OCC chief denounces part of Obama financial plan

WASHINGTON — A top federal regulator on Thursday denounced as “radical” an element of the Obama administration’s plan to overhaul financial rules that would allow states to apply stricter consumer protection laws to banks than the national standard.

The remarks by Comptroller of the Currency John Dugan marked the latest debate over the massive plan to restructure the nation’s financial rules. They also reopened the issue of federal pre-emption of state laws governing consumer protection — something Dugan’s agency has long battled over with the states.

The comptroller’s office, a 150-year-old Treasury Department agency, oversees nationally chartered banks. Other regulators, such as Federal Deposit Insurance Corp. Chairman Sheila Bair, have criticized parts of the Obama plan. But Dugan’s broadside is noteworthy because he is an administration official as opposed to an independent regulator.

“This radical change is fundamentally at odds with the concept of efficient national standards for national products and services offered across state lines in national markets,” Dugan said in an address to Women in Housing and Finance, a Washington group.

As Congress proceeds with legislation to overhaul financial regulations, its goal should be to strengthen federal rules. “It should not be to undermine those goals by inviting every state to adopt its own rules for national banks,” Dugan said.

Obama’s proposal for a new consumer financial protection agency for mortgages, credit cards and other products, also would be undercut by allowing states to adopt different consumer protection rules, he said.

Dugan, a Republican appointed by President George W. Bush in 2005, is one of the five directors of the FDIC. At times, he has diverged from Bair’s views and approaches.

The FDIC is considering several costly, and never before used, options for shoring up the diminishing fund that insures bank deposits. The agency is considering borrowing billions of dollars from healthy banks, imposing a special fee on the banking industry or tapping a $500 billion credit line with the Treasury.

Another option would be for banks to pay their normal insurance fees in advance. Dugan said Thursday he was “very concerned” about the effect of such an upfront levy on the strained banking industry.

“Ultimately the industry has to repay it all,” he told reporters after his speech. A fee levied in advance “could cause more stressful conditions,” he said.

The deposit insurance fund dropped 20 percent to $10.4 billion in the second quarter — its lowest point since 1992, at the height of the savings-and-loan crisis. Some analysts have warned that the fund could fall below zero by year’s end because of the wave of bank failures.

The fund is now at 0.22 percent of total insured deposits, below a congressionally mandated minimum of 1.15 percent.