UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 606-xxvi

HOUSE OF COMMONS

HOUSE OF LORDS

ORAL EVIDENCE

TAKEN BEFORE THE

PARLIAMENTARY COMMISSION ON BANKING STANDARDS

BANKING STANDARDS

THURSDAY 24 JANUARY 2013

THOMAS CURRY and RICHARD OSTERMAN

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Parliamentary Commission on Banking Standards

on Thursday 24 January 2013

Members present:

Mr Andrew Tyrie (Chair)

The Lord Bishop of Durham

Mark Garnier

Baroness Kramer

Lord Lawson of Blaby

Mr Andrew Love

Mr Pat McFadden

Lord McFall of Alcluith

John Thurso

Lord Turnbull

Examination of Witnesses

Witnesses: Thomas Curry, Comptroller of the Currency, OCC, and Richard Osterman, Acting General Counsel, FDIC, examined.

Q2771 Chair: First, I thank you both very much indeed for taking the trouble to come over and give evidence to us this morning. The Commission is particularly grateful that you have done that. We are eager to learn from the American experience what we might put into our own system to try to do better next time than we, like so many other jurisdictions, did this time.

May I begin by asking both of you whether, looking in aggregate at the complex but comprehensive range of sanctions that you have, you think you can identify the most effective-the ones that really work-and whether, taken together, they are effective?

Thomas Curry: We have a wide variety of tools at our disposal at the Federal banking agencies in the United States. First, we have statutory authorities dealing with both institutions and individuals: 12 USCs, of which USC 1818 is the primary statute. In supervising the institutions, our goal is to rely on the internal controls of the institutions themselves, superior corporate governance, and the role of the boards of directors in overseeing operating management. We utilise on-site examination authorities to verify and assess management’s capabilities.

For deficiencies, our primary tools are informal and formal enforcement actions that identify deficiencies and demand corrective action both to cease activities and to engage in affirmative action. If the situation is more serious, or there is a failure to apply less stringent remedial actions, we proceed to formal cease and desist orders under the statute which may be entered by stipulation or through a hearing process. If there is individual culpability, we have the authority to remove or prohibit from banking individual institution-affiliated parties.

Richard Osterman: Good morning, Mr Chairman and members of the Commission. Thank you for the opportunity to join you all today for this discussion of the substantial tools that the FDIC has available to address breaches of duties by directors and officers.

Comptroller Curry has laid out his powers. Our powers are similar, in fact: they arise from the same statutory provision. These tools are really critical to the FDIC in carrying out its core mission of maintaining confidence in the US banking system. We focus on using these tools promptly to correct unsafe and unsound practices, violations of law and breaches of fiduciary duties.

Among the banking regulators, we are a bit unique, in that we have a combination of responsibilities, as the supervisor and insurer, as well as the receiver. As supervisor, we are the primary Federal regulator for about 4,500 state-chartered institutions in the United States. As the insurer, we insure all of the 7,100 insured depository institutions, but we also have a back-up role, through enforcement, working with our colleagues at the OCC, at the Fed and in the states.

In addition, if an institution fails, we would be acting as receiver-basically stepping into the shoes of the failed institution. In that role, we would be able to bring actions as a civil matter against people who have caused failures to the institution and to try to recover those losses. Finally, most recently, Congress has given the FDIC an additional role and substantial responsibilities in dealing with large, complex financial institutions and addressing the too-big-to-fail issues that have arisen.

Each of the tools that we have available is useful, depending on the circumstances that arise. Certainly, C&D orders-cease and desist orders-tend to be used more often in connection with institutions where we need to act quickly to address problems. Civil money penalties can be against the institution, but they can be against the individuals as well. They can be assessed at different levels, depending on the severity of the actions that the individuals have been involved in. Finally, AD orders-removal and prohibition orders-are more of a preventive measure, or a safety thing, where we have seen bad actors in the industry, and we are able to remove them quickly to maintain safe and sound banking practices.

Q2772 Chair: Let us put it another way: do you think the lion’s share of the people who were engaged, for example, in unsafe and unsound banking practices were caught and appropriately punished?

Richard Osterman: That’s a good question. It is really hard to know, although I can say that we have-

Chair: You are in a much better position to know than most people. In fact, I would go so far as to say that you probably know about as much about this as anyone.

Richard Osterman: Thank you.

Q2773 Chair: So what are we on? Half? Two thirds? A third?

Richard Osterman: Let’s deal with the failed institutions. We have had approximately 470 institutions fail since the crisis began, and two so far this year. Whenever one of these institutions fails, the FDIC is appointed as receiver, and we open an investigation for every one of these failures. We will review the evidence; we have the ability to subpoena witnesses, take evidence and review documents. We do this investigation, and we determine whether there are culpable individuals and whether there are actions that can be brought against these individuals. Part of our role as receiver is to maximise the recoveries to the receivership estate, so we want to look at the wrongdoing and potentially recover. So those actions would be brought if we find that we have meritorious claims and it would be cost-effective. We are generally not going to bring an action if there are no assets available to recover, because there is nothing to bring back into the receivership estate.

Chair: Okay. I’m happy to add the phrase "cost-effective".

Richard Osterman: That is an important part of it.

Q2774 Chair: What is roughly the answer?

Richard Osterman: In the last crisis, when we did this process, the statistics were that in about 25% of the institutions we found claims, brought them and recovered. In this crisis so far-we are still in the middle of it, frankly-when the banks fail, Congress has given us the authority, with a three-year statute of limitations, to review and investigate the evidence. In terms of the failures, the peak years were back in 2009 and 2010, with 140 and 157 institutions. Now, three years later, we are on the cusp of that area.

At this point, the FDIC board has authorised actions against 95 failed institutions, which involve more than 788 directors and officers we are bringing actions against. In terms of percentages, people always say, "How many people were there?" The answer is that we go in and investigate every one of these failures, and where we find that there are valid claims that are cost-effective, we will bring them. We will see, based on the facts and circumstances.

So have most people been caught? We have certainly looked at every one of these failures to determine whether people were culpable, and we have brought actions where we have found that there are valid claims. Where we do not have cost-effective claims, the other point is that we can actually bring enforcement actions. That is where the enforcement can come in, and that does not involve a cost-effectiveness issue. We can remove people from the industry.

The US system is set up in such a way that we are not the primary regulator of national banks, for example, or national thrifts, so we would refer those matters over to our colleagues at the OCC or the Fed, who are the primary regulators. But where we are the primary regulators, we can bring an action and seek removal, and we are doing that. So I think we have done a pretty good job. Of course, everybody is going to criticise you no matter what you do-either we are bringing too many suits or we are not bringing enough.

Chair: I am just trying to get a realistic feel. No one is listening in America now, so you can tell us what you really think.

Richard Osterman: Well, it’s 4.30 in the morning, right?

Q2775 Chair: We would like a rough idea of whether you think most of the people who ought to be caught are still out there, or whether you think you are probably netting most of them.

Richard Osterman: In connection with the failed institutions, I believe we are netting most of them.

Q2776 Chair: The unsafe and unsound principle is therefore working in catching them?

Richard Osterman: Well, yes, but I think when we are dealing with a failed institution, we are actually dealing with basic common-law tort actions-negligence, gross negligence, breach of fiduciary duty. Of course, unsafe and unsound banking practices set that standard.

Q2777 Baroness Kramer: One of the frustrations here, particularly among the public, is that individuals are involved in wrongful behaviour-"inappropriate" is too soft-or there is a chief executive who benefits from profits that later turn out to be false profits or whatever else, and they are remunerated at the time on the basis of that misbehaviour, but later, when there is finally some sort of action, there is no ability that we can see to go back in and claw back that money from which they benefited. Do you have those powers, or are you looking at the possibility of requiring banks to put clawback mechanisms into their various contracts? Is this an issue of interest that you are trying to tackle-the removal of the remuneration benefit that has accrued from misbehaviour?

Thomas Curry: There are provisions in the Dodd-Frank reform Act that address incentive compensation. There are also inter-agency guidelines from 2010 there are outstanding, which set general requirements for incentive compensation. As a matter of strong corporate governance, we are requiring that we address this internally. Through some of our supervisory activity and through enforcement orders, we can address some of those compensation issues under our current status.

Richard Osterman: Comptroller Curry has laid out the provisions fairly well. I would just note that under the Dodd-Frank Act, section 210(s), there is a provision, which has been implemented through regulation by the FDIC, where, in connection with these large, systemically important institutions, we are able to go back two years and claw back executive compensation from those substantially responsible for the failed condition of the institution.

Q2778 Baroness Kramer: Is that something that actually gets exercised? Is it in future legislation but not in current practice?

Richard Osterman: It was implemented in 2010, with Dodd-Frank, and it is now available for addressing future actions. Certainly when institutions fail we look at the institutions, the actions by the directors and officers, and where we have claims that are valid, we attempt to recover their assets in connection with the claims that we would bring for the improper activities that they were engaged in.

Q2779 The Lord Bishop of Durham: Mr Curry, bank directors have to take a legal oath. Do you think that has any effect on their standards and conduct?

Thomas Curry: The oath is probably more a formality today, unfortunately.

Q2780 The Lord Bishop of Durham: So it is a formality without much impact, as far as you can tell?

Thomas Curry: The oath itself-in terms of our expectations of officers and directors, I think the standards are very high for the behaviour and the oversight that we are looking for. With respect to our largest financial institutions, we really are squarely focusing on the independent directors as being a credible source of challenge to operating management. We have made it clear to them that that is their role-that their role is to maintain a strong overall corporate governance, being familiar with bank operations and risks, and also that they are actively involved with the regulators themselves. We have maintained ongoing on-site relationships with the directors and with the chairs of the audit and risk committees of the institutions, basically to establish an independent avenue of communication with the regulatory agency-the OCC in our case.

