What it means
The OCC was created in 1863 under the National Currency Act, during the American Civil War, to help build a national banking system and a stable national currency. It is one of the oldest federal financial agencies.
Today it is led by the Comptroller of the Currency, who is appointed by the President, confirmed by the Senate and serves a fixed term of five years. A bank in the United States can be chartered either by a state or by the federal government, which is known as the dual banking system.
A bank with a national charter is supervised by the OCC, and its name usually includes the words National or N.A. The agency decides whether a new bank may open, whether banks may merge, and what activities they may carry out.
Supervision is the OCC's main activity. Its examiners visit banks, test the quality of loans, review capital and liquidity (the cash and easily sold assets a bank holds to meet withdrawals), and judge whether management controls risk well.
The agency also checks compliance with consumer protection and anti-money-laundering rules, and with the Community Reinvestment Act, which encourages banks to serve all parts of their local communities. When it finds problems, the OCC can issue formal enforcement actions.
These include orders to fix weaknesses, limits on growth or dividends, civil money penalties and, in serious cases, removal of officers. Most issues are settled earlier through supervisory letters that require management to act.
For businesses, the OCC matters because it affects the banks they borrow from and deposit with. A national bank's lending standards, fees and product range are shaped by the OCC's guidance.
Companies that work with fintech firms also follow its position on bank charters for newer financial businesses. The OCC is often confused with other regulators.
The Federal Reserve oversees bank holding companies and state member banks, while the Federal Deposit Insurance Corporation insures deposits and supervises state non-member banks. All three work alongside each other, and a large bank may deal with more than one of them.
In practice
Real-world examples.
Example
A group of entrepreneurs wants to open a business bank in a mid-sized city and applies for a national charter. The OCC reviews their capital plan, management experience and business model before deciding. The founders must show they can raise enough money to absorb early losses.
Example
A national bank plans to buy a smaller bank across the state border. Its legal team prepares an application that goes to the OCC for review. The agency checks the combined firm's capital, the effect on competition and the bank's record of serving customers.
Example
An OCC examination finds that a bank's commercial property loans are growing quickly with weak checks on borrowers. The agency requires management to tighten its lending standards and add reserves. The bank's finance director reports the progress to the board every quarter.
Case study
Seen in the real world.
Cedar Valley National Bank is a fictional lender used to illustrate the role of the OCC. In this illustrative story, a routine examination found that the bank's loans to a single local developer had grown to 30% of its capital. Examiners judged this concentration to be too risky because one failure could threaten the whole bank.
The OCC asked the bank to set a lower limit, build a plan to reduce the exposure and hold more capital while it did so. The bank sold part of the loans to other lenders and raised $4,000,000 of fresh capital from its shareholders. A follow-up exam a year later found the exposure had fallen to 18% of capital, and the supervisory restrictions were lifted.
The experience changed how the bank manages risk day to day. Its board now receives a monthly report on the largest borrowers and industries, and it sets limits before problems arise instead of after an examination.
Watch out
Common mistakes.
- Assuming the OCC regulates every bank in the country. It supervises national banks and federal savings associations, while state banks have other primary regulators.
- Confusing the OCC with the Federal Reserve. The Fed sets monetary policy and supervises holding companies, whereas the OCC is a bank supervisor within the Treasury.
- Thinking the OCC insures deposits. Deposit insurance comes from the Federal Deposit Insurance Corporation.
Questions
People also ask.
Who pays for the OCC?
Banks and savings associations pay assessments and fees, so the agency is not funded by tax appropriations.
Why does a bank choose a national charter?
It gives one set of rules across all states, which is convenient for banks with branches in many places.
Is the OCC the same as the Options Clearing Corporation?
No. Both use the letters OCC, but the Options Clearing Corporation is a clearing house for listed options and is not a bank regulator.
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