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This podcast uses government documents to illuminate the workings of the American government, and offer context around the effects of government agencies in your everyday life.
Welcome to Civil Discourse. This podcast will use government documents to illuminate the workings of the American Government and offer contexts around the effects of government agencies in your everyday life. Now your hosts, Nia Rodgers, Public Affairs Librarian and Dr. John Aughenbaugh, Political Science Professor.
N. Rodgers: Hey, Aughie.
J. Aughenbaugh: Good morning, Nia. How are you?
N. Rodgers: I'm feeling pretty good today. We're going to do listeners in the next couple of episodes, Money. Do you remember the Abisong Money?
J. Aughenbaugh: Yes.
N. Rodgers: Always funny in the rich man's world. All the things I could do if I had a little money, it's a rich man's world. I think either that.
J. Aughenbaugh: Or the old Pink Floyd song, Money.
N. Rodgers: Exactly. I'm of a certain age, where clearly musical money, not quite the regular money.
J. Aughenbaugh: Whoa, stop right there. It's like every tax day, which we are recording this episode, the week that federal government tax returns were due in the United States.
N. Rodgers: If you're late, go file them.
J. Aughenbaugh: Yes, or ask for an extension. But every tax day, I'm always humming the Beatles song about the Tax Man. again, one, it shows our collective ages. But two how much Nia and I?
N. Rodgers: Associate music with life.
J. Aughenbaugh: Chronicle life by music, but anyways.
N. Rodgers: There's a GeneXer on YouTube who occasionally just plays snippets from songs, and I know every one of them because they're all from the late '70s and the '80s and the early '90s, which is my musical time, but anyway.
J. Aughenbaugh: Wait, before we actually get to the subject of today's episode, listeners, please bear with us. But you have to forgive Nia and I our slight digressions. I had a student the other day comes in humming a song, and I immediately knew it. It was Brian Adams, summer of '69.
N. Rodgers: In this song.
J. Aughenbaugh: They were like, my mum was playing it in the car.
N. Rodgers: Of course. You're like, don't mind me. I'm just really old. I'll just sit over here and be ridiculous.
J. Aughenbaugh: Then they're like, you know that song, Professor Aughenbaugh. I said, not only do I know that song. I said, I saw Brian Adams in concert, and they're like, you did? I said, yes, I did.
N. Rodgers: Who is your first concert?
J. Aughenbaugh: Eagles. The Hotel California Tour. Yes.
N. Rodgers: The original Hotel.
J. Aughenbaugh: The original Hotel California Tour.
N. Rodgers: Mine was Bob Seger and the Silver Bullet Band.
J. Aughenbaugh: Again, we're talking about 1970s classic rock. In fact, I introduced my daughter McKenzie two weeks ago to Bob Seger's Greatest hits. She absolutely loves his song Against the Wind.
N. Rodgers: See, Turn the Page is the best of them. Well, Turn the Page it's a little probably a little old materials.
J. Aughenbaugh: Do you like that version, or do you like the Metallica cover?
N. Rodgers: I like Bob Seger's version, and part of it's because of the saxophone in the Bob Seger version.
J. Aughenbaugh: See, I'm torn because I do like the sax in the original, which is sad and melancholy. Whereas the Metallica version captures an undercurrent of anger that they have chosen this life. now they're out on the road again, etc. The two versions tap into two different interpretations of the experience of being a professional musician, rock star, etc.
N. Rodgers: But Seger's saxophone player is named Alto Reed. You're going to choose a stage name, which is, by the way, a stage name. I don't remember what his real name is, but Alto Reed? Come on. What the other name is there for a saxophone player other than Clarence?
J. Aughenbaugh: It's Clemens.
N. Rodgers: Clarence Clemens.
J. Aughenbaugh: The Big Man. But again, when I looked at the liner notes, I still remember my sister had the album that had turned the page on it. I'm reading the liner notes, saxophone, Alto Reed. Again, one of the personas that I had in school was, I was in the school band. I was aware that there are different types of sacks. One is Alto Sacks. I'm like, wow, what a cool name.
N. Rodgers: He gave it to himself.
J. Aughenbaugh: Anyways, listeners.
N. Rodgers: What is a Comptroller?
J. Aughenbaugh: Today's episode, Listeners, this is part of our continuing series of not really well-known government agencies.
N. Rodgers: We've slipped up a few times and done things that are well known, like TSA, which everybody knows. But we generally are doing the lesser-discussed agencies.
J. Aughenbaugh: We're looking at the agencies that are the quiet kids in the classroom. We know they're there. They oftentimes don't say anything. But they have an important role. Today, we're going to look at the Comptroller of the Currency. This is an independent bureau within the Treasury Department, and their purpose is to charter, regulate, and supervise all national banks and thrift institutions. They also license all the branches and agencies of foreign banks that operate in the United States. These folks basically, they were the original regulators of banks in the United States. That's what this bureau does.
N. Rodgers: The technical definition of a comptroller is a noun that can mean a royal household official who examines and supervises expenditures, a public official who audits government accounts, or a controller of something. I believe that since Donald Trump believes that he's a king, that the royal household definition is the one we'll be going with.
J. Aughenbaugh: Would appeal to King Donald.
N. Rodgers: Examines and supervises expenditures. I do think, though, that it's interesting. One of the things that Aughie does with the notes, guys, is that the notes are a jumping point for us to talk about stuff. I had no idea this agency was as old as it is. Sometimes I forget that some agencies they've been around forever. Then, some agencies were created last week. That's how the federal government works. This one's quite old, isn't it?
J. Aughenbaugh: This one was created by the National Currency Act. Again, listeners, I'm going to point this out. This is the teacher in me. All executive branch, departments, agencies, bureaus, independent regulatory commissions. They all have to be created by a law that was passed by Congress.
N. Rodgers: Exactly. The reason Aughie is pointing that out to you is because even if the president says he's making a thing, for instance, I don't know, DOGE, that does not make it an actual agency of the government. That's not how that works. Agencies have to be created by laws by the legislature and agencies have to be uncreated by laws of legislature. The president can't just say, I'm winking the comptroller of the currency out of existence. He can wish that he can do that. He can marginalize that person. But he can't get rid of that agency.