Q2781 The Lord Bishop of Durham: We may want to come back to the role of non-executive directors in a moment, but that is a separate area of questioning. Mr Osterman, you have a publication statement concerning the responsibilities of bank directors and officers and the OCC has the director’s book that sets the standards for appropriate behaviour. Do these publications make any difference? To be honest, much of the evidence that we have heard is that these are things that people put on a shelf and do not really look at.

Thomas Curry: Our expectation is more than putting it on the shelf, and I think that if there was a failure to live up to fiduciary duties, it would result in some form of enforcement actions, at least relative to the bank’s operation. Any deficiencies that existed due to a failure of the directors to live up to their responsibilities, we would want addressed.

Richard Osterman: I would add that we have a booklet of guidance for directors and officers as well. We also provide training through director colleges, through our regional offices, and generally we find that directors do take their duties quite seriously and engage with us and participate. This is an important role, and we make it clear to them that they are not there just to look pretty and be a rubber-stamp-that the job comes with significant responsibilities.

Thomas Curry: Since the crisis, we have paid particular attention to our largest institutions to make sure that the level of competence and independence exists on the boards. In some cases there was a lack of financial knowledge generally on the board membership that now has to be addressed. As Mr Osterman mentioned, we also have director education programmes and a specific annual programme for the lead independent directors of our largest banks. We address issues of concern and areas that we expect them to address as independent members of the board.

Q2782 The Lord Bishop of Durham: Some of the evidence that we have had, particularly in the last few weeks, concerning some of the major European banks that ran into significant trouble, plus British banks-this is probably a political statement-is more or less the same, depending on who you talk to, British or European: the complexity of these huge organisations makes the role of a non-executive director impossible. Well, most of the evidence suggested that it was impossible, not even almost impossible. They have all denied that they knew what was going on-there was no way they could have known what was going on was the general rule. What is your comment about that?

Thomas Curry: In response to that, part of our focus with our largest institutions is making sure that their reporting to the board is meaningful, that the information is meaningful. That is No. 1. That is being provided to the boards so that they have the tools to exercise oversight. We are also looking to make sure that the board membership consists of individuals with relevant experience. At some of the larger institutions, direct commercial banking experience is required or encouraged. Familiarity with accounting and other fields is also looked for.

Q2783 The Lord Bishop of Durham: A final question. One of the key things that has been coming out over the last few months is the issue of culture and how the culture of a bank is absolutely essential. Mr Osterman, you have been looking at failed banks-470 over the last few years. When you look at how a bank has got to where it is, do you identify particular aspects of culture? Is culture something that is on your mind? When you are overseeing banks and looking at banks that you are aware are running into trouble, how do you assess the culture? A lot of the regulation seems to lead to a box-ticking approach, rather than looking at the softer side, which may have more impact in the long term.

Richard Osterman: That is a very good question. In fact, when we deal with failed banks, we actually-by statute-have an inspector general who goes in and does a material loss review to determine the causes of the failure. We study those to identify issues and the reasons why the institutions have failed. Certainly when we do our investigations we rely on the examiners and the exam reports. We often see situations in which there have been warnings to the directors and a failure to comply. The examination process and the ongoing dialogue with the institutions is critical to get a sense of what the culture is and to take corrective actions to address those things before they become bigger problems.

Q2784 The Lord Bishop of Durham: And you can take action when you identify a weak culture before the bank is in trouble?

Richard Osterman: Yes. In fact, that is what those enforcement tools that we talked about are for. The cease and desist orders, for example, are very effective in addressing that. Again, when we see bad actors, we can actually remove them from banking for life, so it is a significant prohibition that has some pretty big teeth, and people pay attention to that.

Thomas Curry: The cultural issues are primarily addressed through our CAMEL ratings system-the management component-and culture would be a factor there. Basically, the risk appetite of the institution would be reflective of the culture, and that would be a significant area of inquiry during our examinations. If there were deficiencies and excessive risk taking, we would look to correct those through our supervisory tools, supervisory recommendations, or more stringent, informal or formal enforcement actions.

Q2785 Lord Lawson of Blaby: You just said to the Bishop how effective you are, but you are not, are you? May I ask a simple and obvious question? In the United States you have an extremely elaborate, well-resourced system of regulation, oversight and supervision, with a substantial array of penalties at your disposal. In answer to the Bishop, you said how you look at things before the event, as it were, yet you completely failed to prevent the worst banking meltdown in living memory, which inflicted huge costs on the US taxpayer and the US economy. What went wrong?

Richard Osterman: It’s a good question, and one which we have been looking at over the past few years. Hindsight is always 20:20, but it was thought that the real estate market would always continue to go up and values would continue to increase, and there was the idea that we did not have a business cycle, where the economy would go down again. When things are going good, people forget those things. There were some guidelines that came out from the regulators that identified the issues. Loans were made without proper underwriting; people were given loans that they could not possibly pay back, because it was thought that the real estate would protect the interest. Obviously that was wrong, and that is certainly a lesson to be learned.

Q2786 Lord Lawson of Blaby: So the regulators thought that the business cycle had been abolished, and they were asleep at the wheel. Is that what you are saying?

Richard Osterman: I think that’s a bit harsh. There were warnings, but I don’t think they were as loud as they should have been, looking back at it. It is hard. It has been said that it is like taking the punchbowl away at the party. Everybody’s having a good time, everything’s looking good, and if you start to say these things, people think you’re crazy. They think, "Everybody else is making money, why should I not do that as well?" Clearly, we should have been more forceful.

Thomas Curry: I think the lesson learned from the crisis is that we did act, but we should have acted sooner. Mr Osterman referred to the regulatory pronouncements on commercial real estate lending that came out in 2006 and the guidance on non-traditional mortgage lending. Those two things were key to addressing the real estate boom and bust in the United States. They should have occurred earlier, but that is one lesson learned. In terms of removing the punchbowl, clearly we need to act sooner. We certainly have the tools to correct behaviour, and we need to have the judgment and resolve to do it sooner rather than later.

Q2787 Chair: You seem to be suggesting that a relatively small number of people caused all this. You have caught the lion’s share of them, but none of them believed that they were going to be caught. Clearly, if they thought the system was powerful, and there was more than a 50% chance they would be caught, there would be a deterrent value. So there is also something wrong in your relationship with the industry, isn’t there?

Richard Osterman: I’m not sure what your question is, specifically.

Q2788 Chair: If these people who have now been caught knew before the crisis that there was more than a 50% chance of being caught for the dishonest practices, and the unsafe and unsound practices, they engaged in, we would not be where we are now.

Richard Osterman: I guess it goes to the question: since there is all this deterrent ability, why were people doing these things? The other thing we need to point out and consider is that it was an economic cycle that occurred. While there was wrongdoing in the institutions that failed, there were some situations where we reviewed the failure, and they failed as a result of poor business judgment, which is not an actionable item.

The other part of this is that one of the criticisms-at least in the US-has been that a lot of the larger banks haven’t failed, because they were viewed as too big to fail, but they did not go through a receivership, they did not go through our investigative process and they were not subject to our civil actions, because they were bailed out, so these individuals are still running those institutions. We have the tools, but again there are statutory requirements. If we are dealing with removal from banking, we have to be looking at "dishonest" or "reckless disregard", and we need to have the facts to justify those actions.

Q2789 Chair: Once again on this question of the majority of people having been caught, do you think that if it were to percolate as far as Wall Street, it would be believed there?

Richard Osterman: A lot of the big Wall Street banks-the investment banks-did not fail. At the FDIC, we primarily deal with the smaller state member banks through our enforcement role. In deposit insurance, we are the back-up authority with respect to the larger banks, and where we see actions that breach duties, we will bring them. And we have; if you look at last year, we took about 500 different enforcement actions.

Q2790 Mark Garnier: Mr Osterman, you mentioned earlier that 470 institutions have failed. Out of how many is that? How many have not failed?

Richard Osterman: There are about 7,100 institutions in the United States. It has shrunk over the years-obviously it has shrunk by at least 470-but there are approximately 7,100 open right now.

Q2791 Mark Garnier: Presumably these 470 instructions were in existence when the crisis struck. That figure does not include any that may have started with a bad business model and dropped out again, so about 15% of institutions failed?

Richard Osterman: Yes.

Q2792 Mark Garnier: I want to carry on with this unsafe and unsound practice legislation. To what extent does that give you what can ultimately be described as an unlimited reach in terms of regulation? Does that unshackle you in terms of regulating institutions?

Richard Osterman: It is a broad standard; the statute gives us very broad authority. Your question was to address the guidelines that have been issued that have identified specific areas that have been viewed as being unsafe and unsound. The statute by design has been set out to give us the flexibility to address a very dynamic industry, and things that may not be unsafe and unsound at one time, or give particular effects, may be unsafe and unsound in a different situation.

There is very broad authority. We use that flexibly by providing guidelines and through the examination process in our ongoing discussions and communications with the institutions.

Thomas Curry: I think it is deliberately broad to give flexibility to apply to different factual circumstances. As Mr Osterman mentioned, some product or service may, in and of itself, not be unsafe and unsound, but if there is a concentration of that particular product, it can be unsafe and unsound. That is the primary focus of our remedial tools. When we identify unsafe and unsound activities at a bank, we look either to correct structural weaknesses or, if the product itself is inappropriate or operating in an unsafe and unsound manner, we will order the bank to exit that business.

