Compliance According to Steve Cross

Steve Cross, OCC's Deputy Comptroller for Compliance, spoke at ABA's National Graduate School of Compliance Management held in Indianapolis in April, 1999. He shared his perspectives with the students on what he considers to be the hottest topics in compliance.

Fair Lending
Cross gave the >
Much in the new procedures should be familiar. Like the previous agency procedures, the new procedures are based on comparative file analysis. This involves identifying a specific prohibited basis group and then selecting files from that group. Then the examiner will select files from a control group. Generally, the procedure is to compare minority group denials to control approvals. In doing this, the examiners are looking for minority denials that have better qualifications for credit than do members in the control group that obtained the loan.

The other major discrimination question is pricing by prohibited basis. If the examiner is looking at pricing differences, the procedure would be to look at approvals for both groups and compare the costs of the loans approved.

Changes
The new procedures use a different minimum sample size. The procedures contain an explicit discussion of potential fact patterns that could guide the examiner in setting focus of examination. Also a new feature, the recently issued procedures contain a special section that discusses issues of possible steering of loan applicants to a sub-prime lending affiliate. The procedures discuss how to examine for such practices and key points to look for.

Using the New Procedures
The procedures first focus on scoping. This directs examiners on where and how to look to for discrimination's red flags. Cross suggests that this scoping section" is a good audit checklist" for the bank to use.

Each of the agencies are given some discretion to customize procedures to agency priorities. For example, the OCC focus is on examination of transactions more than a review of policies and procedures. In contrast, the OTS currently emphasizes policies and procedures more than a transaction review. This is the result of specific discussion in FFIEC meetings and agreement that this is appropriate.

CRA: Large bank examinations
There will be a new large bank CRA handbook to be issued in 1999. Examination procedures will be the same, but guidance for the exam and instructions for writing the PE will be different.

All OCC examiners will be using a standard set of tables for the lending test and a limited number of tables for investment and service tests. For each state of a multi-state bank and for the state of a single state large bank, the examiner will identify all of the assessment areas. The examiner will develop information on a bank's loan volume and distribution, and market share for each of its assessment areas. Cross recommends that banks use this or a similar process for self-assessment purposes. Cross predicts that the standardized tables will become the data that are most critical for the CRA exam.

There is discussion now with the other bank regulatory agencies about whether they can agree on standardized tables. Discussions are in progress as the agencies look for ways to establish standards for measurement and evaluations. All of the agencies are convinced that standardized tables are needed, but at the moment, each agency has its own model. The OCC is proceeding with the standardized tables before the agencies reach a final consensus. This makes national banks the test cases for this technique.

CRA: Small banks
All agencies are interested in reducing the burden on small banks. The difficult issue is those institutions that are small banks in reality but that are treated as large banks for CRA purposes. Burden and fairness are both challenges.

In evaluating these small-but- large banks, examiners are supposed to consider the performance context as a key method of drawing conclusions and maintaining fairness. The big issue has become how to apply the investment test in these banks. Cross promised the students that the OCC is aware of the concerns and is working on these issues.

Cross Crosses Over
It's hot and it's true. Steve Cross is leaving the OCC to take the job heading up compliance at FDIC. Cross will replace Carmen Sullivan who retired several months ago after a long career at the FDIC. In taking the unusual step of hiring from the outside, the FDIC has acquired an individual who brings a great deal of ready experience to the job. And, since Cross has been so much a part of the compliance examination process at OCC, he may bring some additional "leveling of the playing field" to the compliance examination process. Needless to say, he will also bring his perspective on CRA with him too. If Griff Garwood was the senior statesman of compliance, this move should make Cross the general of compliance.

And at the OCC
The Comptroller has already named the replacement for Steve Cross. Ralph E. Sharpe is the new Deputy Comptroller for Community and Consumer Policy as of June 4, 1999.

Sharpe has worked at OCC for more than 20 years, working first as a staff attorney, and later heading the law department's Enforcement and Compliance Division. For three years, Sharpe was the Deputy Comptroller for Multinational Banking.

Copyright © 1999 Compliance Action. Originally appeared in Compliance Action, Vol. 4, No. 5 & 6, 5/99