J. Aughenbaugh: I've had to support or explain that to a number of Trump administration supporters who are like, but I voted, a whole bunch of us voted for this president. Our president wants to go ahead and remove USAID. I'm like, that's fine. But by law, until he convinces Congress to get rid of USAID, USAID exists. Money has already been appropriated to that unit within the Department of State. Therefore, there are going to be federal judges who are going to ask some really pesky, annoying questions like.
N. Rodgers: What are you doing? On what constitutional authority?
J. Aughenbaugh: Can you do this?
N. Rodgers: That doesn't mean you can't starve those agencies.
J. Aughenbaugh: That's true.
N. Rodgers: Personnel of money, presidents have done that on both sides of the aisle over the course since Washington. I don't like this agency, and I'm not going to support it. That's different than I am getting rid of it, I'm excising it from the government.
J. Aughenbaugh: I am unilaterally deciding today that going forward, we no longer have a state department.
N. Rodgers: Who's going to do the negotiating? Turns into a whole see, that's the thing, guys. Before we get into this deep, I want to say something. If you remove a function of the federal government from an agency, that's fine. Except that someone has to do it. Or you have to accept that it is not going to get done. The people for whom it is not going to get done are going to be peeved because they have been used to having it be done. Right.
J. Aughenbaugh: Nice word choice, peeved. I don't know if we've ever used that on the podcast. Well done. I liked it. I like that.
N. Rodgers: You can remove all the park rangers from service. But people who go up to public parks, and they can't get in or it's filthy, or it's whatever because it hasn't been maintained, or it's on fire because it hasn't been maintained, they're going to be peeved.
J. Aughenbaugh: You're going to show up with your family, and you're going to look for a guide, and there isn't going to be anybody behind the counter that goes ahead and says, you should stay off a rattlesnake trail today because, guess what?
N. Rodgers: The rattle snakes.
J. Aughenbaugh: The rattle snakes are out.
N. Rodgers: Or even more basic, the toilets haven't been cleaned. The camp grounds haven't been cleaned. You're going to go put up your tent among filth. I don't think so. You're going to get upset. You're going to get peeved, and then you're going to have feelings about that. Right now, Donald Trump is banking on the honeymoon phase.
J. Aughenbaugh: Presidency.
N. Rodgers: Of his presidency to get him through the peevedness that's going to happen. But as soon as that actually becomes an overwhelming level of peevedness about something, they're going to have to fix it. Maybe they don't hire park rangers, but somebody else will have to do the job. That's how this jobs work. He could tomorrow get rid of the comptroller of the currency, the office of the OCC, the Office of Comptroller of the Currency. But bankers like certain regulation because it makes other banks act in the equal fashion. If it turns into the Wild West, then they're going to get peeved, and there's going to be a problem.
J. Aughenbaugh: We're going to get into this listeners. But, Nia, that's a really good point. There is a reason why the comptroller of the currency was created. One of the reasons why it was created was to go ahead and provide, if you will, regulations of the banking industry in the United States. In particular, for those banks that wanted to make sure that all other banks acted in an appropriate manner. Because if one bank acts poorly and the people who have deposited their savings in those banks get treated poorly, then the entire industry looks bad and now you got a whole bunch of Americans who are like, I'm not going to deposit my life savings in those banks, and then the banks can't go ahead then and turn around and loan out the money, which is where banks make money because they charge.
N. Rodgers: Is on the interest from loans.
J. Aughenbaugh: Because of their loans. But they first got to get people, who save to deposit those savings into the bank.
N. Rodgers: I suspect that the OCC looks to try to balance the level of regulation. There needs to be some regulation because otherwise Wild West, but there needs to be not such regulation that no new bank can open, a new bank can form.
J. Aughenbaugh: That's right.
N. Rodgers: Banks can't join each other. They can't come up with new products. But who is the comptroller of the currency?
J. Aughenbaugh: First, I don't think I ever gave the date to the National Currency Act. You asked the question, how long is.
N. Rodgers: 10 minutes ago. Sorry.
J. Aughenbaugh: That's right. The National Currency Act was actually passed by Congress in 1863. That's like smack dab in the middle of the Civil War.
N. Rodgers: I'm going to say, that's the Civil War.
J. Aughenbaugh: Now, the current comptroller of the currency.
N. Rodgers: Not surprising, actually, that something like that would be created in the middle of a civil war. When you have Confederate dollars and you have union dollars.
J. Aughenbaugh: Then you got a whole bunch of other nations that are.
N. Rodgers: Trying to put money into the system to buy one side or the other.
J. Aughenbaugh: They're trying to influence because they know at some point in time the Civil War is going to end.
N. Rodgers: Somebody will win.
J. Aughenbaugh: They're hedging their bets as to which side is going to win to either carry favor or in the case of Great Britain, to hope that the Civil War will destroy the young nation and the young nation will come running back to the crown. We need to help.
N. Rodgers: We were so wrong. We were 100 years wrong. Please take us back.
J. Aughenbaugh: But the current comptroller of the currency. We love his name listeners. The longtime listeners you know on this podcast, we like a good name.
N. Rodgers: We do.
J. Aughenbaugh: The current comptroller of the currency who took office in February of this year is Rodney E. Hood.
N. Rodgers: Which is basically, when you say it quickly enough, Rodna Hood or Robin Hood. Just say it. I wish that he was stealing from the rich and giving to the poor, but I doubt that is what he's doing.
J. Aughenbaugh: I got to admit. I checked his name a couple times because I secretly hoped that his first name was actually Robin.
N. Rodgers: Wouldn't have been awesome. One of the things they do you were saying is they make sure that the soundness in the system maintains. If a bank is weak, don't they go in and close it down and sorry, you can't have your bank because your bank is not doing well.
J. Aughenbaugh: Nia, you're getting at what are the main objectives of the OCC, Office of the Comptroller of the Currency. One, safety and soundness of the national banking system. Again, this is rooted in Congress having taxing and spending authority. This is related to commerce. Because a sound banking system is necessary for economic activity and economic growth. They want to foster competitions among banks in regards to offering new products and services, which can get a little controversial. We'll talk about that in a moment. Reduce regulatory burden. Nia, you mentioned this.