Q2793 Mark Garnier: So you have used that in some circumstances?

Thomas Curry: Yes, we have ordered them either to limit or to exit particular activities.

Q2794 Mark Garnier: You mentioned, Mr Osterman, that you would issue guidance, and Mr Curry talked about the ongoing communications you would have with an institution. Can you think of an example where you have used the unsafe and unsound option when you have not given guidance or you have not had communication with people before? This would be a situation when, for one reason or another, you suddenly look at something, think that it is wrong and issue a cease and desist order?

Thomas Curry: We have wide discretion on how and when we utilise those tools. There is no requirement that there be some progressive-

Q2795 Mark Garnier: So you can step in at any moment and say, "We are invoking this and you can stop it." That is interesting and important.

Thomas Curry: There is the opportunity to use the unsafe examination tool, and the findings of that are the basis for taking immediate action. If you have an investigation or an analysis and assessment, that forms the basis for the informal or formal remedial action.

Q2796 Mark Garnier: You’ve also got formal enforcement action. Is that specific to bank directors? It can certainly do reputational damage to bank directors. Do you think that that in itself is a significant deterrent to individuals who are potentially thinking about doing something wrong? I will tie those two together in my next question, if I may.

Richard Osterman: I do. The formal actions are published and are public, by statute. For an individual who is working as a director of an institution, their reputation is very important, or it should be.

Mark Garnier: Particularly if they want to carry on.

Richard Osterman: Exactly. The question then is why do all these people do these things.

Q2797 Mark Garnier: This is where I wanted to draw this line of questioning to. It is my personal belief-I think it would be that of a number of people-that where you specifically have targeted and determined rules, and therefore a box-ticking culture, people will go right up to the edge of where they can see the line, and it is a very hard line or interpreted as such. You are therefore effectively saying to people, "As long as you don’t cross this set of boxes, you can do as much as you like." These rules combine to say, "Look, you have just got to play it well. We have the powers to come along and decide whether you have got it wrong for whatever reason and, if you have, not only will we come along and have a look at your institution, but on top of that, we have that enforcement action and your reputation will be damaged."

Every individual draws their own personal line in the sand. Some people will not make personal telephone calls in the office and some people will not pinch from the stationery cupboard. Those are petty things, but there is a personal line in the sand that each individual has to draw that ultimately defines the behaviour of the financial institution. I am trying to learn from you-I genuinely want your opinion-whether you think that by constructing your rules like this, you are essentially saying to people, "Draw your lines in the sand wherever you like, but the rules are suggesting that you draw them quite a long way back from where you think you might be able to go." That would encourage a more prudent approach by directors to the rules. Do you think that that is a fair analysis?

Thomas Curry: I think generally it is, and the beneficial and positive role of having active supervision is that it reinforces that.

Richard Osterman: I agree. There is the flexibility, the communication through the examination process and the tools in the various levels available through both formal and informal action. Informal actions are memorandums of understanding. The examination reports are presented to the board of directors, and there is discussion with the board of directors about the examiner’s findings and things that need to be addressed. If the findings are serious enough, there are cease and desist orders. There are various levels of tools that are available to address the issues, depending on the severity of the issue and the risk to the fund.

Thomas Curry: We try to reinforce the directors responsible in this area. They must sign the report of examination to say they have read it, and it is a return, so they are on record as being made aware of the deficiencies and the recommendations or requirements for improvement. Most of the cease and desist orders that go to the institution are through a stipulation or consent. That requires the individual board members to sign it, so that again reinforces that they are responsible for the institution-they are the backstop. The failure to comply with the cease and desist order against the institution can be a basis for the imposition of civil monetary penalties as well. So there is that undercurrent to reinforce the importance of the deficiencies-unsafe and unsound deficiencies-and the need for the officers and directors to put in place corrective action.

Q2798 Mark Garnier: One final question. Speaking as humans as opposed to regulators-not that regulators are not humans-is it your sense that all the people who are directors of these banks are taking their responsibilities seriously, or are you getting the idea that occasionally there are directors who are gaming the rules and saying to themselves, "Actually, I can go this far; I can get this close to the fence"?

Thomas Curry: It goes to whether the directors are truly independent. If they are, there is not an issue. Something you would assess as part of the management component of the exam is whether there is too much of an alignment of the board with operating management, and a lack of what we at the OCC call credible challenge. That is something we are looking for to make sure that you have an active and informed board, and that needs to be on record, through the minutes and other documentation.

Q2799 Mark Garnier: So you are encouraging credible challenge?

Thomas Curry: We believe that the boards can be an effective check on operating management, especially in larger institutions, where there can be dominant personalities coupled with the complexity of the organisation.

Q2800 Chair: Credible challenge was pretty thin on the ground in all the major board rooms of these banks in the run-up to this crisis, was it not?

Thomas Curry: That is correct. That was a deficiency that we have striven to correct. Prior to the crisis, we demanded only satisfactory corporate governance policies. Since then-

Q2801 Chair: They’ve all been pumping iron since then, and these non-execs and independent directors are much better now?

Thomas Curry: I think there is a concerted effort to have qualified people on the boards and attracted to them. It is something that we are focusing on.

Q2802 Lord McFall of Alcluith: Is corporate governance in America largely a matter for inside the institution-institutions are allowed to proceed until there is blow-up, and then they can be put in handcuffs or whatever else-or is it that the threat of formal enforcement action when you get to that stage is taken seriously by bank directors and senior management, yet because of the culture of corporate governance, it does not act as a deterrent for inappropriate behaviour?

Thomas Curry: No, I think that corporate governance is an important part of our ongoing supervision of the institutions. Where there are serious deficiencies, we look to our toolbox of remedial actions.

Q2803 Lord McFall of Alcluith: I think you said that the ethics code is just a formality.

Thomas Curry: Of itself.

Q2804 Lord McFall of Alcluith: So what is it that is driving a culture that is appropriate and conforms with your wishes? That is what I am trying to get at.

Richard Osterman: When we go in and do this examination, one of the primary things that is looked at is management, in terms of the corporate governance and the way the institution is being run. So it is something that is looked at not just inside the institution itself, but outside, by the regulators. It is reviewed and rated, and, as I have mentioned before and you have all noted, guidance is put out by the regulators and we provide training in these areas. It is something that is critically important; certainly this crisis has underscored the importance of corporate governance and while some boards were not dealing with this before, this has certainly-

Q2805 Lord McFall of Alcluith: But following up Lord Lawson’s point, it does not seem as if corporate governance has much of an effect in the financial institutions in the US. So in other words, it was left to the last minute-it was too late-so something needs to be done in corporate governance.

Thomas Curry: Mr Osterman mentioned the material and loss reviews for failed banks, and one of the factors you will find is that there was a dominant CEO and a weak and/or ineffectual board. Those findings and our experience underscore the renewed emphasis on higher standards of performance for corporate governance and individuals.

Q2806 Lord McFall of Alcluith: I am thinking of the case of Bernie Madoff. Harry Markopolos, an investment manager from Boston, told the SEC in 1999 and was ignored on that issue. Madoff himself said in court that he could have been caught in 2003, but bumbling inspectors failed to detect a fraud despite numerous red flags. They acted like Lieutenant Colombo and never asked the right questions. I quite like Lieutenant Colombo, right enough, but they never asked the right questions. Maybe what I am getting at is that, given the number of regulators in the United States and the potentially overlapping areas of jurisdiction, culpable individuals find plenty of cracks to fall down, and the regulator is behind the curve, as Madoff illustrated. We’re looking for an answer.

Richard Osterman: I wasn’t sure what the question was.

Q2807 Lord McFall of Alcluith: Well, in other words, it was bumbling regulators. There are so many regulators that it’s overlapping. You should have caught Madoff. He should have been caught in 1999 when Harry Markopolos mentioned it, but he was ignored completely. It took until the biggest financial scandal in the United States, the Ponzi scheme, before the regulators moved in.

Richard Osterman: That clearly was not well done by the SEC.

Q2808 Lord McFall of Alcluith: What have you done since then that could reassure us on that issue?

Thomas Curry: There were shortcomings in the supervisory process, I would certainly admit that. Our focus has been on the lessons learned from the recent crisis that will improve our process.

Q2809 Lord McFall of Alcluith: Okay-the whistleblower policy. Mr Curry, you say that your director’s book suggests that bank directors should consider including a whistleblower policy in the bank’s code of ethics. In your opinion, does the possibility that an employee may whistleblow on another individual’s inappropriate conduct increase the adherence to legal and ethical standards within the bank, or is the code of ethics currently just a formality, as you said to the Lord Bishop?

Thomas Curry: I want to clarify my comment to the Bishop. The formal requirement of taking an oath is not significant in and of itself in an institution. The legal requirements of fiduciary duty to the institution are of critical importance as a foundation for responsibility and legal liability for the directors of an institution. Having policies on whisteblowers and actively following that up, and having strong ethics policies, are things that we are looking for as part of a strong corporate governance system at our financial institutions.

Q2810 Lord McFall of Alcluith: It is a work in progress-how far advanced is that? Is rewarding whistleblowers a good initiative? Is it something that we should be looking at?

Thomas Curry: We have statutory provisions.

Lord McFall of Alcluith: But would you recommend it to the Commission?

Thomas Curry: It’s something that you might want to consider. Do you want to talk about the whistleblower’s statute, Richard?

Richard Osterman: We actually have a statute that provides protections for individuals who identify wrongdoing at institutions and bring that information to us so that we can bring actions. That provision is statutorily provided under the US code to provide protection for those individuals, so that they are encouraged and not chilled in bringing those types of actions.

