Former OCC Regulator Warns Agency Talent Exodus Risks Crisis Response

Mike Kirk, a former supervisory leader at the Office of the Comptroller of the Currency who recently joined Klaros Group as a senior director, has expressed deep concern regarding the departure of skilled staff from the regulator. He argues that while there is significant new charter activity in the banking sector, the primary threats to financial stability originate internally within existing institutions rather than from external competition or expansion. Kirk believes bank failures are typically driven by credit issues and insufficient capital reserves, often resulting when competitive pressures force lenders to lower their underwriting standards.

Kirk spent approximately two decades at the OCC before moving into private advisory roles. During his tenure there, he led supervisory staff for major institutions including JPMorgan Chase and Citigroup. His team was instrumental in identifying widespread issues that eventually contributed to a 2020 consent order involving Citigroup regarding risk management controls. He recalls initiating this process around mid-2018 within the capital markets business, where his group identified significant problems spanning technology governance, data integrity, and risk management. Despite initial satisfactory CAMELS ratings for the bank, Kirk insisted that these metrics were inaccurate compared to the reality of the deficiencies found.

The path to issuing a consent order involved giving Citigroup multiple opportunities to correct specific failures before regulatory action was taken. This process highlights the inherent tension between regulators and banks regarding what constitutes sufficient progress in meeting agreement requirements. While banks may submit thousands of pages outlining execution plans, open-ended questions often remain unanswered until regulators determine if the spirit of the original accord has been met. Kirk notes that Citigroup appears significantly stronger from a risk management perspective than it was in 2018, though whether enough progress has occurred to close the order remains uncertain.

Kirk also critiques recent proposals regarding CAMELS ratings and licensing changes within the agency. He argues that bifurcating rating components can obscure how executive decisions influence various pillars of a bank’s operations. For instance, management might lack budget approval for necessary risk system enhancements despite having good intentions, creating a scenario where penalties in one area do not reflect issues relevant to another. Under new licensing postures and potential government downsizing efforts aimed at reducing the number of examiners, many staff members are seeking alternative employment paths.

A significant exodus of talent has occurred over the last eighteen months as employees retire earlier or leave for other roles due to dissatisfaction with the current environment. This loss of intellectual capital creates a void that Kirk fears will compromise the agency’s ability to respond effectively when another financial crisis inevitably occurs, noting that such events happen regularly and have not been seen in close to twenty years. He worries specifically about who will lead the organisation in coming years given that many mid-level staff members and senior mentors have already departed.

The shift towards increased licensing volumes has altered how applications are reviewed, with more examiners now scrutinising submissions for prudential risk management items rather than just legal compliance. While this mobility brings diverse perspectives to the agency, Kirk views the mass departure of experienced personnel as a travesty that undermines regulatory capacity. He emphasises the importance of retaining well-skilled individuals who can mentor others and ensure the regulator remains robust enough to handle future systemic challenges without being left unprepared by internal resource constraints.