N. Rodgers: Not so much. But there's no regulars. They're trying to find the sweet spot.
J. Aughenbaugh: It's like the infamous sweet spot on a tennis racket. You hit the ball at the edge of your racket, it's going to go places you could have never envisioned. But if you hit smack dab in the middle, it will go where you want it to go. That's assuming you know where you want the tennis ball to go. But anyways.
N. Rodgers: Which is a whole separate issue.
J. Aughenbaugh: Fair and equal access to financial services to all Americans.
N. Rodgers: Because back in the day, only rich people used banks.
J. Aughenbaugh: Banks, that's right.
N. Rodgers: Poor people didn't use banks. They weren't really welcome to use banks.
J. Aughenbaugh: Again, this is a continuing issue in the United States because we do have banking deserts in the United States. There are certain urban areas.
N. Rodgers: In the Jim Crow South, you had racial divide between banks.
J. Aughenbaugh: That's right.
N. Rodgers: There were Black banks and white banks.
J. Aughenbaugh: Today, you have low income urban areas and rural areas that may only have a bank if they have any bank whatsoever. I know many Americans are just like, that can't be possible. My neighborhood, there was five ATMs. I'm like okay, but in many parts of the t.
N. Rodgers: In my mom's town of 1,200 people, there is no bank. We have to drive her 9 miles into a bigger town that has a bank? She has a bank. She can mail checks to people. But if she wanted to have what we think of as bank services, if she wanted to have something notarized, if she wanted to have a money order, all that stuff, she has to go to another town to do that. That is not unusual in the rural community.
J. Aughenbaugh: In low income urban areas. They also enforce anti-money laundering and anti-terrorism financing laws. This became a big issue post 911 because the 911 Commission Report has an entire subsection of one chapter of that report that focused on how the 911 terrorists were able to go ahead and finance, which was a pretty highly coordinated attack on the United States. That required a significant amount of money that had to be readily available, and it wasn't readily available under people's mattresses.
N. Rodgers: Anti-money laundering. Think if you grew up in an age of Breaking Bad, one of the things that regularly they had to worry about was how much money they were putting through the system at a time. There are flagging systems that say, wait a minute, how is John Aughenbaugh making a $16,000 deposit?
J. Aughenbaugh: One, he's only supposed to make per year, 25,000.
N. Rodgers: Wait a minute. What's going on with this, things like that, as well, that they pay attention to? Then my favorite.
J. Aughenbaugh: Your favorite is?
N. Rodgers: My favorite part which is the misconduct committed by institution-affiliated parties of national banks, including officers, directors, employees, agents, and independent contractors, which also includes appraisers, attorneys, and accountants. But what I love about that is that I don't know if you remember the, what was it, Countrywide insurance? Theirs was a banking scandal as well as a realty.
J. Aughenbaugh: Yes.
N. Rodgers: They were doing all kinds of shady stuff. I think that the OCC was the first agency to bring.
J. Aughenbaugh: To flag irregular behavior. That was the way it was described in the report to Congress. The OCC was the first to go ahead and let Congress know that there was irregular behavior, and it wasn't just irregular behavior by particular banks. There were particular people who worked in the banks. Whose, if you will, behavior caught the attention of the OCC. Nia right now is looking up the countrywide.
N. Rodgers: I was trying to find his name, and I'm not finding the guy's name.
J. Aughenbaugh: You're talking about Charles Keating?
N. Rodgers: Yes.
J. Aughenbaugh: Yes. Keating.
N. Rodgers: But anyway. They do that thing. By enforcement, we basically mean they punish the banks, not they put anybody in jail. That's still the court system.
J. Aughenbaugh: As we already established, the OCC was created at the request of Abraham Lincoln to as Nia pointed out, if you're going to fight a civil war, you need to fund it.
N. Rodgers: It's a known problem in Revolution.
J. Aughenbaugh: That's right.
N. Rodgers: And civil wars. It is a known problem of financing.
J. Aughenbaugh: But if you're going to have that cash influx, you should probably have a regulatory agency to install confidence in the federal banking system. Thus, you get the OCC. Nia's giving me four fingers.
N. Rodgers: There are four district offices, which I think are awesome. It's New York, Chicago, Dallas, and Denver.
J. Aughenbaugh: Yes.
N. Rodgers: There's not one in LA.
J. Aughenbaugh: That is pretty interesting. I thought I thought that was noteworthy.
N. Rodgers: Chicago makes sense.
J. Aughenbaugh: I thought the redundancy was Chicago in Denver. You got one in Dallas.
N. Rodgers: But Texas makes sense, because Texas is huge. Really no one in LA or Seattle, or Sacramento, San Diego, somewhere.
J. Aughenbaugh: I also thought Miami, particularly because, again, listeners, Nia and I grew up in our formative years where the 1970s, '80s, the early part of the 1990s, there was a lot of drug money flowing through Miami.
N. Rodgers: Not entirely certain it's not still flowing through there. Absolutely was when there was a whole reason Miami Vice was a television show. But also, I did want to mention, if we could, that Mr. Hood will be the comptroller for five years. It's a five-year term. It actually goes one year beyond a presidential.
J. Aughenbaugh: Yes.
N. Rodgers: I assume that's for continuity purposes.
J. Aughenbaugh: That's right.
N. Rodgers: It's like Jerome Powell, that's a 14-year term.
J. Aughenbaugh: That's a 14-year term. Technically, the chair of the Federal Reserve banking system in the United States should be able to serve office beyond any one president because presidential terms are limited to two, four year terms. Technically, Jerome Pow could serve through three terms one and a half presidents. Technically. But anyways.
N. Rodgers: But the terms are interesting. They're different for different people.
J. Aughenbaugh: It's supposed to provide some measure of independent regulation, notwithstanding what may be going on in American politics.
N. Rodgers: Let's look in a different direction.
J. Aughenbaugh: The OCC has to interact with a whole bunch of other federal agencies in regards to banking. This creates, if you will, not surprisingly, if you're a long-term listener of this podcast, some interagency conflict.
N. Rodgers: Tension.
J. Aughenbaugh: Yes. There's tension hardwired into the US banking system. I'm just going to mention a few of the other agencies that the OCC has to perhaps work with.
N. Rodgers: I actually think it's a good thing. When you hear these names, maybe you'll think that, too, listeners.
J. Aughenbaugh: The FDIC, the Federal Deposit Insurance Corporation, which, interestingly enough, the OCC head serves as the director.