Q2811 Lord McFall of Alcluith: One of the issues we are looking at here, which has been suggested during the evidence sessions, is something like a culture and ethics hotline for institutions. After being questioned, the UBS chief executive said that he would take that back and look at it. However, the director’s book published by the OCC suggests that "An environment in which examiners and board members openly and honestly communicate" is ideal. Mr Curry, would you elaborate on what having open channels of communication between the bank and the regulator means?

Thomas Curry: In practice it means that, particularly with our largest institutions, we have teams of resident examiners. Part of their job responsibility is to maintain open and free contact with the independent board members, particularly the chairs of the audit and risk management committees. That is one of the reasons for having them on site, so that that type of open communication and relationship can be developed.

Q2812 Lord McFall of Alcluith: How do you manage possible conflicts that may arise within your organisations as a result of enforcement officers identifying issues that were missed by the supervising examiners?

Thomas Curry: We have a fairly elaborate system of quality assurance, and we try to address that issue internally.

Richard Osterman: There are different levels of review-at the field level, the regional level and then the national level. If the issues have not been spotted by the examiners, we encourage the institutions to let us know.

Thomas Curry: One of the things that has happened-again lessons learned-is that we found, through some of the post-mortem reviews, that often issues were raised by our examiners on the ground but the recommendations got watered down as they moved up the channel. At the OCC, we basically have a hotline. If an individual examiner believes that the recommendations, after they have been through the normal channels, are not being followed through, they contact me directly.

Richard Osterman: The other thing I would mention is that we have an ombudsman’s office that is available, which has a direct line to our corporate headquarters, and issues can be addressed that way.

Q2813 Lord McFall of Alcluith: In relation to UBS, one of our regulators said that she examined UBS but the trail went cold, so they ceased their examination. Do you ensure a chain of command in organisations where you can pin individual responsibility, and therefore have a laser-like focus on who is accountable?

Thomas Curry: I think we have a system of accountability. The examiner in charge basically signs the report that they are verifying it. As Mr Osterman mentioned, we do have that in each of the agencies. There are sign-offs. If it is an institution in need of remedial action or a troubled or problem institution, the level of review and oversight increases.

Q2814 Lord McFall of Alcluith: Some information on that would be handy. Lastly, to reinforce the issue, there are number of regulators with overlapping responsibilities in the US. As regulators for yourself, do you take that as a comfort or a concern?

Thomas Curry: It is probably needlessly complex, but it has the benefit of checks and balances. I have had the opportunity to be a member of the FDIC board, to have been a state-level supervisor, and the supervisor of the national banks in the United States. An enormous amount of authority is accorded to each of those institutions individually. But in the United States, you have this system of checks and balances. The OCC is subject to back-up examination and enforcement authority from the FDIC. If I exercise poor judgment, there is a strong chance that I will be called on by a professional with equal technical skills. Most of our national banks operate under holding companies. The Federal Reserve advises the holding companies. There is, I think, a clear positive in having multiple sets of eyes with different perspectives looking at issues from the same or similar situations. It is the strength of our system that offsets some of its complexity.

Richard Osterman: It is interesting. If we were creating the system today from scratch it probably would not be the way that it is, but it is a result of history. It is a dual banking system with state chartered institutions and Federal chartered institutions. I do think, as Thomas Curry has said, that the overlap provides a very useful check and balance, particularly from the FDIC perspective. We are looking at safety and soundness of the risk to the insurance fund, not just with respect to the institutions that we are overseeing, but with respect to the institutions that are chartered and overseen by our sister regulators. It is helpful to have another set of eyes and another perspective.

Thomas Curry: There is also a healthy tension. Eliminating unnecessary risks in the deposit insurance fund is an important call, but by the same token my responsibility is also to charter banking institutions and make sure that credit is available. I think that that is a healthy tension. The FDIC may be too risk-averse, and that may have a negative impact on credit availability, so that healthy tension is a good outcome.

Richard Osterman: One thing I would note there is that as insurer, we have a risk-based premium system, so we are actually looking at the operations of the institution and the risks that they cause to the insurance fund from a possible resolution. We actually take into account the examination process, and those institutions that are deemed more risky would pay a higher insurance premium for the deposit insurance.

Lord McFall of Alcluith: As you know, we have one regulator, and the checks and balances issue is very important for us.

Q2815 Baroness Kramer: Most of this discussion is about individual sanctions, which are obviously crucial, but I want to take advantage of your presence here. For us, competition is a very significant issue in the banking industry. We have five dominant institutions and just a handful of small ones. The argument has been that if we could get effective resolution of failed banks, we could bring down barriers to entry and begin to address that competition deficit. The United States is always held up as an example of a place that manages resolution very effectively, allowing that multiplicity of new entrants. Would you tell us a little bit about your resolution procedures? What are the essential powers within them that mean you can handle the matter so effectively?

Richard Osterman: Sure. Thank you for that question. We are very proud at the FDIC that since our creation in 1933, no depositor has lost a penny from insurance. The powers that we have as receiver have accrued over the years as we have identified issues and best practice. There have been lessons learned from things that we have not done quite right during the last failure.

Q2816 Baroness Kramer: And that is different, because you are a receiver as well, aren’t you?

Richard Osterman: Yes, that’s exactly right. We are a receiver, so the Comptroller of the Currency, for a national bank for example, would appoint us as the receiver. That is generally done without a judicial process. Then once we are there, Congress has given us a broader array of powers, which we call superpowers, that allow us to resolve the institution in an effective way.

We basically step into the shoes of the failed institution and we are allowed to marshal all the assets. Courts do not have the power to enjoin us from exercising those powers or functions. We are able to stay all litigation and any claims against the institution, even if they are in court, have to come to us in the first instance to be resolved. That is actually very effective, because a lot of times the claims are valid, so we will allow them and then they will be paid out through the receivership process as we determine the valid claims, collect the assets and pay out the estate.

There are additional powers-we can repudiate contracts that are burdensome on the failed institution, and as I mentioned before, we do investigations. Part of marshalling the assets is looking at culpable directors and officers and others who have been engaged in improper activity, and bringing actions against them to bring money back into the receivership estate. Since we started keeping track of these numbers in 1986, we have brought back £6.8 billion to different receiverships. That quite often comes back into the insurance fund, because the deposit class gets paid first after the institution fails, and the general creditors get paid next.

I think the system has worked quite well. The important thing, I think, is to be able to get in quickly and act to maintain confidence in the banking system, and to make sure that the creditors are taken care of in a way that everybody understands. It is a very transparent process. People understand what the rules of the game are.

Q2817 Baroness Kramer: On timing, disaster strikes and you are immediately appointed as receiver. How quickly would that bank be up and running under a new structure?

Richard Osterman: Typically, it would the next business day. We are typically able to do a purchase and assumption agreement and acquire the entity, and deposits are quite often transferred over to the depositors and taken care of, then the receivership estate is left behind and we are dealing with resolving the claims. The depositors, however, are paid under the statute as soon as possible, which, typically, is the next business day, and people’s cheques continue to clear or whatever.

There are some circumstances where we are unable to find an acquirer, so we actually have to go through the receivership process and liquidate the institution. That would be more disruptive, and that has happened a handful of times, but depositors are paid right away and then the claims process works its way through and people are paid out of the receivership estate.

Thomas Curry: There is also a lot of co-ordination between the primary supervisor and the FDIC once an institution has been identified as likely to fail over a time horizon. The FDIC is brought in. We have discussions. There is pre-planning that is done at the institution before it fails, to ensure that you have a quick and effective resolution.

Q2818 Baroness Kramer: Just to clarify, from what you are saying, the absolutely critical power is your ability to step in as receiver with, as you say, super powers for that resolution, which would not be available in other industries.

Richard Osterman: That is correct. In fact, it is really the basis for the Dodd-Frank systemically important financial institution resolution powers that we now have under the statute to deal with these large institutions. Under the US system and US law now, bankruptcy is the preferred method for resolution of these large institutions. If, however, it is determined that the failure of an institution would cause a systemic impact on the economy of the United States and that the institution cannot be resolved under bankruptcy, there is a process through which a super-majority of the Federal Reserve board determines that the entity would cause a systemic risk and the FDIC board would have to make that same finding. They would make a recommendation to the Treasurer of the United States, who would consult the President and then issue an order appointing us as the receiver for a systemically important financial institution. Those same powers that we have been using since the ’30s would come on to us and we would resolve the institution through a resolution process, which is where those powers would come into play.

Baroness Kramer: I would love to go on, but I think I have to hand it back.

Q2819 Mr McFadden: Good morning. I want to ask you to take us through some of the individual powers that you have and to ask how they work. I will begin, however, by asking how you decide when sanctions should apply.

You said in an earlier answer, Mr Osterman, that there is a difference between a bad business decision and a breach, which is important. When our constituents see banks collapsing and when they, the taxpayer, have to step in, they of course get angry about that and about the amount of public money involved. They want people to be held accountable. What are the criteria and the grounds you use to judge whether what is involved in a specific situation is not just bad business judgment, but is conduct that should result in an enforcement action of the various types that you have mentioned?

Richard Osterman: With business decisions, you are basically looking at whether the directors were acting in good faith and made reasonable inquiries and whether it was just bad judgment. With enforcement actions, the safety and soundness standards that have been set up set out the rules of the road there, so we look at the regulations themselves. Has the regulation, which is very clear in terms of what the law is, been violated? Have there been warnings? Typically, we have discussions, as Comptroller Curry mentioned. One of the critical things in the US regulation is the constant communication between the supervisor and the institutions to identify risks. If those risks have been identified, what has the board done to address them? Are they taking proactive steps or just ignoring them or are they going forward and doing something that creates even more risk? Those are the types of things that would be unsafe and unsound practices that could get to the standard of recklessness. If it is the first time, maybe it is a cease and desist order. If it is more egregious, perhaps there will be civil money penalties. If we are dealing with someone who acted dishonestly or had a continuous course of conduct, we could be looking at removing that individual from the industry.

