OCC chief’s climate focus riles GOP senator

WASHINGTON — The top Republican on the Senate Banking Committee harangued the acting head of the Office of the Comptroller of the Currency for overemphasizing climate change policies, and criticized the Biden administration for dodging the confirmation process in appointing the OCC chief.

At a hearing Tuesday, acting Comptroller Michael Hsu became the latest target of Sen. Patrick Toomey’s attacks on financial regulators who have focused on financial policies related to the climate and racial justice.

Hsu, who testified along with Federal Deposit Insurance Corp. Chair Jelena McWilliams and National Credit Union Administration Chair Todd Harper, has set the OCC on a new trajectory compared to his Trump-appointed predecessors.

Just last week, the OCC announced it would join the Network for Greening the Financial System — following the Federal Reserve’s move to become a member of the international body — and hire a climate change risk officer. Hsu has also stressed the need for regulators to address racial inequality within the financial system.

But Toomey, a Pennsylvania Republican, cited the OCC’s joining the NGFS as another example of what he described as regulators being too open to progressive causes.

“As the pandemic recedes, I’m now concerned that the Biden administration is seeking to use financial regulation to advance social goals that are unrelated to banking,” Toomey said. He added he was “deeply troubled by the administration’s apparent unwillingness to nominate an individual, perhaps at any point, to serve as comptroller on a full-time basis.”

The OCC’s approach to climate risk is “about recognizing that climate change presents risk management challenges, and that banks need to prepare for both the physical and the transition risks related to climate change,” said acting Comptroller Michael Hsu.

Bloomberg News

“By installing Mr. Hsu as acting comptroller with no nominee in sight, the administration appears to have every intention of indefinitely bypassing the constitutionally required Senate confirmation,” Toomey said.

Hsu said the OCC’s focus is linked with banking issues.

The agency’s approach to climate risk is “about recognizing that climate change presents risk management challenges, and that banks need to prepare for both the physical and the transition risks related to climate change,” he said.

Democrats at the hearing, meanwhile, applauded regulators’ initiatives regarding climate risk in the financial system, and pressured the witnesses to take stronger stances on scrutinizing bank mergers and overdraft fee policies, among other things.

Sen. Jon Tester, D-Mont., pushed back on Toomey’s line of questioning, pointing to severe droughts affecting the western United States.

“We’ve burned 3 million acres so far in the West, and the fire season has just started,” Tester said. “I would hope that folks look at extreme weather events, because they’re happening with more regularity, and I think it would be improper form not to take a look at it, because it’s getting to be a fact of life every year. Something weird is happening.”

Asked by Sen. Catherine Cortez Masto, D-Nev., if joining the NGFS was something the FDIC was considering, McWilliams did not answer the question directly.

“I can’t even take credit for this, but for decades, our supervisors have taken into account weather-related events,” McWilliams said, pointing to the designation of certain areas as flood or wildfire zones. She added that the FDIC’s examiners “expect banks to take that into their underwriting practices.”

She also pointed to the FDIC’s involvement in a Basel Committee task force on climate change as well as the agency’s ongoing work on the Financial Stability Oversight Council.

Toomey criticized Hsu’s OCC for adopting a more conservative stance on fintech chartering than his Trump-era predecessors. Hsu has said the OCC is reviewing conditional charter approvals made prior to the Biden administration, including some national trust banks specializing in digital assets.

“It seems to me, companies operating in this space — in many cases, they want to play by the rules,” Toomey said. “I think it does a lot of damage to the credibility of the OCC — [and] damages economically — when an institution receives an approval, stands up an operational business, complies with the conditions under which the approval was granted, and then [the approval is] pulled out from under them.”

Hsu, in response, argued the OCC was reviewing the conditional approvals while “cognizant of the standards and the practices of the past.”

“We’re doing this in order to be holistic, and to ensure that we’re making this decision in coordination with other agencies,” he said.

Republicans were not the only party to subject bank regulators to intense questioning. Sen. Elizabeth Warren, D-Mass., pressed both Hsu and McWilliams on their agency’s track records of bank merger oversight. (The Biden administration has said it wants to improve American competitiveness by, among other things, toughening bank merger standards.)

“Merger review has become the definition of a rubber stamp, and the banks know it,” Warren said. “Just saying we’re going to get tougher on this is not likely to persuade anyone, and certainly not a multibillion dollar bank.”

Warren then asked the regulators about the potential need for new “bright line” tests, or explicit thresholds that lawmakers could introduce to limit the size of future megabanks or restrict merger activity among institutions with poor Community Reinvestment Act performance.

“Are banking agencies like yours currently required to reject mergers when the resulting bank will be bigger, or more complex, than our banking rules are set up to handle?” Warren said. “What if the banks trying to merge don’t receive the highest ratings in their Community Reinvestment Act exams to measure how well they’re serving their communities? Are you required to reject a merger then?”

“I don’t believe so,” Hsu replied, though he noted a merger may be denied for presenting financial stability concerns.

Another Democrat, Sen. Van Hollen of Maryland, pressed Hsu on the role of overdraft fees in national bank profits, pointing to a recent Brookings Institution report that highlighted a number of banks pulling significant percentages of their overall profits from overdraft penalties.

“I’ve been looking at some of the banks under the OCC’s jurisdiction, seeing that there are three financial institutions that make 100% of their profit on overdraft fees,” Van Hollen said. “My question is very simple: Is a bank that makes 100% of its profits on overdrafts a bank that is a safe and sound financial institution?”

“Concentrations in which revenues are derived in any form, whether overdrafts or others, is a supervisory concern,” Hsu responded. He later added that the agency was “looking very closely at overdrafts right now.”

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