N. Rodgers: That's FDIC.
J. Aughenbaugh: Yes.
N. Rodgers: Don't they have a board of directors?
J. Aughenbaugh: They have a board of directors, but that is to encourage, if you will, interagency cooperation. That sounds all warm and fuzzy. But then it's not so warm and fuzzy when you also know that you have the Federal Reserve. You have the Consumer Financial Protection Bureau, which was created post-Great Recession. You have the National Credit Union Administration. You also have the Financial Crimes Enforcement Network. The Office of Foreign Asset Control, you have the FBI, the federal government's cops. You have the US Department of Justice.
N. Rodgers: They're the federal government's lawyers.
J. Aughenbaugh: The lawyers who make the decision on whether or not to indict somebody.
N. Rodgers: An FBI goes and gets them.
J. Aughenbaugh: Yes. But then you also have the Department of Homeland Security who is concerned about terrorists using our banking system to fund their terrorist activities.
N. Rodgers: Can I just make a plea for any professor who's listening to this from the Homeland Security Department? Please stop asking your students to figure out who is funding any particular terrorist group at this moment, because see all those agencies, all those agencies are also trying to figure that out. The chances that your undergraduate, 20-year-old sophomore is going to be able to figure out who's funding Hamas when the FBI, the Office of Foreign Asset Control, the Department of Homeland Security can't figure it out. Come on. Be nice and give these kids a break. That's all I'm asking because they come to me and they say, Nia, I need to know who's funding Hamas. I say, you mean besides Iran? Yes, and I'm like, well, getting more brass tax than that, you'd need to work for the federal government. Terrorists hardly ever announce that thing. Hey, we got a new funder this week. John Aughenbaugh gave us $500 million. That's not how terrorists work.
J. Aughenbaugh: I seriously doubt.
N. Rodgers: They're secretive for a reason.
J. Aughenbaugh: For a reason. I seriously doubt that the Koch Brothers or George Soros is going to have an issue of a press release.
N. Rodgers: This time, I'm supporting whatever.
N. Rodgers: By the way, we are not saying that the Koch Brothers or George Soros support terrorist organizations. If you are talking super wealthy people, Nia is correct when Aughenbaugh he's not supporting them either. But what I'm saying is that finding out those funding sources is years of work tracking down weird money that goes into an account and comes out of an account in the same amount or comes out in an equal amount. Accountants do God's work when they're doing that stuff. I'm just saying, but I'm just making a plea to any professor. Please stop asking your students to figure that out.
J. Aughenbaugh: But because we professors at times will go ahead and think that we have a really great paper assignment topic.
N. Rodgers: You do good jobs.
J. Aughenbaugh: Then all of a sudden, there is a whole list of librarians who are like, your professor wants you to research what?
N. Rodgers: Your professor wants you to name the number of weapons in space in the United States. I don't think that's possible without us going to prison to get that number. Anyway.
J. Aughenbaugh: Go ahead.
N. Rodgers: He serves as the director of the Neighborhood Reinvestment Corporation and the Federal Deposit Insurance Corporation, and a member of the Financial Stability Oversight Council and the Federal Financial Institutions Examination Council. This guy actually has a legit job. He is doing a bunch of stuff. His calendar sucks.
J. Aughenbaugh: I was just going to mention that. I'm doing the research, listeners, and I'm seeing that in addition to running the OCC.
N. Rodgers: Because that's not big enough.
J. Aughenbaugh: That's not big enough. He's also the director of the FDIC's board. But then he also serves as the director of the Neighborhood Reinvestment Corporation. He's a member of a couple other federal government institutions. He administrative assistant who keeps his calendar.
N. Rodgers: Doesn't make enough money.
N. Rodgers: No.
N. Rodgers: I can tell you right now, whoever that individual is, does not make enough money.
J. Aughenbaugh: That person should be making more money than the president of the United States, the Chief Justice of the Supreme Court, or the Speaker of the House of Representatives.
N. Rodgers: Perhaps all of those combined. This is a lot of work. It's for 1,200 banks. It's not, I'm overseeing three big banks or whatever. It's not Jamie Diamond with his one bank. I'm sorry. I'm sure Jamie Diamond is very busy.
J. Aughenbaugh: He better be for the amount of money he makes. I'm sorry.
N. Rodgers: I'm also telling you that the OCC, the comptroller, is not making Jamie Diamond.
J. Aughenbaugh: Money, no.
N. Rodgers: He's making significantly less and working significantly harder. Just putting it out there. His Zoom schedule is crazy. He's got to coordinate the American banking system with foreign banking systems that work inside the United States. Not only is he on a bunch of Zoom calls, but he's on them at four o'clock in the morning because he's talking to people in Japan and he's talking to people in Europe.
J. Aughenbaugh: He's having Zoom meetings or facet meetings with other banking regulators from other countries at other parts of the world because let's face it. No matter what goes on with Trump administration, tariffs etc, a significant amount of money from the rest of the world flows through American banks. But anyways, now, we've just talked.
N. Rodgers: About this job. I think I could be good at this job.
J. Aughenbaugh: Well, I think you could be good at a lot of jobs. I'm not entirely sure you would be pleased with all the meetings you would have to attend because I know your antipathy for meetings.
N. Rodgers: That's true. Well, it would be Monday through Thursday. There'd be no meetings on Friday afternoons, because I don't understand people who put meetings on Friday afternoons. It's like they want people to hate them.
J. Aughenbaugh: Listeners, you are listening to two people who believe sincerely that there is a special place in hell for people who schedule Friday afternoon meetings.
N. Rodgers: You can have up till one o'clock on a Friday. But after that, what are you doing?
J. Aughenbaugh: Yes. But let's get back to the OCC. Now, we've talked about their general purpose and functions, but there has been some recent changes in the OCC's, if you will, portfolio. Did you like that?
N. Rodgers: It's a nice banking term.
J. Aughenbaugh: Well, I had to raise my game. You used peeved earlier. Come on now. In 2003, post-9/11, the OCC proposed regulations that would preempt virtually all state banking and financial services laws for national banks and their diverse range of non-bank corporate operating subsidiaries. Now, they did disembark because, again, the 911 terrorists had money scattered in banks in a number of states. And they basically counted on the fact that there was not one, if you will, set of regulations that applied across the board. The OCC was just like,.