Q2820 Mr McFadden: You mentioned recklessness. Is that an important criterion for you? That conduct may not have been dishonest, but it might have been reckless.

Thomas Curry: It is the statutory basis for the civil remedies we have, as opposed to potential criminal liabilities. It is on a lesser standard.

Mr McFadden: Let me take you through some of the penalties that we wish to apply. You have this concept of institutional-affiliated party. I want to be clear about who this is. The definition from the statute talks about any director, officer, employee or controlling stockholder. In layperson’s terms, does that mean that institutional-affiliated party can go right from the director to the person sitting behind the counter in a branch of the bank? Is it universally applicable right through the bank?

Richard Osterman: Yes.

Q2821 Mr McFadden: So you have the power to apply sanctions against individuals right from the top to the bottom?

Richard Osterman: Correct.

Q2822 Mr McFadden: How do you deal with this concept that John McFall touched on and that we have become concerned about, of constructive ignorance? Something has gone wrong in a bank, but the person at the top says, "I didn’t know about that. You know; it’s a big and complex organisation. We employ thousands of people. I cannot be expected to know what is going on in every corner of this institution." What we found in some of our questioning is that there is almost an incentive at the top of banks not to know, so that when regulators come calling, it is better to appear ignorant than complicit, and that that can get directors or senior staff off the hook.

Thomas Curry: That is where it is important, from the supervisory context, to bore in and make it clear that individuals are responsible. There are ways to do that. We have talked about the reckless standard. If the examination has identified weaknesses and brought them to the attention of the operating management and the board, and then they continue to do that, I think you have a basis for establishing reckless conduct. But you have to use that tool to do it.

Also, as with our rule-making authority and our ability to establish less formal guidance, we can specify what those responsibilities are and narrow the ability to claim ignorance or lack of responsibility.

Richard Osterman: There is a distinction that we need to keep in mind between officers and directors-officers who are engaged in the day-to-day operations of the institution and the directors who are supposed to oversee and manage the institution. The directors’ job is to manage and understand what is happening. So a lot of times, the examination process identifies the issues and brings them to the attention of the director: "These are issues that need to be addressed. You have an over-concentration, where you are not complying with your underwriting standards." That is where I think the accountability comes, when we have been able to cut through the chain, from officers all the way up to the board level, in identifying those issues. I do think that directors cannot be expected to know everything that goes on in these complex institutions.

Q2823 Mr McFadden: I was also talking about senior staff who have used this defence as well, not just non-exec directors.

Are you saying that, from where you sit, on your side of the desk, ignorance is not a defence?

Thomas Curry: Yes.

Richard Osterman: Yes, I totally agree. We had a case once where the defence of the director was, "I never went to any board meetings." That was great. We won.

Q2824 Mr McFadden: Okay. Regarding the penalties themselves, outline some of the enforcement actions that could be taken against an institutional-affiliated party. Take us through the menu.

Richard Osterman: It is basically what Comptroller Curry identified up front. We can take all the enforcement actions, starting with a cease and desist order, a civil money penalty or a removal or prohibition.

Q2825 Mr McFadden: Let me ask you about those, starting with cease and desist. We had a huge scandal here, which had gone on for more than a decade-some might argue that it had gone on for up to 20 years-about payment protection insurance, a particular insurance product associated with mortgages, credit cards and so on. Part of the problem was that it took years of regulators examining whether that was really wrong and what criteria it should have been sold under. A cease and desist order allows you to go in when something smells bad, before you have concluded all inquiries, and say, "We want you to stop selling this product and not to restart selling it." Is that an example of the kind of thing you are talking about?

Thomas Curry: We could have the authority to address that practice prior to a cease and desist order, through the informal tools. If there were concerns about the propriety of the product or whether it was in conformance with applicable law, you could require corrective action just through the examination process-through a supervisory letter or directives or recommendations with a report. If there was an unwillingness or failure to follow through on those recommendations, you would escalate it with the formal cease and desist tool, which would make it mandatory.

Q2826 Mr McFadden: Can you call a halt to the sale of a financial product that you have concerns about?

Thomas Curry: If it were determined under the umbrella of unsafe and unsound, yes.

Richard Osterman: Most of the cease and desist orders, if you look at the statistics on this, are consent orders. The institution consent to the cease and desist order and they correct the action. If they do not consent, we go through a more formal process, whereby a notice of charges would be issued and they would have an opportunity for a hearing-you can go on until you get into an administrative process and, ultimately, review in the US courts.

Q2827 Mr McFadden: I imagine you would get quite a lot of push-back. I imagine you would get people saying, "Look, there’s a customer demand for this financial product. Our bank is making money out of it. Why are you, a regulator or bureaucrat-this or that-coming along, telling me that I can’t run my business?" Is that the kind of push-back that you get?

Thomas Curry: Ordinarily, yes, but in the United States the banking agencies, along with the new Consumer Financial Protection Bureau, have the ability to enforce provisions on unfair or deceptive acts or practices or, in the case of the CFPB, abusive practices. That is clearly a law that we enforce. We have the ability to mandate compliance with it. There will be push-back over whether the law applies, whether the act or practice is unfair or deceptive.

Q2828 Mr McFadden: Roughly how often is a cease and desist order used in a given year? How many of these are there?

Thomas Curry: There have been a lot of them in the last few years.

Richard Osterman: Yes, last year 121 were issued, and there were over 100 in the last three or four years.

Thomas Curry: The OCC, from 2008 to 2011, had 471 enforcement actions; 159 were cease and desist orders and 312 were formal agreements, which are public documents as well.

Q2829 Mr McFadden: That is where you come to an agreement with the bank, rather than having to issue-

Thomas Curry: As Rick mentioned, most of them are not litigated, so most of those were by consent.

Richard Osterman: But they are formal cease and desist orders. What that does not include is the more informal actions, where we would enter into a memorandum of understanding or the institution would just say, "You’re right. We’re going to stop." Then we do not need to issue those.

Q2830 Mr McFadden: Let me ask about another one. You said you could stop an individual working in the industry. I am interested in the scope of that sanction. We have heard evidence that some individuals who have been engaged in very bad practices have ended up just getting jobs with another bank and sometimes taking their compensation package and their deferred bonuses with them. In sporting terms, their contract is bought out; I’m talking about when a player is moving from one team to another. How wide are your powers to stop that kind of thing? Do they apply, for example, just to the jurisdiction of the United States, or can you stop someone getting a job with a bank in another country?

Richard Osterman: I don’t believe our powers are extraterritorial. They deal with US institutions generally.

Q2831 Mr McFadden: Are they time limited?

Thomas Curry: No. It is for a lifetime.

Q2832 Mr McFadden: Again, in a given year over the last couple of years, how many people might that kind of sanction have been applied to?

Richard Osterman: Sure. Just last year we had 108. I think I have the statistics on me for the past few years: we had 108 last year; we had 100 in 2011; and 111 in 2010.

Q2833 Mr McFadden: So it is 100 plus a year?

Richard Osterman: That is just the FDIC.

Thomas Curry: We have additional actions that we would have taken and the Federal Reserve System would have them as well.

Q2834 Mr McFadden: And typically you are not in the sin bin for two years; it is a lifetime.

Richard Osterman: Lifetime.

Thomas Curry: Lifetime.

Q2835 Mr McFadden: You are out for good. Okay. I just want to finish by asking you about the civil money penalties. Again, one of the huge frustrations in recent years is that when banks have fallen foul of regulatory rules, often the institution receives a large fine, which can sound like an awful lot of money in relation to everybody’s normal calculations, but against their profits for the year they might actually be regarded as a cost of doing business. The financial penalties for individuals often seem much more difficult to pin down and are often not there at all. What kind of financial penalties on individuals can you levy and do you levy?

Thomas Curry: We are authorised to levy the CMPs against individuals as well as institutions. With individuals it is going to depend on whether the behaviour was egregious.

Richard Osterman: It is the same for us.

Q2836 Mr McFadden: What cultural difference do you think that makes? Do you think that makes individuals behave differently? Do they fear the regulator more than in a world where if I do wrong, it is my employer who is going to get fined rather than me?

Thomas Curry: I think the prohibition provision is a very drastic sanction. I think that people understand that it is a serious consequence for inappropriate behaviour.

Richard Osterman: I think the prohibition, as well as civil money penalties, is effective. Unfortunately, there will be people, no matter what the penalties are, who think they are going to be able to get away with it. Some fall through the cracks. But I think those penalties are generally effective. When you look at the total number of institutions, 460 failed, so not all the institutions were engaged in this type of activity.

Q2837 Mr McFadden: You said that 100-plus individuals were faced with a banning order. On the civil money penalties again, in a typical year do you know roughly to how many of those this would be applied?

Thomas Curry: We would have to get back to you.

Q2838 Mr McFadden: Could you get us a note on that?

Thomas Curry: Yes.

