WASHINGTON –
By virtually every measure, the national banking system is in strong condition,
Comptroller of the Currency John D. Hawke, Jr. said in testimony today before
the Senate Banking Committee.
Earnings are at healthy levels and total loans grew by 7.8
and 7.6 percent in 2002 and 2003 respectively. “These are truly impressive
numbers when one considers that, at a comparable point in the last economic
cycle, total loans held by national banks were in the midst of a prolonged
decline,” Mr. Hawke said.
The
Comptroller noted that there are still elements of uncertainty in today’s
economic environment. An increase in interest rates could dampen demand for
loans backed by commercial and residential real estate and the current high
level of liquidity in the system could fall rapidly if the relative yield on
other investments rises.
“Yet I am
optimistic about the ability of the banking system to overcome these
challenges, just as it overcame the challenges of the recent recession,” he
said. In part, that’s because of the dramatic improvement in the tools,
techniques, and processes available to financial institutions to manage such
risks. A second reason for optimism is the OCC’s approach to supervision.
“Our risk-based approach involves supervisory policies and
processes that tailor OCC oversight to the key characteristics of each bank,”
Mr. Hawke said. “This results in a customized approach that reflects each
bank’s underlying risk characteristics. It also provides an effective means for
the OCC to allocate resources and to communicate with senior management about
areas in need of attention.”
In response to the growing divergence in the complexity and
scope of operations between large and small banks, the OCC operates a separate
supervisory program for the 24 largest national banks. Each bank in that
program is staffed by a resident examiner-in-charge and an on-site team of
examiners.
“Whether attached to the Community and Mid-Size or Large
Bank program, OCC examiners are
supported by an extensive team of analysts, accountants,
economists, and attorneys in our district and headquarters offices, who monitor
industry, market, and economic trends, provide technical expertise, and develop
analytical tools and models to support our examination functions,” Mr. Hawke
said.
“This depth of talent assures that the OCC is able to adjust
to emerging risks and issues that may arise at individual institutions, within
business segments or across the banking industry as a whole,” he added.
The Comptroller also told the panel that a number of
important substantive issues in the Basel II capital process have not yet been
resolved and that a number of steps, including conducting a new Quantitative
Impact Study, must still be taken before any new capital structure can be
implemented.
“Clearly it will be a major – if not impossible – challenge
to get all this done in time to meet the current implementing date of year-end
2006,” he added.
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The OCC charters, regulates
and examines approximately 2,000 national banks and 51 federal branches of
foreign banks in the U.S., accounting for more than 56 percent of the
nation’s banking assets. Its mission is to ensure a safe and sound and
competitive national banking system that supports the citizens, communities
and economy of the United States.
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