N. Rodgers: We can fix that.
J. Aughenbaugh: We can fix that. Now, not surprisingly, Nia. I didn't know that this interest group existed. The National Conference of State Legislatures objected. This led to a Supreme Court case, Watters versus Wachovia Bank.
N. Rodgers: I like to think of it Wacholovia.
J. Aughenbaugh: Yes. By the way, Wachovia has now been subsumed by.
N. Rodgers: Wells Fargo.
J. Aughenbaugh: We seem to be throwing shade at banks. Really wealthy Americans today. We're just spreading the love
N. Rodgers: We're spreading the love.
J. Aughenbaugh: Yes. But the Supreme Court upheld the preemption of state regulations of the OCC because the court held that the OCC, not states, has the authority to subject banks to general supervision and oversight.
N. Rodgers: National banks.
J. Aughenbaugh: National banks. They based it on Congress's necessary and proper clause authority. They actually went back to, you knew I was going to do this, a classic US constitutional law case, McCulloch versus Maryland from 1819. There are a whole bunch of my former students right now who are rolling their eyes. This is where the Supreme Court said that the Congress could create a national bank, even though Congress does not have that specific enumerated authority. Why? Because the bank was necessary and proper, so that Congress could achieve its other powers, like taxing and spending. No. Actually, taxing and spending. If Congress is going to tax and collect money, and then spend it.
N. Rodgers: Has someplace to stash it.
J. Aughenbaugh: There you go. If you're going to have a whole bunch of banks, you're going to probably need an agency to regulate said banks.
N. Rodgers: Although I think it's interesting that they subject the national banks to this. That's a different thing than if your bank is only a local bank or within a state.
J. Aughenbaugh: Yes. They clarified that two years later in the Cuomo versus Clearing House Association case, where the court said that federal banking regulations did not preempt the ability of states to enforce their own fair lending laws in general supervision and control, which means states can offer more regulations not less of national banks.
N. Rodgers: A state can say, you cannot charge a 700% interest rate on your loan bank within my state because we are not allowing that, and the OCC can do nothing about that?
J. Aughenbaugh: Yes. Now, there have been two other recent, if you will, programs that I think are noteworthy for our discussion before we get to the general history. One, the OCC created a website, helpwithmybank.gov. Let's say you have questions about your banks, if you will, procedures, programs, and services that they offer.
N. Rodgers: Or in 2007, is my bank going under?
J. Aughenbaugh: Yes.
N. Rodgers: Part of that government website was to help reassure the public about whether banks were going to survive the recession.
J. Aughenbaugh: Because we didn't want another run on the banks like we saw in the late 1920s, early 1930s. It's not good for the economy.
N. Rodgers: It's not good. It's not reassuring when the government's like, sure, everything will be fine, but they don't actually put it in writing.
J. Aughenbaugh: In 2020, the OCC launched Project REACh, which stands for Roundtable for Economic Access and Change. The idea was to bring together leaders from banking, civil rights, business, and technology to reduce barriers that prevent full, equal, and fair participation in the nation's economy.
N. Rodgers: Do you know if that still exists?
J. Aughenbaugh: It is on the proposed dose chopping block.
N. Rodgers: I'm not surprised by it.
J. Aughenbaugh: I'm not either. As we mentioned in regards to the history, it was created during the American Civil War. President Lincoln and his Treasury Secretary, again, one of my favorite names, Salmon P. Chase. He was the Treasury Secretary. He eventually became Chief Justice of the United States Supreme Court.
N. Rodgers: Salmon Chase.
J. Aughenbaugh: Yeah, Salmon Chase.
N. Rodgers: Don't you just miss the days when people named their kids after fish? [inaudible], Halibut Rodgers, Salmon Chase. I'm just saying.
J. Aughenbaugh: I'm going to suggest to my daughter McKenzie that I'm going to change, Tilapia.
N. Rodgers: She make you a grandparent.
J. Aughenbaugh: No, we're going to change her name to Tilapia [inaudible] .
N. Rodgers: Tilapia [inaudible] . That would be awesome.
J. Aughenbaugh: Then she'll go online, do her research and say, that's a really bland tasting fish. There you go. But the OCC grew pretty quickly. Within five years, it had a staff of 72 people. Here's the cool thing Nia, a third of them were women.
N. Rodgers: That hugely known in 1868 for hiring women in the government.
J. Aughenbaugh: No, you certainly didn't have women associated with banking. Banking and money, these were men's pursuits.
N. Rodgers: Men jobs.
J. Aughenbaugh: Until 1913, however, I don't know if you caught this Nia in my research notes, the staff were paid by distance distributed and did not have set salaries.
N. Rodgers: The further away you worked from Washington, the more money you got?
J. Aughenbaugh: Yes, that's right.
N. Rodgers: Probably because they expected you to travel at least someone.
J. Aughenbaugh: Now, the first, if you will, threat to the OCC's existence occurred in 1913. That's when, per the Federal Reserve Act, you had the creation of the Federal Reserve banking system. Now, the Federal Reserve, their primary purpose then and even now is to issue American currency and control the money supply in the nation's economy.
N. Rodgers: We talk about them setting interest rates, but that's their second most important job. Their first most important job is the number of dollars sloshing around in the system at any given time, and the way they control the number of dollars sloshing around the system is the interest rates.
J. Aughenbaugh: Interest rates, that's right.
N. Rodgers: But the more dollars you have sloshing around, the less they're worth ask Zimbabwe.
J. Aughenbaugh: Yes, and as we move into the 1920s and '30s, the use of interest rates to either slow or encourage economic activity, meaning more dollars sloshing around the system becomes extremely important. But when that happened, Nia, the OCC's focus went to primarily bank examination and regulation.
N. Rodgers: Currency is a misnomer in its name, because really it should be the Office of the Comptroller of banking regulation. But that doesn't sound nearly as cool as OCC.
J. Aughenbaugh: Yeah.
N. Rodgers: When I'm president, I'll change the name of it.
J. Aughenbaugh: What would you change it to?
N. Rodgers: Office of Bank Regulation, O-B-R, OBR. Then the person in charge of it would be the comptroller, so they would be COBR.