Q2839 Lord Lawson of Blaby: Following on from what Pat McFadden has been asking you, may I take the opportunity of your presence here to seek your advice on one or two things that the British Government have in mind at the present time? First, they are thinking about-they have not come to a conclusion yet-legislating to provide that if someone at a senior level has been associated with a failed bank, for whatever reason it has failed, there is a presumption that this person cannot hold a senior post again in the industry unless they can demonstrate reasons to contrary. This is associated with another provision they have in mind which is that if a person has breached the conduct requirements, even if the bank has not failed, then again, there is a presumption that they cannot hold a senior post again unless they can demonstrate reasons why they should. What do you think about this? Do you think it is right? Do you think it goes too far or do you think it doesn’t go far enough?

Thomas Curry: I can only refer to our experience. Our approach is different in the United States. It is individualised conduct. It is not based on a presumption based on your prior employment.

Q2840 Lord Lawson of Blaby: No, this is nothing to do with presumption. The presumption is that the penalty will be that the person cannot hold a senior post again in the industry; it is not a presumption of an offence. A bank may have failed, and you may be a top manager-you may hold a senior executive position. These are not presumptions; these are facts, right?

Thomas Curry: The presumption is that you are not qualified or that you are prohibited from serving?

Lord Lawson of Blaby: Yes.

Thomas Curry: That is not the approach that we have in the United States.

Q2841 Lord Lawson of Blaby: No, but what do you think about it? Do you think it is silly, sensible or what?

Thomas Curry: I will just say that the approach that we have in the United States has worked for us.

Richard Osterman: I would venture to say banks fail for many reasons. Our experience in reviewing these failures and bringing actions, as I mentioned before, is that the figure was 25% in the last crisis, and I do not know what it is going to be in this crisis. We found that we had people who we should bring claims against. That type of presumption is certainly an interesting idea, and it certainly would create a sense of urgency on the part of people who are engaged with institutions that may be subject to failure. But the question might be, what impact is it going to have on individuals wanting to serve? I do not know. It is just something to consider.

Q2842 Lord Lawson of Blaby: Another thing the Government are thinking about is creating a new criminal offence of serious misconduct in the management of a bank. Do you think that would be helpful?

Thomas Curry: The prospect of criminal sanctions is something that gets people’s attention, so it may have a deterrent effect.

Q2843 Lord Lawson of Blaby: But you do not have that in the United States, do you?

Thomas Curry: There are criminal penalties, but they are not administered by our offices.

Q2844 Lord Lawson of Blaby: No, but you know the system. Do you have a criminal offence on the statute book of serious misconduct in the management of a bank? If you do, how do you feel it works out in practice?

Richard Osterman: I don’t think we do. We generally deal with misconduct in the context of tort or enforcement action. The criminal activity would generally have to involve knowing violations. There are criminal statutes for various types of fraud and that type of thing, and where those are found, we do make referrals.

Q2845 Lord Lawson of Blaby: This does not go as far as fraud, as I understand it; it is misconduct, which may mean, as Pat McFadden was saying, extreme recklessness, but that is not the same as fraud.

Richard Osterman: Recklessness, generally, I don’t think, is viewed as a criminal type of activity-it has, at least, generally been viewed that way. Certainly, legislature can determine, as a matter of policy, that is what they think it should be.

Q2846 Chair: You are being polite throughout, but you are not a great enthusiast for either of these ideas, are you? I am sure they will not be completely new to you.

Richard Osterman: I think that’s fair.

Chair: I am trying to be as friendly as I possibly can.

Q2847 Lord Turnbull: I want to expand a bit on the questions Pat McFadden asked you. There is a great deal of frustration in this country that three major banks have failed. They have not been fined, because they have been nationalised, so the state would just be fining itself. One person out of this whole sector has received a regulatory sanction. You may have a better handle on trying to identify individual culpability where people are, nevertheless, acting in a collective sense. How do you penetrate a defence that says, "There was a strategy. It was developed and approved by the board. All the actions were approved by the board. I reported the conduct to the audit committee. It was all in our annual reports"? How can you, nevertheless, pick out an individual, as opposed to the institution, and subject them to regulatory sanction?

Thomas Curry: That is really the difficulty. You need to be able to have, as we mentioned earlier, some record pointing out the inappropriate behaviour, and having continued activity despite that warning; or you need to have some kind of clear articulation of responsibility for those individuals in the corporate setting.

Richard Osterman: I think it does go to the corporate governance and how the institutions set up, and ensuring that they have got the appropriate checks and balances; and it does come up through the examination process. Again, I think by having the examination reports being submitted to the board for their review and approval, and having those discussions, the issues are highlighted and brought to that level. Certainly, in a failed bank context it is a little easier, because we have all the records there. As an open bank, actually, we have access to the records and we are able to go in, but it is really a matter of identifying where the issue is. A lot of times it is at the day-to-day activities, which generally don’t get to the board; and that is an important step that needs to be taken.

Q2848 Lord Turnbull: We have cases, really, where people can say, "In terms of our corporate governance, they have ticked absolutely every box; and yet they have presided over an outcome which has cost the nation tens of billions of pounds, and we don’t seem to be able to pick them out and target a particular sanction on them."

Richard Osterman: A lot of times directors and officers are relying on other professionals to provide advice. They are not experts in these different areas. One of the other things that we look at, in failed banks, is the fact that there are lawyers; there are accountants; there are appraisers; there are others who are engaged in providing advice. As a director or officer you are getting all these reports from these so-called experts. You are not expected to be an expert yourself. You are expected to review those reports, understand them and use business judgment. That is where the business judgment issue comes in.

Q2849 Lord Turnbull: I think you are saying you are finding pretty much the same problem that we are finding. It isn’t satisfying people’s view, in view of the damage that has been done.

Richard Osterman: indicated assent.

Q2850 Lord Turnbull: There is a group of banks, not regulated by you, I recognise: major Wall Street failures either had to be rescued by other banks with the help of the Government; and Merrill Lynch, Bear Stearns and Lehman’s. How many of the senior players in those banks suffered any regulatory penalty?

Richard Osterman: I am not sure. I think one of the issues was a lot of those weren’t subject to regulation, in the too-big-to-fail issue. One of the things that the Dodd-Frank has been set up to try to address is the ability to resolve these entities instead of bailing them out, so that people can be held accountable in that way. Certainly there have been losses to their portfolios as a result, but in terms of regulatory action-it is not our area.

Q2851 Lord Turnbull: They destroyed billions of dollars of value for their shareholders. They required assistance from TARP schemes and so on, and put at risk public funding; but I think you are saying that you have not really been able to pin a regulatory sanction on them any better than we have.

Richard Osterman: I am not sure this is the right panel to ask that question of, since we do not have-

Q2852 Lord Turnbull: I absolutely accept that, but you are a part of this regulatory world. I am just asking you as a piece of background information for us, really: whether the people that were either SEC or Fed-regulated were any different-the outcomes were any different.

Richard Osterman: I think there is a frustration in the United States as well.

Thomas Curry: Also, there are provisions in the Dodd-Frank Act that would subject individuals to sanctions.

Q2853 Lord Turnbull: We are at a stage where we are reshaping our regulatory institutions, and there is still unfinished business; that is partly why this Commission exists. In the US, has Dodd-Frank effectively completed that process, or is there debate that there is more still to be done?

Thomas Curry: The debate is going hard on whether Dodd-Frank is effective. We still have some significant pieces of the implementing regulations to put in place, and the Volcker rule is one example of some of the mortgage-related provisions that still have to be adopted. But there is a strong and ongoing public debate on whether the institutions should be broken up as a better or preferred solution.

Richard Osterman: I think the nature of the industry is that there will always be debate. We continue to evolve. We learn from mistakes. If you look at our history, you see changes in the laws over the years as we identify things that need to be addressed.

Q2854 Lord Turnbull: This is my final question. There is a popular car sticker that states, "Don’t follow me, I’m lost." We are following you, so do you want to warn us of anything? Is there something that you have tried that really did not work and so we should not go down that line?

Richard Osterman: I think one of the reasons why coming to speak to you is a great opportunity is because we are all learning from each other. There is much more recognition of the fact that we are dealing with a global economy, and these institutions cross national lines. We work with our colleagues at the FSA and the Bank of England here; we are dealing with cross-border resolution groups in dealing with these issues. We are continuing dialogue and learning from one another. We certainly do not have a lock on all the things that are right. As has been indicated, we had a pretty bad situation over in the US.

Chair: You are a diplomat, as well as a regulator, Mr Osterman.

Q2855 Lord Lawson of Blaby: I am interested in the answers to Lord Turnbull. Mr Curry said that there is a discussion going on in the United States about whether Dodd-Frank is going to work sufficiently, or whether it would be necessary to go further and require some of these banking institutions to be broken up. Could you tell us more about that?

Thomas Curry: That is the broader public policy debate. As a regulatory agency, our approach is that we have been handed the Dodd-Frank playbook, which is what we are working off.

Q2856 Lord Lawson of Blaby: I am sorry, but I am rather ignorant. What is the debate in the United States about breaking up these institutions?

Thomas Curry: It is related to my point. The response to the global financial crisis by Congress was to create the Dodd-Frank Act to deal with the systemically important financial institutions. On the resolution provisions that Rick mentioned earlier, we are still in the process of completing the entire architecture of Dodd-Frank from the on-the-ground rules. That has led to people saying, "Well, it doesn’t work because it is not finished." But our view at the OCC is that we are going to work with the other regulatory agencies. Besides the resolution provisions of Dodd-Frank there are some prudential supervision refinements that will, I think, deter some of the abuses that occurred in the past and give entities such as the Financial Stability Oversight Council the ability to act where there wasn’t action before.

Richard Osterman: One of the things that you may find interesting is that, under title 1 of Dodd-Frank-title 2, which is on the actual break-up if we are appointed as receiver for one of these large, systemically important institutions, is what I was talking about before-there is more of a prudential, supervisory provision whereby the Fed is going to have oversight. Certainly the institutions that the OCC oversees already are covered by that.

