OCC’s Hood floats raising SAR threshold, revising HHI index

Acting Comptroller of the Currency Rodney Hood Tuesday suggested reforming anti-money laundering standards for banks, ensuring mergers are considered in a timely manner and uplifting financial inclusion in a recent roundtable discussion with banking leaders. 

Hood, in a conversation before the American Bankers Association’s Conference for Community Bankers in Phoenix, said altering some of the mandatory suspicious activity report requirements for financial institutions could strike the appropriate balance between detecting money laundering and imposing costly compliance burdens on banks. He also said the rise of digital assets and cryptocurrency should make bankers wary of bad actors trying to access U.S. banks. 

“There are a number of bad actors out there who really wish to do us harm, and I certainly want to make sure that I’m providing you with the regulatory clarity and guidance,” he said. “I do think it’s time we looked at maybe raising that reporting threshold, whether indexing it to inflation or something of that nature. I’m hoping that we can work together around strengthening our [Bank Secrecy Act] and [anti-money laundering] proposals, but without it being deleterious to your bottom line.”

The Treasury requires that certain financial institutions, including banks and credit unions, file reports of any suspicious transaction that could indicate illegal activity. Any cash transaction over $10,000, for example, must be reported to the Treasury’s Financial Crimes Enforcement Network. 

Hood — who was previously the Chair of the National Credit Union Administration under Trump — also discussed the issue of bank mergers, which have been a hot topic as the Trump bank regulators take office. 

Banks loudly opposed the Biden administration’s skeptical posture toward consolidation, particularly those involving large firms, but that posture will likely change under Trump. Even so, the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. both revised their approaches to bank mergers during the Biden administration so as to impose higher standards for approving mergers, and for the time being those revisions remain in place. 

Trump’s election has whetted the banking industry’s appetite for new deals and a lighter regulatory touch more broadly. 

Hood said he plans to reach out to the Justice Department to seek an agreement on revising merger standards in a way that could improve their chances of approval. Hood suggested revising a key measure of consolidation regulators use to measure the competitive effects of mergers, known as the Herfindahl-Hirschman Index.

The HHI measures market concentration and is used to assess the competitive effects of mergers. But industry experts and policymakers have argued that the HHI is outdated for bank mergers because it narrowly focuses on local deposit markets and fails to account for the broader and more modern context of banking competition, including the rise of digital banking and non-bank financial institutions. Hood says one way the index could be revised is to include credit union data in the HHI, since CUs also serve as competition for banks in a given area. 

“When you’re looking at the merger applications, you cannot get the accurate score of market share because the credit unions — their market share is not included in the reports,” he said. “The first thing I’ll do tomorrow is reach out to the Department of Justice’s antitrust division to see what we can do to have a [Memorandum of Understanding] between OCC and the Department of Justice antitrust [division] to pave the way for those scores to be reflective appropriately and accurately, so your mergers were not being delayed.”

Hood also urged banks to practice caution in a cybersecurity environment, which he sees as a growing risk to the system. He said that it is important for banks to have risk management practices commensurate with their size and complexity to ensure financial technology can be used to help improve the business of banking. 

“I think that you’re going to need to continue to focus on battening down mechanisms, looking at multi-factor authentication,” he said. “I recognize that to varying degrees, the $100 million bank is going to have a whole different mindset and regulatory framework than the $1 million bank — my advice to you is to make sure that you’re tailoring your cybersecurity approach to the size and complexity of your institution.”

Hood also called for periodically reviewing and revising regulations at the OCC, something he says he did at the NCUA during his tenure. 

“We looked at, every year, a third of our regulations, such that in every three year cycle, all of the rules have been examined, and then you could determine which ones are still applicable for a 21st century institution and which ones could be jettisoned,” he said.  “I want to bring that same mentality to the OCC, continuing to evaluate and to see which rules are most applicable.”

Hood also talked about his background leading up to government service. One of Hood’s earliest experiences was as an intern at Arthur Andersen LLP — a now-defunct American accounting firm — from Junior year of High School through his senior year of college. Hood initially wanted to be a priest, and even spent time in Zambia and Zimbabwe as an aspiring Episcopal missionary prior to joining the financial services industry as a community banker. His interest in theology, he says, continues to inform his approach to policy.

Hood said one of his main priorities for his tenure was to promote financial inclusion in the banking sector, calling the push to promote financial literacy and access to banking “undeniably the civil rights issue of our time.” If individuals are not involved in the mainstream economy, he argued, it leaves them vulnerable to pernicious and predatory payday lenders, noting that according to the FDIC data, 40% of American households are unable to obtain a $400 emergency loan. 

“When you’re credit invisible, what that means is that when employers are running your credit report for employment, they can’t score you,” Hood said. “That means you may not be able to get the job of choice. When you’re looking for loans for cars to go to and from work, you cannot get that car that’s going to be necessary. When you’re looking for housing, whether it be home ownership or a rental, without the ability to have a credit score, we’re not able to have shelter. That is why, going back to my ecclesiastical interest, that is why I applied tirelessly, diligently to promote financial inclusion.”

Hood is currently serving as the Acting Comptroller, though President Trump nominated attorney Jonathan Gould to lead the Office of the Comptroller of the Currency permanently. 

Gould — a partner at the law firm Jones Day and former chief counsel of the OCC in the first Trump administration — was on the short list of Trump administration picks to lead the agency, and is widely expected to be confirmed for the post. 

Despite his appointment to the agency’s top post being temporary, Hood said he plans to remain engaged in issues like reducing the regulatory burden on institutions and empowering smaller lenders.

“I’m a safety, soundness and fairness regulator that happened to have had a presidential appointment to NCUA. My roots are still tethered to the banking industry,” he said. “I will be working daily and diligently on your behalf to reduce the regulatory burden and really look at ways that we can continue to strengthen the community banking system so you can continue to serve your clients.”