J. Aughenbaugh: Oh, good Lord. We got to stop you now.
N. Rodgers: Namings of the officer would be MOBR. Anyway.
J. Aughenbaugh: You got to stop. In 1937, the OCC signed an agreement with the Federal Reserve and the FDIC to standardize the regulation of banks between the agencies. But for those of you who don't the Federal Deposit Insurance Corporation was created during the new deal to ensure that banks had a certain amount of liquid capital always on hand if those who have deposited money to the bank decide to take the money out.
N. Rodgers: That is a direct response to the Great Depression.
J. Aughenbaugh: That's right.
N. Rodgers: Runs on the bank.
J. Aughenbaugh: That's right. But now you got three different government agencies involved in various parts of banking. In 1937, they actually had a series of meetings in New York and Washington, DC to, if you will, hammer out who's going to do what and agreements. In many ways, this should be a model of all federal agencies. Because Congress goes ahead and passes laws, we've got a problem, let's deal with the problem. But they don't look at what already exists, so then you get turf wars between agencies.
N. Rodgers: Or even worse, the legislature passes a law with this shall happen bracket, insert miracle here bracket, and they just leave it to the universe to solve. There should be more fresh air, and then they just basically put it out there as, okay, government, go make more fresh air. The government is like, how would you like us to do that? It is nice when the organizations say amongst themselves, let's work this out so that we have an actual plan going forward, and so people feel like there's stability in the system. Because in 1937, they had just dealt with massive instability in the system. But note, please, listeners, that the FDIC you can deposit $8,000 billion into a bank, and they will guarantee that they can give you back 250,000 of it.
J. Aughenbaugh: Yes.
N. Rodgers: They don't guarantee your entire deposits. They guarantee a certain amount. That's because if they said to banks, you have to guarantee the entire amount, banks would never lend.
J. Aughenbaugh: That's correct.
N. Rodgers: But if they say, we will promise that any person who puts money in the bank will get at least $250,000 out, maybe more, depending on the solvency of the bank. But absolutely we will promise that. It allows banks to actually lubricate the system by lending.
J. Aughenbaugh: Yes. Again, we want banks to lend because that's what allows.
N. Rodgers: People to buy homes and cars and go to college.
J. Aughenbaugh: People with great, small business ideas.
N. Rodgers: To start them and get them off the ground.
J. Aughenbaugh: That's right. Now, I'm going to mentioned two other eras, and then we're going to get to some criticisms. In the 1960s, the OCC engaged in a rather controversial, if you will, practice.
J. Aughenbaugh: The comptroller, at the time, was an individual by the name of James Saxon. He led the OCC in issuing regulations which would allow national banks to underwrite revenue bonds for state and local governments.
N. Rodgers: To build a school, you're going to have to have some bonds in order to do that. What locals do is they buy the bonds, and that's a good faith agreement that they trust the government to build the school, so they buy bonds, but those have to be underwritten in case it costs more to build the school than you thought it was going to build in case of economic collapse, whatever it is.
J. Aughenbaugh: Many of these were later overturned in court. What the courts held was the OCC exceeded their authority in law. In particular, what was fascinating to me was many of the challenges came from state and local banks.
N. Rodgers: Who would have normally handled those bonds.
J. Aughenbaugh: That's right.
N. Rodgers: They got cut out of making any money from that.
J. Aughenbaugh: There you go.
N. Rodgers: Because if you allow a national bank instead of a local bank to do it, then the National bank is making the money on the interest, not the local bank. I can see why a local bank would be peeved about that.
J. Aughenbaugh: Yeah. Again, this takes us back to the early 1800s. The first time the federal government created their own national bank. States objected in part because it meant that state banks were not getting that business. Again, this is a tension that's been a conflict system forever. The other prominent role that the OCC had was in response to the Great Recession of 2007-2009. When the banks were deregulated during the Clinton administration, the OCC lost a lot of its regulatory oversight function. But when the great recession hit, and Congress identified that one of the problems was, there wasn't oversight of banks other industries that were loaning out a whole bunch of money to a whole bunch of Americans to buy houses, all of a sudden, Congress once again was like, hey, OCC, why don't you go ahead and come up with some standards so that we can know when a lending institution is, I love the language, incurring stress. They had to come up with stress tests for banks.
N. Rodgers: By the way, if you're wondering if your bank has been under a stress test, it has been. They regularly stress test a certain number of banks each year, and people take their turns. But what they're looking at is, does the bank have enough assets to cover its outstanding basically promises to people who have put in savings.
J. Aughenbaugh: That's right.
N. Rodgers: If Aughie and I put in our savings to Bank of Nia and Bank of Nia does not have enough assets to cover, if we come in and say, by the way, we are not, neither one of us would have $250,000 of assets. But let's just pretend that we each had $10,000 of assets. We had $10,000 of deposit each, but they only had $10,000 in assets. They could only give each one of us half of our money, which is bad in the system because if a given area fails, then it could cause other banks in the area to fail. That's how banks fail. They don't fail.
J. Aughenbaugh: Individually.
N. Rodgers: They fail as groups generally.
J. Aughenbaugh: It's a ripple effect.
N. Rodgers: Thank you. That's all.
J. Aughenbaugh: No. This becomes extremely important in response to the great recession because you had institutions that were not banks, who were loaning money to people to buy houses.
N. Rodgers: That they couldn't afford.
J. Aughenbaugh: The OCC regulates banks. But the OCC, for instance, doesn't regulate an insurance company that decides to take their profits and loan it out for home mortgage loans. Again, the OCC provides a vital or a central role in the health of the nation's banking industry. But there have been some criticisms.
N. Rodgers: Wait.
J. Aughenbaugh: Yes.
N. Rodgers: Sorry. Before you go to criticisms, can I say that, so that era produced the Financial Stability Oversight Council.
J. Aughenbaugh: Yeah.
N. Rodgers: Which we now have because we suddenly realized that we needed stability. Stability is the key. The Comptroller of the Currency sits on that council. I don't know if I mentioned it before or not, but they sit on that council as a part of the response to the Great Recession. We'll see what happens this time around. By this time, I don't necessarily mean Donald Trump. I just mean that this is a cyclical thing that you have with capitalism.
