Thrift Supervision: Asshat Central (December 24th, 2008)
http://www.ritholtz.com/blog/2008/12/ots-asshat-central/

Video: IndyMac CEO Interview on CNBC (September 2006)
http://bigpicture.typepad.com/comments/2008/07/video-indymac-c.html

Idiots Fiddle While Rome Burns (July 2008)
http://bigpicture.typepad.com/comments/2008/07/idiots-fiddle-w.html

Sources:
Regulators Feud as Banking System Overhauled
STEPHEN LABATON and EDMUND L. ANDREWS
NYT, June 13, 2009
http://www.nytimes.com/2009/06/14/us/politics/14power.html

OCC and Model Validation Part 2
Angry Bear, March 28, 2008
http://angrybear.blogspot.com/2008/03/occ-and-model-validation-part-2.html

The Big Banks’ Best Friend in Washington
Steven Pearlstein
Washington Post, May 27, 2009
http://www.washingtonpost.com/wp-dyn/content/article/2009/05/26/AR2009052603150.html