Large institutions, those over $50 billion, under title 1 are required to file resolution plans, which are called "living wills," with the FDIC and the Federal Reserve board. How would they be broken up, or how would they be resolved, if they were going to fail? In the last crisis, we were basically faced with bankruptcy or bail-out, and bankruptcy was not viewed as an available option because of the potential impact on the global financial system. With Dodd-Frank now, we have the tools to look at these institutions through these living wills and determine whether-again, the presumption is that they are going to be resolved through bankruptcy.

Will a bankruptcy plan work, based on these living wills? If it will not, then the Fed and the FDIC have the authority to go back to the institutions and say, "You need to make changes. You need to have more capital. You need to make changes in terms of your structure." That would be done through orders that were issued, and the institutions would come back and address those. And if they are not done satisfactorily, then the FDIC and the Fed would have the ability to issue orders requiring those institutions to be broken up. That is in the statute.

That is something that we are right now in the process of getting into. We have had the first plans filed, by institutions of $250 billion or more, last July. Those of institutions between $100 and $250 billion will be filed this July, and then those of $50 billion and over in December. Meanwhile, we have the FSOC-the Financial Stability Oversight Council-which can designate non-banks as systemically important, and they would be subject to this regulatory scheme as well. So that is something that we are right now in the process of working through, and there will be a lot of dialogue and a lot of discussion as we work through these issues.

Chair: I am sure it is entertaining the lawyers as well.

Q2857 Baroness Kramer: A very quick question. You say that the resolution powers for the large institutions would enable you to break them up if the resolution plan was not satisfactory. Just for clarification, because it is relevant here, is that break-up in the sense of Vickers-in other words, certain activities are separated through that mechanism-or is it merely in terms of size, so that you could, as it were, take out the Volcker stuff but otherwise maintain these all-encompassing activities, but just in smaller packages?

Richard Osterman: I think there is flexibility to address both. It is going to depend on the facts and circumstances. We are a long way from that happening, of course, and if we ever did get to that point, those orders of course would be reviewable and we potentially go through a judicial process.

Q2858 John Thurso: A lot of what we have been discussing this morning is freely around who should be sanctioned and what they should be sanctioned for. What you have told us is very interesting and helpful. May I check a couple of things? Mr Curry, in your very helpful director’s book, the first point that you make is right at the beginning-that bank directors face a unique challenge compared with other companies that elect directors, because banks differ from other corporations. May I check that both of you start from a premise that the governance of a bank is different, or in addition to, the governance of any other ordinary corporation?

Thomas Curry: Our starting point is that it is a unique corporate charter, that it has some benefits of Federal deposit insurance and access to the Federal safety net, and that it requires a higher standard because of that.

Q2859 John Thurso: You also make it very clear that they have accountability that is equally important to depositors and regulators as to shareholders. How important do you think that differentiation, both in accountability and therefore in governance, is to defining how you go about setting up a sanction regime?

Thomas Curry: I think it is very important. I think that the expectations we have set for directors are very high. It is something that we are assessing on our on-site reviews for examinations. During that process, informal action is taken and the statute allows removals. But if there are deficiencies in the operating management or a dereliction of duty by board members, we routinely require the institution itself to redress those deficiencies. So they will have voluntary forced separations by officers or individual directors stepping down. Then, depending on the nature of the issues or deficiencies, you would go into the more formal statutory remedies.

Richard Osterman: Banking is a highly regulated industry, when you look at it compared with other industries, with the continuous oversight through the supervision and the examination process, and these enforcement tools are quite unique to the banking-

Q2860 John Thurso: My second point, also coming from the book, which I found very interesting, was-again, this is from the OCC’s book-the supervision by risk programme and the eight risks you define, many of which you would fully expect to see there. Given that comprehensive list of eight risks-how can I ask this question? It is really about looking at the bigger institutions that got into trouble and haven’t failed, because they have been bailed out. If you have those eight risks so well set out, and you have a handbook that so well sets out their accountability, and you have a risk programme, how come they completely failed to operate that risk side of it-as clearly they did-in what they did?

The reason behind that question is that a great part of what we are looking at is trying to work out what was regulatory failure and what was board failure, and what should we sanction the board for, as opposed to saying, "Well, it was a very special time." What specifically are we after the board for? Looking at those eight risks, which are a very good definition, what is it that we should be looking to the directors for in this? What have you analysed on that?

Thomas Curry: What we try and do with the risk factors-we have two systems. The CAMEL system is a point in time, so that is your snapshot of the institution. RAS-the risk assessment system-is intended to be more forward-looking: what are the trends? The purpose behind that is to be a red flag to the board as to emerging weaknesses, to put them on notice and also to require corrective action sooner rather than later.

Q2861 John Thurso: I am trying to be gentle, because it is very nice to have you over here, and I would like to come and visit you again, but what I am gently asking is how come-I think it is a neat system you have here-we over here and you over there missed the fact that there was a socking great strategic risk that none of us picked up? Should we be holding directors accountable for that, or was it simply that actually, we were wrong in society, in politics, in governance and in regulation?

Thomas Curry: I think that is the underlying theme here. The issue is whether or not it was an error of business judgment or whether it was a form of culpability. I am not quite sure, without looking at the individual facts and circumstances, whether you can slot it into the culpable category.

Richard Osterman: I would agree with Comptroller Curry. When we look at bank failures, typically when we bring actions, the defence that is often raised is, "It was the economy. It wasn’t our fault and we did not have any control over what happened." There was some of that, for sure. The actions that we bring are where we have found that institutions and individuals have been engaged in violating their own policies-for example, underwriting policies.

Q2862 John Thurso: Or not having the right policies to start with.

Richard Osterman: Yes.

Q2863 John Thurso: May I ask you about the co-operation between yourselves and various other agencies? In answer to Lord McFall earlier, you very helpfully talked about the overlap. Is there any underlap-that is, are there gaps?

Thomas Curry: There is a potential for underlap-that we are not comparing notes between the different disciplines. That is probably most pronounced between the prudential bank supervisors and the market regulators, but again, that was the purpose of establishing the Financial Stability Oversight Council-FSOC-under the Dodd-Frank Act. That requires us to meet as principals of each of the agencies at a minimum once a month with the Treasury Secretary to talk about emerging risks and basically encourage co-ordination and co-operation.

Generally, we have excellent on-the-ground and agency head levels of co-operation, particularly in the banking sector, and also long-standing, though probably not as strong, with some of the other financial regulatory agencies.

Q2864 John Thurso: Another question, perhaps for both of you, is about the merits or demerits of placing the responsibility for enforcement actions in a different agency from the one responsible for supervisory actions. Do you think they should be together or apart?

Thomas Curry: I think it is important to have it in the same agency. Enforcement is really a tool for the supervision of the institution at the end of the day, particularly under our Act section 8(b), the cease and desist orders. They are designed to be corrective measures. They have the ability not only to stop bad behaviour but to require improvements. That is a valuable supervisory tool. There is certainly an element of deterrence and punishment associated with enforcement orders, but the primary purpose is as a tool in supervision.

Richard Osterman: In terms of efficiencies it makes perfect sense to have the supervisor have the authority take the enforcement action. They are the ones on the ground and have the ability to understand the issues, as opposed to having a second group come in and try to oversee that. It works quite well. There has been concern about regulatory capture in terms of getting too familiar with the institution. That is something that we are sensitive to. We do have that again in the US, with this back-up authority. We are not the chartering authority. We don’t supervise some of these institutions and so we work with our colleagues at the other agencies and take a second look at what is going on. We have a programme where we have dedicated examiners to the larger institutions who are there year round basically to understand what is going on and identify issues. Again, we would work with the primary regulator to identify those and have them addressed.

Q2865 John Thurso: One final question, if I may. We are in a global environment for many of our top banks and your largest banks. This is a double-edged question. One, how much do you co-operate with or speak to and share information with regulators in other jurisdictions? Two, is that sufficient, or is there any need for more co-operation?

Thomas Curry: In the regulatory world there is always a need for more co-operation, but I think we do have the basic mechanism and structure in place. There are supervisory colleges that the OCC and the other Federal bank regulators are active members of. There are local supervisors as well. It is an area that we are going to seek to improve as we go forward.

Q2866 Chair: Do you have an active programme among yourselves, the three main regulators, to try to bear down on regulatory capture? Do you mark each other?

Thomas Curry: I think there is a sensitivity, as Rick mentioned, to the issue. There are also some statutory provisions that help. There are policy restrictions and now statutory restrictions on flipping your regulator. There is the ability to choose your regulator in the US. Federal law prohibits a troubled financial institution from switching its regulator. That helps avoid regulatory capture. We have limitations on terms for EICs. There are limitations on their ability to seek employment post Government service.

Richard Osterman: EICs are examiners in charge.

Q2867 Chair: But what you are basically saying is that you already have a set of established tools to deal with regulatory capture, and that you do mark one another’s prep.

Thomas Curry: We do, and the key function is the overlap that we have and the back-up authority that the FDIC has.

Richard Osterman: Through the insurance function particularly because, as I said, we look at the ratings-that is part of what we look at in terms of the risk to the insurance fund.

Q2868 Mr Love: Earlier, in an answer to Lord McFall, you indicated that there was legal protection for whistleblowers. I know this is not directly in line with your role, but we are looking at whether we should incentivise whistleblowers as you do in the United States. Do you think that is a major contributory factor in people coming forward in the institutions that you regulate?