J. Aughenbaugh: Yes.
N. Rodgers: This is how capitalism works. This is a feature, not a bug, folks, that every so often, it completely collapses itself because that's how capitalism works.
J. Aughenbaugh: When I try to explain the purpose of government regulations in a capitalist economic system, government regulations frequently arise in response to a bust period. They are designed to mitigate the severity of future downturns.
N. Rodgers: Then what happens is, people go along and they forget that that happened, and we get deregulation, and then you have another bubble, and then you have another explosion, and then people say do you know what we need? We need some regulation.
J. Aughenbaugh: Yes.
J. Aughenbaugh: No.
N. Rodgers: A political science historian, like Aughie says we had some of that a while back, and then y'all got rid of it, and now we have to have it again. Isn't that one of the criticisms of the OCC is that it keeps going round and round in circle of deregulation, regulation, deregulation regulation?
J. Aughenbaugh: One of the persistent criticisms of the OCC is the perceived lax regulation of the banking industry. That OCC has had periods where it's been too lenient of its supervision of banks, and this contributes to financial instability. Critics will point to instances where the OCC has failed to address risky practices. See the great recession. The OCC was remarkably silent after the banking industry's deregulation in the 1990s. I think it's a fair, if you will, criticism.
N. Rodgers: The entire financial side of the federal government took a big long nap. Between 2005-2007, they were like, "It's fine. It's chugging along. I think it's great"
J. Aughenbaugh: I would go further back. I would say the last couple of years of the Clinton administration, the first three or four years of the Bush 43 administration, they were all napping.
N. Rodgers: They were just like, "It's fine. It'll be fine. I don't know what you people are worried about."
J. Aughenbaugh: The OCC was napping, the Federal Reserve was napping, the Securities and Exchange Commission was napping.
N. Rodgers: Wall Street was napping. They were making money.
J. Aughenbaugh: The other criticism in regards to regulation, and I think this is one that we're probably not going to get any attention to in the current presidential administration, but the nation's going to have to come to grips with this, and that is regulating financial technology. This is sometimes referred to as FinTech, but what we're talking about here is, is there going to be a federal government agency that regulates things like Bitcoin and cryptocurrency?
N. Rodgers: Right now, there isn't much of that, and there needs to be. People are losing money left and right because it's a very scary market.
J. Aughenbaugh: At the tail end of the Biden administration, the Securities and Exchange Commission proposed regulations, but they never went fully into effect. When Trump took office for his second term, he went ahead and announced that those proposed regulations are not going forward.
N. Rodgers: Thanks, Elon.
J. Aughenbaugh: A couple other criticisms, preemption of state laws. The OCC has a history of preempting state banking and financial services laws because it has argued that national banks should be subject to nationwide federal regulations, but there are some states that would like to be more aggressive in regulating banks.
N. Rodgers: Especially their consumer protection. They would like for people to not be able to make nearly as sketchy loans to certain people. In the ultimate sense, and I know this is touchy feeling, and I won't dwell on it too much, but when you make a loan to somebody who can't afford it, they eventually fail at paying it back, and now they're out of their home or their car. They lose the object. There's a psychological payment involved in not being able to make those loans. The stress level is enormously high on these families. I can see where states would say, "Whoa, whoa, we need to be able to regulate our economy according to our state and what we think people can do and not do here." I can see where that would be.
J. Aughenbaugh: Nia, you mentioned the impact on the individual borrower, but you also got to take a look at, once again, the ripple effects, because if Nia and I both fail to repay, for instance, loans that we have to a bank in Virginia and enough other people do that, then that provides, if you will, pressure that leads to an economic downturn within that state or that region. That's how, for instance, housing or loan bubbles occur because eventually the bubble pops. Next criticism. We get the preemption of state laws. Unfortunately, for states, federal courts have relied upon the preemption doctrine of the US Supreme Court to basically say, "The Supreme Court has said that the OCC can go ahead and regulate national banks. Since Congress has spoken, then states are preempted." This is a doctrine of federalism that has existed in the United States since the late 1930s, early 1940s. That's when the preemption doctrine arose. You have conflicts of interest. OCC's funding structure relies heavily on assessments levied on national banks, but this can create a conflict of interest.
N. Rodgers: If you want to fund yourself, you've got to find a problem.
J. Aughenbaugh: That's right.
N. Rodgers: If your prison runs on people being put in prison, they have to pay to be in prison, then you will find people to put in prison because you need to fund the prison.
J. Aughenbaugh: Or conversely, if your continued funding from Congress.
N. Rodgers: It's contingent on not finding a problem. You will magically not find a problem.
J. Aughenbaugh: Because national banks and their lobbyists have funded various members of Congress, then it looks like you are too cozy with national banks, and you're not as concerned as protecting the customers of the banks, which then brings us back to states saying, "You guys need to be regulating a little bit more," but this is a really good example of an iron triangle.
N. Rodgers: You have you need to be regulating more, but you need to be regulating less.
J. Aughenbaugh: Yes. This is the classic iron triangle because you got the national banks and they're lobbying, who'll give money to members of Congress for the reelection. Members of Congress are like, "OCC, you can't be regulating these national banks too much because these national banks funded whose reelection? Mine." But then this leads to the criticism, "Hey, wait a minute here. Isn't the OCC supposed to provide stability in the financial system, which means protecting customers so that they don't take out bad loans or get mistreated by banks, etc. Again, the OCC, in many ways, is between a rock and a hard spot because if they're too aggressive in regulating banks, then the banks complain and Congress reduces the OCC's enforcement budget.
N. Rodgers: Then you get recession. Then they get blamed for not regulating, so they can't win this. The specific concern or criticism that I have of them goes to the 2008 financial crisis. It's what we were just talking about, it's being asleep at the wheel. I don't feel like anybody was punished sufficiently for 2008 financial crisis. I'm going to carry that bitterness to my grave, unless I'm president, in which case, I'm going to go after people retroactively. Just be aware of that, peeps. The fact that some of those people got even wealthier during that time period when people were literally being booted out of their homes for things that they were told they could afford and then they couldn't, there was some real sleepiness at the wheel during that. I find that to be an embittering in all of the federal thinking stuff.
