UPDATE 1-US bank regulator Dugan to leave office August 14

Thu Jul 8, 2010 12:12pm EDT

* Dugan appointed by Republican President George W. Bush

* Departure comes at end of five-year term

* Successor unclear

WASHINGTON, July 8 (Reuters) - Comptroller of the Currency John Dugan, the regulator who oversees the nation's largest banks, said he would leave office on Aug. 14, near the end of his term.

Dugan helped steer major policy decisions during the 2007-2009 financial crisis, when the government structured a $700 billion fund to bail out the banks.

He was not as outspoken as his counterpart, Federal Deposit Insurance Corp Chairman Sheila Bair, yet played a critical role in trying to right the housing market, shoring up the capital of the fragile banking system, and then developing a way to exit from the extreme government assistance.

Dugan, who like Bair was appointed by Republican President George W. Bush, at times was at odds with Bair over policy decisions, particularly ones he viewed as punitive to larger banks.

The Office of the Comptroller of the Currency supervises the largest U.S. banks, including JPMorgan Chase (JPM.N) and Bank of America (BAC.N). FDIC insures accounts at all sizes of banks but is direct supervisor for smaller institutions.

Dugan said in his letter of resignation to President Barack Obama on Thursday that credit trends are continuing to improve and it appears likely that taxpayers will earn a substantial profit from their support to banks.

"In short, while the financial system continues to face significant challenges, national banks have stabilized, confidence has improved markedly, and institutions are now in a much stronger position to help fund economic recovery," he wrote.

It is unclear who Obama will appoint to succeed Dugan.

The successor will lead the OCC as it faces major changes laid out in the financial reform bill that Congress is expected to pass in the coming weeks.

Under the legislation, the agency would absorb the Office of Thrift Supervision, a smaller regulator that largely oversees mortgage lenders. The reputation of the OTS, which supervised troubled insurer American International Group (AIG.N) and a slew of failed subprime lenders, was significantly damaged during the financial crisis.

The next comptroller of the currency would also join the newly-formed Financial Stability Oversight Council to monitor risk in the financial system. (Reporting by Karey Wutkowski; editing by John Wallace)

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