UPDATE 1-US FDIC grows backup role at large, risky banks

* Agreement would give FDIC more power to examine banks

* FDIC is backup authority for banks with insured deposits

* Pact gives FDIC on-site presence at risky, large banks

* OCC’s Dugan leery of creating supervision by committee
(Adds details on the memorandum; background on WaMu; comments
from Bair, Dugan; byline)

By Karey Wutkowski

WASHINGTON, July 12 (BestGrowthStock) – U.S. bank regulators would
have more power to examine the largest and riskiest
institutions, under a new interagency memorandum approved on
Monday.

The agreement gives the Federal Deposit Insurance Corp a
more prominent, on-site presence at the nation’s largest banks,
but seeks to ensure the agency does not add another burdensome
set of eyes and ears at the firms.

The agreement seeks to remedy problems seen in 2008 when
the FDIC was left scrambling for access to information about
Washington Mutual, as the nation’s then-largest thrift was
failing. The Office of Thrift Supervision was Washington
Mutual’s primary regulator.

“The FDIC needs to have a more active on-site presence,”
FDIC Chairman Sheila Bair said at a meeting of the agency.

The FDIC insures more than $7 trillion of deposits at the
almost-8,000 U.S. banks and thrifts.

However, it is only the direct supervisor at about 4,900
mostly smaller banks, meaning the FDIC has to safeguard
deposits at thousands of banks for which it is not primary
supervisor.

The OTS, the Office of the Comptroller of the Currency and
the Federal Reserve are the other federal bank supervisors.

The FDIC, under Bair, has taken a more assertive stance.
Bair throughout the 2007-2009 financial crisis took a critical
view of taxpayer assistance for large financial firms,
occasionally clashing with other regulators and policymakers.

The memorandum approved on Monday would enhance the FDIC’s
role as back-up authority for any bank with federally insured
deposits.

It would allow the chairman of the FDIC to order a special
examination of troubled or large, risky banks, to ensure the
agency can fully understand the threat to the FDIC’s insurance
fund and let it better prepare for any dismantling of an
institution, if necessary.

It would also give the FDIC a higher profile and presence
at a larger universe of banks, and would not allow other
regulators to freeze out the FDIC during examinations.

Watchdog reports have detailed the thorny relationship
between the FDIC and the OTS as the OTS tried to maintain a
high regulatory rating of Washington Mutual, the largest firm
it supervised.

When the FDIC finally decided to go ahead and downgrade
Washington Mutual’s rating just weeks before its failure,
then-OTS director John Reich was furious, according to
documents released by a congressional committee.

“I cannot believe the continuing audacity of this woman,”
he wrote in an e-mail message to a senior OTS official,
referring to FDIC’s Bair.

RESPECTING BOUNDARIES

The disjointed regulatory system was criticized during the
financial crisis for preventing the quick sharing of
information about troubled firms.

The financial reform bill that is expected to soon become
law would rework the bank regulatory structure, including
folding the OTS into the OCC.

The information-sharing memorandum approved on Monday seeks
to tear down barriers between the regulators, before the law
takes effect.

FDIC board members said the agreement was the result of a
long period of negotiations, as regulators tried to strike the
right balance between preserving their own powers, and ensuring
transparency and cooperation.

Comptroller of the Currency John Dugan said he was leery of
creating a de facto system of supervision by committee.

He said increasing the FDIC’s access to these large and
troubled banks should not undermine the powers of the primary
regulator, and should not create duplicative supervision.

Dugan, who is leaving the post near the end of his
five-year term on Aug. 14, said he supports the negotiated
memorandum, but wants to see how it works in practice.

“This is of course only the beginning. What will matter
most will be the implementation,” he said.
(Reporting by Karey Wutkowski; Editing by Tim Dobbyn)

UPDATE 1-US FDIC grows backup role at large, risky banks