J. Aughenbaugh: Listeners, Nia is bringing up the fairness argument. I'm going to go ahead and give the free market capitalist critique of the OCC, the Federal Reserve, the SEC, etc., and the Bush 43 and the Obama administration by not punishing those, if you will, individuals.
J. Aughenbaugh: Who ran the banks, who ran the insurance companies, the investment houses, etc. We created a morally hazardous condition. In economics, that means if you never get punished for your bad behavior, you're going to continue to do what, Nia.
N. Rodgers: Bad behavior. Hello?
J. Aughenbaugh: Yes. Okay.
N. Rodgers: Duh, that's called humans.
J. Aughenbaugh: In economic, if you will, terminology or theory, that's known as a moral hazard because you don't have to change your behavior. The government bailed them out, and I understood logically why the government bailed out those industries. But by never punishing the individuals who made wide scale decisions that they knew were bad and risky and they did it just so they could go ahead and generate huge profits that their investors were asking for. They never got punished. To me, it's not a big shock that some of them are still engaging in morally hazardous behavior because our government never punished them.
N. Rodgers: They didn't even get a slap on the wrist. Come on. If you and I had done that. If we had caused this, we would be in trouble.
J. Aughenbaugh: If you're a teenager and you screw up and your parents swoop in and solve problem.
N. Rodgers: Let me make it a lot more plain. If Aughie ate 16 doughnuts for breakfast every day, and drank a gallon of coffee, and it never had any health effect whatsoever.
J. Aughenbaugh: I'm not changing my behavior.
N. Rodgers: Why would he stop eating doughnuts? He would be like, more doughnuts for me, baby. But if he goes to his doctor and his doctor says, Your cholesterol is 8,000. You are pre diabetic. You are going to die if you keep doing this and shows him actual math that it's going to happen. He will change his behavior.
J. Aughenbaugh: His behavior exactly.
N. Rodgers: Or he won't change his behavior and the first time he has a heart attack, he will change his behavior. Behavior.
J. Aughenbaugh: That's right.
N. Rodgers: Because it takes but if there's never any price, if he's like, your health is perfect, Aughie, Aughie going to be like, Sweet, more doughnuts tomorrow morning 'cause yes. There's no payment for that.
J. Aughenbaugh: I can't drink any more coffee theoretically.
N. Rodgers: You do.
J. Aughenbaugh: Already. But to your point, if there is no price to pay,
N. Rodgers: Then you will continue to behave.
J. Aughenbaugh: In here, I agree with the criticism, and it's not just of the OCC. If you're thinking that we're beating up on the OCC. We mentioned a number-
N. Rodgers: Beating up on the entire financial regulatory system-
J. Aughenbaugh: Some apparatus here. A lot of people were napping, okay, and shame on them. Because there's a lot of people who lost a lot of money. They had to file for bankruptcy. Just the amount of money that the federal government had to spend to go ahead and save those industries so that low level workers, middle managers didn't lose their jobs the Great Recession could have been a heck of a lot worse. But by not prosecuting the leadership, man, it sent a really clear message.
N. Rodgers: The idea of too big to fail.
J. Aughenbaugh: Yes.
N. Rodgers: What that did, too, and it pushed some smaller banks under which also was not fair. That's my last criticism for them is that I don't believe that they are necessarily consistent in how they approach work of regulating banking. I think there were banks that were too big to fail because they knew those guys because they had worked with those guys. Part of my problem overall with the banking system in the United States is that people who work for the government in the banking system then go to work for banks in the banking system, and it's a revolving door.
J. Aughenbaugh: That's the revolving door problem that public administration scholars have identified as an issue for years. You got to see.
N. Rodgers: It's especially bad in the financial system.
J. Aughenbaugh: Industry
N. Rodgers: Industry. Thank you.
J. Aughenbaugh: Yeah, you are a CEO of a corporation who then gets nominated by a president to serve as the head of the OCC or the head of the Securities and Exchange Commission. They do a term as the head of the agency, and then they go back to work for a bank or an investment house.
N. Rodgers: As a lobbyist or an advisor. Consultant.
J. Aughenbaugh: Again, if you think we're beating up on Jamie Diamond, he's just a good example. Because Jamie Diamond had a prominent role in a number of presidential administrations. Then after he works for the government, he then goes back to working in the industry that he wants regulated. I'm like-
N. Rodgers: Huh.
J. Aughenbaugh: Huh.
N. Rodgers: How is it that within companies, you can have non compete, but you don't generally have non compete with the government? Again, a thing I'm going to fix when I'm president.
J. Aughenbaugh: Well, of course.
N. Rodgers: Again, we're not bidding up on just the OCC. This is a common problem across all agencies in the United States government. It's just that in the financial industry, it is more apparent. But when you get somebody who's the head of a really huge hospital system, who becomes something important at the CDC and then goes back to being the head of a huge hospital system, you think that there's not interplay there. Of course there. It's one of the unfortunate things about this.
J. Aughenbaugh: Then when that hospital gets a big federal government grant, it's pretty hard not to go ahead and say, Hmm. Is there something fishy going on here.
N. Rodgers: Just as a side note, do you have any idea how many ambassadors to other countries have homes in those countries? It's a thing. Where do you summer? Oh, I summer in France. Oh, I thought you were the ambassador to France. Yes, I was at one point. You got a pretty sweet deal on buying a countryside. A chateau in a countryside.
J. Aughenbaugh: You're like, Wow. Okay.
N. Rodgers: How nice for you.
J. Aughenbaugh: I don't recall that being listed on any of the real estate websites.
N. Rodgers: Exactly.
J. Aughenbaugh: Anyways, now listeners that you entertained us by listening to me and Nia, wax.
N. Rodgers: Be cynical.
J. Aughenbaugh: Our tales of cynicism.
N. Rodgers: Next time, we're going to talk about the Bureau of the mint.
J. Aughenbaugh: Yes.
N. Rodgers: Mint. I'm so excited to talk to you about pennies.
J. Aughenbaugh: Yes, pennies, nickels, dimes.
N. Rodgers: Past pennies.
J. Aughenbaugh: Yes, Buffalo coins. Listeners are like, what the heck is a buffalo coin?
N. Rodgers: Anyway, we'll talk to you next week about that.
J. Aughenbaugh: Thanks, Nia.
N. Rodgers: Thank you, Aughie.
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