WASHINGTON (Reuters) - Big U.S. national banks would have to report their risk appetites and boost oversight by their boards under new rules proposed by a U.S. bank regulator on Thursday to help avoid a repeat of the 2007-2009 financial crisis.
The Office of the Comptroller of the Currency (OCC) issued the guidelines as part of its “heightened expectations” program for the biggest U.S. banks.
Bank regulators, particularly the OCC, came under intense scrutiny for not cracking down on dangerous activity that fueled the 2007-2009 financial crisis.
The OCC also faced criticism after the “London whale” incident, in which traders at JPMorgan Chase placed outsized bets that wound up costing the bank billions of dollars.
Regulators and lawmakers said that incident occurred in part because JPMorgan’s management failed to scrutinize risk-taking in every part of the bank. The bank’s directors also were caught unaware of the activity.
JPMorgan wound up paying more than $1 billion to resolve regulatory probes over the issue.
“These rules represent our collective experience since and before the financial crisis as to what works and doesn’t work from a risk management and from a corporate governance standpoint,” Comptroller of the Currency Thomas Curry said on CNBC on Thursday.
“Our hope is that if we can institutionalize this across the universe of the large banks that we supervise, you can dramatically reduce the potential incidence of risk management failures like the London whale,” he said.
Officials said the proposed requirements would apply to national banks with more than $50 billion in assets. The agency could apply the standards to smaller firms that officials deem particularly risky.
Under the standards, bank executives would need to detail their firms’ willingness to take risks, including quantitative limits. Boards of directors, which would include at least two members from outside the bank, would ensure the risk framework was effective and that management followed it.
Boards also should challenge or oppose decisions by bank managers that could threaten the banks’ safety, the OCC said.
Firms that failed to meet the tougher standards would have to craft a plan to comply and could eventually be subject to OCC enforcement action, the agency said.
The OCC said it will take comments on the proposed changes for 60 days. Following the comment period, the OCC could finalize and implement the new rules.
Reporting by Emily Stephenson; Editing by Karey Van Hall, Bernadette Baum and Andrew Hay