The OCC is the Office of the Comptroller of the Currency, which charters and regulates national banks. It is a part of the Treasury Department, though it does work closely with the Fed. The OCC is in charge of the day-to-day regulation of national banks, especially concerning risk management.
What is the OCC?
Office of the Comptroller of the Currency. There is an actual Comptroller, Thomas Curry. It charters and regulates national banks, and has that name because originally national banks did issue currency. It’s a separate orgainization inside the Treasury Dept., not part of the Fed.
How does it related to the Fed?
It’s the day to day regulator for national banks, especially charged with monitoring risk management. The Fed, since Dodd Frank, is the higher power; but would normally only intervene in exceptional circumstances. These guys actually have embedded regulators in the big banks, and in fact had folks in the CIO office of JPM.
How did they miss the Whale trade?
Well, they aren’t of course, approving each trade directly, and the clues that might have tipped them off were probably obfuscated by the change in the VAR model. Maybe those changes themselves should have been approved… what they must approve are the models for determining bank regulatory capital, but not necessarily the VAR models. Perhaps that should change. Even so, does the OCC really have the capability to review every single aspect of every single VAR model? I doubt it.
Going forward?
The enormous issue here is hedging vs speculation. The OCC is all over how to define that, but its obviously going to be very tough indeed. As has been widely reported, its not at all clear these Whale trades would have been improper under Dodd Frank for just that reason. It’s a definitional nightmare… some people are starting to say, hey let’s just go back to Glass Steigal!