To kids everywhere, money matters. Whether it is because they need a few dollars to buy the latest video game, or because they want to make enough money at their lemonade stand to buy the latest phone, kids everywhere know the power of money. An important aspect of money is the United State’s financial system, including the 2,000 national banks and federal savings associations (also know as savings and loans). The primary regulator for these institutions is the Office of the Comptroller of the Currency (OCC). The OCC charters and oversees a nationwide system of national banks and federal savings associations and assures that these banking institutions are safe and sound, competitive, and capable of serving the banking needs of their customers in the best possible manner. Not all banks are national banks. Other regulators supervise state banks, credit unions, and other financial services companies. The Federal Deposit Insurance Corporation (FDIC), which insures customers’ deposits up to $250,000, also regulates banks to ensure they conduct business in a safe and sound manner. The new Consumer Financial Protection Bureau, which was created in 2010, also plays a role by regulating and supervising institutions that offer financial services to consumers.
The OCC was established in 1863 by President Abraham Lincoln. The President nominates and the Senate confirms the Comptroller to head the agency for a five-year term. The Comptroller also is a director of the FDIC and NeighborWorks® America. John Walsh is the acting Comptroller of the Currency, however the President has nominated Thomas Curry (currently a member of the FDIC board) to fill the post, but the Senate has not yet acted.
The OCC fulfills a number of main objectives:
- ensures the safety and soundness of the national banking system;
- fosters competition by allowing banks to offer new products and services;
- ensures fair and equal access to financial services to all Americans; and
- enforces anti-money laundering and anti-terrorism finance laws that apply to national banks and federally-licensed branches and agencies of international banks.
Mr. Barry Wides is the Office of the Comptroller of the Currency’s (OCC) Deputy Comptroller for Community Affairs, where he leads a department of community development professionals. Prior to joining the OCC in 1999, Mr. Wides was Director of Affordable Housing Sales at Freddie Mac, where he led a nationwide sales team responsible for developing products and strategies to achieve affordable housing goals. Prior to that he served as Deputy Director of the Resolution Trust Corporation’s Affordable Housing program and also served as a Presidential Management Intern and Budget Examiner at the Office of Management and Budget. With all this expertise, Barry Wides is the perfect person to tell us more about money. Let’s explore money through the expert’s eyes with our interview with Barry Wides from the OCC.
AK: For teens, money usually means the cash they have at home or in their savings account. Can you describe what other aspects of money and lending are covered by the OCC?
BW: The OCC oversees national banks and federal savings associations that play an important part in our nation’s economy For simplicity’s sake, I will refer to both of these types of institutions as banks. Most of the credit cards and home loans are offered by banks. Just as important as these consumer services, banks provide loans and other financial services and commercial loans to small and large businesses throughout the country.
AK: You help monitor the safety and soundness of financial institutions to make sure people’s deposits are safe. Can you describe what liquidity and asset quality is and why monitoring them for each institution is important in meeting this goal?
BW: A bank’s business is basically to take deposits and to lend money. Banks make money by collecting interest on the money they lend. If banks make bad loans that can’t be paid back, they lose money. When banks evaluate the risk of their loans they are looking for asset quality. A loan that is unlikely to be paid back is an asset with poor quality. In order to lend money, to pay debts, and to have money on hand for deposit withdrawals, banks need to have access to cash. Liquidity refers to how quickly and cheaply an asset (such as a loan or an investment security) can be converted into cash so the bank can meet its obligations.
AK: The national banking institution is protected by numerous laws and regulatory requirements. Can you describe one of the top requirements and why it is important?
BW: One of the most important requirements for banks is to maintain sufficient capital – which is the stock and other accumulated earnings of the bank. Maintaining adequate capital levels helps banks withstand difficult economic events, but it’s important not to require banks to hold too much capital, because forcing banks to maintain capital levels that are too high reduces the amount of money available to lend.