Richard Osterman: It is part of an effective toolbox. I don’t see it coming into play that often, but I think it is an additional tool that is useful to have.

Q2869 Mr Love: Also in an earlier answer, you took our breath away when we heard the sheer scale of the civil money penalties that you impose on individuals. I wonder whether part of the rationale for that was to persuade those individuals, in the light of the possibility that such a heavy fine would be imposed, to come forward and turn evidence against other colleagues. Is that part of the rationale for the very heavy fines?

Richard Osterman: Certainly the result is that they create an incentive to co-ordinate and address issues before they become issues. I think it is a helpful tool.

Q2870 Mr Love: I am talking outside the scope of your regulatory activities, but on Wall Street we hear constantly about the penalties that are imposed, civil or criminal, being an incentive for people to come forward to tell the truth about the activities that have been going on and to spill the beans about their colleagues who may have been involved in insider trading or other activities. That does not happen very often?

Thomas Curry: That is probably more likely to occur on the criminal side than in what we do. We have free and open access to the books and records of the institutions. We have open communications and if people have information they want to share with us, they can do so through the examiners on site or our regional headquarters staff, so we do not need to deal with a case like that.

Q2871 Mr Love: Does the way that both your organisations are funded make it easier for you to pursue formal enforcement actions? Is that a security?

Richard Osterman: Yes. The FDIC is funded not by taxpayers, but by industry assessments, so the funds for our operations are readily available. In a failed bank situation, as the receiver we use the funds from the receivership estate to investigate and bring an action. In fact, we look very carefully at whether bringing an action is cost effective, and I gave you figures in our recovery actions. When we recovered $6.8 billion, we spent $1.87 billion, but those funds came out of the receivership estate, not from the FDIC.

Thomas Curry: The OCC is funded by industry assessments as well, and we have budgetary independence. We don’t have to have appropriation from Congress. We set our own budget. We have quite a lot of latitude in hiring and setting compensation levels so that we can attract competent staff on the examination side, and we have a small army of lawyers.

Q2872 Mr Love: So you set a lot of store by the independence that the way that funds are raised gives you?

Thomas Curry: Yes. We determine what our needs are from a budgetary standpoint, and we assess the industry. That is critical to our independence.

Q2873 Mr Love: In your answer, you touched on the fact that you literally came with all your own staff. You do not look to outside expertise. What is the rationale for that? Is it building up a body of expertise? Is it financial? Why do you do it in that particular way, because most of you do?

Thomas Curry: We try to retain people for the long term. We generally have people with lengthy experience of litigation in with the bank regulation, so that is an added plus of having in-house staff. It is also probably more cost-effective. Even though we have some freedom from the Government pay scales, we still pay less than the high-priced law firms in jobs and salaries, so it is cost-effective. In terms of our enforcement activities, the investigatory work is really done by our examiners inside the banks, so that is also an advantage of keeping it all in-house.

Richard Osterman: There is a critical distinction with the FDIC in the OCC, in that on the enforcement side of the house we are exactly as Comptroller Curry says as well. It is a governmental function, in terms of the supervision-this is tied to that supervision-and so we do that pretty much exclusively with our own in-house lawyers and expertise.

When dealing with the receivership side, there we do use outside counsel, and a lot of that is because a many of these actions we are dealing with are based on common law-breaches of fiduciary duty, negligence, tort, gross negligence-and we are dealing with institutions all over the United States, with different state laws that we have to address. So we have a group, a unit, within the FDIC that oversees all professional liability cases-they have the expertise, they oversee outside counsel. We actually provide the outside counsel with training, and we oversee all their pleadings. Basically, they cannot file anything without prior approval. In fact, the actions that are brought require that, after our investigations, we bring those proposed actions to our board of directors, and our board of directors has to approve them to determine that they are meritorious and cost-effective.

One of the things that we shared with you was the policy statement that we issued back in 1992, at the height of the last crisis we had in the United States, where we were hearing at least a lot of chatter about how no one wants to serve on a board because whenever a bank fails, the FDIC is suing. There was concern that had no basis. We wanted to put out to the industry and to the public what our policies were. We take these cases very seriously, we do a thorough investigation, we look at the facts and circumstances, and we are only going to bring an action if we find it meritorious and cost-effective. In doing that, we do use outside counsel on the receivership side.

Q2874 Mr Love: On your own staff, is there a lot of movement between the OCC and the FDIC? Is there competition? Do you bid up the salaries of your employees? Tell us all about it.

Thomas Curry: We try to stay comparable.

Richard Osterman: I think we have a few people from OCC at the FDIC, and vice versa. Actually, I think that that cross-fertilisation is useful.

Q2875 Mr Love: Let me ask you one final question. This may not be directly within your purview, but I am sure you will have a view. One of the biggest scandals that came out in 2007 was of course the selling of sub-prime mortgages. There was a lot of comment at the time that consumer protection was not a solid part of the structure in the United States. Dodd-Frank has addressed that by setting up the body you mentioned earlier on for consumers. What interaction do you have as regulators with that body? Do you feel confident that it will address the consumer shortcomings that existed prior to Dodd-Frank?

Thomas Curry: We have a very good relationship with the CFPB. The director sits on the FDIC board along with three independent members of the Comptroller of the Currency, so there is interaction there. I make it a point to meet at least twice a month with the director to talk about issues of concern with the institutions we commonly supervise. Often, we have been taking efforts to make sure our enforcement actions are co-ordinated. Usually, there is a risk management shortcoming that is associated with a consumer protection weakness. We want to hit it from both sides, so we have a very good working relationship on the enforcement level.

On the exam level, there are on-site examiners, who are usually together at the same institutions if they are over the $10 billion cut-off. Senior management meets frequently to talk about supervisory or policy issues and regulatory issues. We are working very hard to make sure that we work in a co-ordinated fashion, and one of the goals is to make sure that we are not putting the financial institutions we jointly supervise in a regulatory crossfire, by asking them to do inconsistent things at the same time.

Richard Osterman: One of the lessons of the last crisis was that these consumer issues were an important factor, and certainly the creation of the Consumer Financial Protection Bureau is recognition of that. As Comptroller Curry mentioned, he sits on our board as well as the director of the CFPB, which gives us that consumer perspective. While CFPB has oversight of the consumer laws generally, we still have jurisdiction over the consumer issues in connection with our institutions of $10 billion or less. There is a lot of co-ordination; in fact, the CFPB is a block away and we are constantly working with them. We have co-ordinated enforcement actions with them as well.

Q2876 Mr Love: As I understand it, one of the real problems at that time with sub-prime mortgages was that state regulation varied from the quite tense to the almost non-existent. Does the consumer body have powers to ensure that there is a minimum standard?

Thomas Curry: Sure. I was the state regulator at that time in the Commonwealth of Massachusetts. We were actually quite active and had sounded the alarm on some of the sub-prime lending practices that we viewed as predatory and unsound from a safety and standards standpoint. The advantage of and one of the reasons for having the CFPB is exactly as you stated: to establish a Federal floor for consumer protection that would in most instances provoke the individual states to increase the level of protection within their jurisdictions. It addressed one of the major jurisdictional issues and one of the reasons that sub-prime lending was not regulated sooner.

Q2877 Chair: We on the Commission are thinking about whether we should expect the regulators to toughen up their approved persons regime. That is the regime that enables them to prohibit a person from being employed again in the industry in the UK. If such people come to the US subsequently seeking employment, do you immediately engage in some particular checks, knowing that someone has come from another regime? Are you even told by the FSA that there is such a person who is understood to be seeking employment in the US?

Thomas Curry: My understanding is generally that that is done through the institution itself. We would not be involved unless some triggers were hit in terms of the status of the institution-if it were in a troubled condition or under a capital restoration plan.

Q2878 Chair: What I am groping towards is whether we can find some sort of mutual recognition of standards for approved people. Even if each country wants ultimately to carry on running their own show-quite understandable and perhaps there is some benefit in that-none the less, there could be triggers, well understood and accepted by those in the industry, that will follow, so that we can deal with this aspect of regulatory arbitrage.

Thomas Curry: I think that would be an important thing to address. To have mutual recognition or at least to be-

Q2879 Chair: Is it under discussion? It will give us a feel for whether this is on the agenda.

Richard Osterman: I am not sure that it is. If an institution is applying for deposit insurance, we have the ability to look at the management structure and the individuals. Certainly, if we saw someone who had been removed, or had criminal actions in the UK, that would be a basis for not allowing them in. There is a question if they come through without some type of review. In the US, we have provisions, so if somebody has been convicted of a criminal offence involving dishonesty, breach of trust or money laundering, they are out-they cannot be engaged in a financial institution’s operations. We mentioned earlier the removal and prohibition. Once they are removed, they are out. In terms of the international side, it is a useful thing we should have.

Q2880 Chair: There are two main markets. If those two main markets move in the same direction, others will follow and we will create a more effective tool. Do you think there is merit in this?

Thomas Curry: Yes.

Richard Osterman: Absolutely. I think it is in everyone’s interests to do that.

Q2881 Chair: It is not yet going on. One of you, probably both of you, would be aware of it if it was?

Thomas Curry: A lot of that activity, the reviewing for individuals, occurs at different levels in our organisations.

Q2882 Chair: I am talking about top-flight policy making on how to get mutual recognition of the approved persons regime. You would be aware of that, if it was going on?

Thomas Curry: Yes.

Chair: Thank you very much for giving evidence. It is almost this afternoon-it is still this morning. It has been extremely interesting and very educative, certainly for me and I think for most of us. We are very grateful to you for taking the trouble. We have learned a lot.