AK: Why is having the government insure deposits up to a certain limit important in the financial markets?
BW: The Federal Deposit Insurance Corporation, is a government agency that insures bank checking and savings account deposits. This means that if a bank fails, depositors are guaranteed to be repaid the balance in their accounts up to the insurance limit, which is $250,000 per depositor. Having deposit insurance can help prevent bank runs like the ones that occurred during the great depression. Bank runs occur when people panic and withdraw large amounts of money out of the banks at the same time. Bank runs reduce the amount of money banks have to lend and this can have serious negative effects on the economy.
AK: Banking is not only about deposits, but also about lending the money out to those in need. What risks do you look for in banks to make sure they are lending money out properly?
BW: Banks should meet the needs of creditworthy customers with sound responsible lending. That means making sure that customers have the ability and intention to repay the full value of the loan and any interest. If the loan is secured by some asset or collateral, like a car or a house, banks also have a responsibility to ensure the value of the collateral is sufficient to “secure” the loan. If a customer fails to repay a secured loan, the bank has the right to take back the collateral and sell it in order to have their loan repaid.
AK: In what ways do you foster equal access to financial services by all Americans?
BW: There are two basic ways the OCC fosters equal access to financial services. First, more than 2,000 bank examiners look at banks to ensure they comply with laws and regulations that prevent discrimination. The agency has the power to work with bank management to correct issues and to take corrective enforcement actions that may include fines when necessary. The second way the OCC can help ensure access is to provide assistance to customers of national banks and federal savings associations who have complaints or questions about bank products and services. You can find more information at helpwithmybank.gov.
It’s also important to know in July 2010, President Obama signed a law that created the Consumer Financial Protection Bureau, which is dedicated to protecting people from abusive and deceptive financial products and services. More information about the new bureau can be found at consumerfinance.gov.
AK: Making sure the money deposited in an institution is then lent in the area where the institution does business is called Community Reinvestment. In what ways does the OCC help to make this happen?
BW: The Community Reinvestment Act (CRA) provides a framework for financial institutions, state and local governments, and community organizations to jointly promote banking services to all members of a community. In a nutshell, the law encourages banks to meet the credit needs of all community members, including residents of low- and moderate-income neighborhoods. The OCC assesses a bank’s record of helping to meet the credit needs of its entire community, including low- and moderate-income neighborhoods; and considers that record in evaluating a bank’s application for new branches, relocation of an existing branch, mergers and consolidations, and other corporate activities. In general, the OCC conducts a CRA examination of a national bank every three years for larger banks and every five years for smaller banks.
AK: How do you see banking changing in the next 5 years?
BW: Banking is a dynamic business and is changing all the time. Banking is becoming more international, just as businesses are operating more globally. Banking is also becoming more mobile. Today, you can do most of banking from your computer, and we’ll see more of electronic and mobile banking in the future. In many ways, technology is making banking more accessible.
AK: If kids want to pursue a career in banking, what steps should they take?
BW: Banking can be a great career, either in industry or as a bank regulator. A good solid education with specialties in finance and accounting, economics, law, or business can make you competitive for the best jobs in banking or bank supervision.
AK: Have you had a mentor that has helped you to be a success in your career? What key lessons have they taught you?
BW: My father has been the most important mentor in helping me with my career. My father owned a heating and air conditioning company in Cincinnati, Ohio and I worked for his business throughout my teenage years. I answered the telephone, helped with book keeping, prepared proposals, and installed and serviced air conditioners. My father taught me that the most important thing you can do in business is to be fair and honest with your customers. If you do that then you and your business will do well. He encouraged me to get a college degree in business and accounting which he thought would provide me the greatest number of employment options when I graduated. I think he hoped I would take over his business but was not disappointed that I pursued a career in the Federal government. Perhaps his advice about treating customers fairly inspired me to work for an agency of government that helps to ensure that the nation’s financial institutions do the same for their customers.