American Banker
By Lalita Clozel and Kate Berry

WASHINGTON — A big obstacle facing the Trump administration in deregulating banks so far has been that all the agencies are still led by Obama appointees. But that may quickly be changing.

Speculation is growing that the White House plans to name Joseph Otting as the new comptroller of the currency. As former CEO of OneWest Bank, he worked under now-Treasury Secretary Steven Mnuchin. Observers said Otting’s appointment would be a crucial step in the new administration’s efforts to move past the regulatory ramp-up of the Obama years.

Mnuchin and Otting’s “relationship would be critical if they’re going to reform Dodd-Frank, because you want cooperation between the OCC and the Treasury,” said Ron Glancz, a former director of litigation at the Office of the Comptroller of the Currency who recently retired as a partner at the Venable law firm.

To be sure, the rumor mill has numerous times pointed to potential Trump appointees who weren’t ultimately nominated. Yet a CNBC report Tuesday said the White House was expected to name Otting — whose name was first floated last month — to succeed Comptroller Thomas Curry.

Otting’s appointment would reunite the former executives of OneWest, the Southern California bank created after Mnuchin led the purchase of the failed IndyMac. Otting was named CEO of OneWest in 2010, when Mnuchin was the bank’s chairman. Otting stepped down from the bank in 2015.

His 35-year career in banking included stints at U.S. Bank and Union Bank, experience that industry representatives say would be an asset at the OCC.

He “comes from not being in an Ivory Tower, but saying, ‘Hey I’ve seen the impact,’ ” said Lawrence Kaplan, of counsel at Paul Hastings. “Mnuchin has that point of view but he’s not on the ground, per se.”

Yet if nominated, Otting could face opposition from consumer advocacy groups that have criticized his role in OneWest Bank’s merger with CIT and other issues.

“He ran a bank that didn’t put a lot of emphasis on the community, and did a lot of harm during his tenure including making predatory loans to seniors,” said Paulina Gonzalez, the executive director of the California Reinvestment Coalition.

If he became comptroller, Otting would sit on the Financial Stability Oversight Council, which Mnuchin chairs. That could give Otting a role in the review of regulatory policy ordered by President Trump last month. The order outlined “core principles” to guide the administration’s regulatory policy, instructing Mnuchin to report on whether existing policies are consistent with the principles.

“The Treasury secretary would almost surely have an ally standing alongside him in his deregulatory efforts, which we expect will include an attempt to ease the Volcker rule and the de-designation of non-bank” systemically important firms, Ian Katz of Capital Alpha Partners said in a note to investors.

Observers said having a former banker at the OCC could give the agency a more aggressive defender of preemption policies for national banks, and Otting could also oversee a scaling back of the OCC’s enforcement arm. A new comptroller would also need to make key decisions about the agency’s pending policy on limited-purpose charters for fintech firms.

“He certainly will have first-hand experience with the value of federal preemption and I think would be an advocate for its responsible use,” said Sanford Brown, a partner at Alston & Bird LLP.

If appointed, Otting would be somewhat of a rarity among regulatory chiefs in recent years having actually served at a commercial bank. Curry, whose term expires in April, served as the top banking regulator in Massachusetts before becoming a federal official. His predecessor, John Dugan, had served as a banking attorney, Treasury official and congressional aide.

“It’s been a long time since we’ve had a comptroller who hadn’t followed that career path of bank regulatory wonk of some sort or another,” Brown said.

Speculation about Otting comes as the administration is seen as moving closer to filling another key position: the Federal Reserve Board’s vice chair for supervision. Banking attorney Thomas Vartanian has emerged as a name being considered for the Fed role.

“The administration has two senior positions that are very important, particularly to any kind of deregulatory agenda,” said Donald C. Lampe, a partner at Morrison & Foerster. “I think it’s quite possible that candidates for those positions may be interchangeable.”

But Otting’s ties to Mnuchin and OneWest could revive controversies over OneWest’s foreclosure policies and the effects of the bank’s 2015 merger with CIT, which permeated the Treasury secretary’s confirmation hearing.

Before the merger, Otting appeared to have support with nonprofits. He spent months drumming up support for the deal with consumer groups. CIT agreed to $5 billion in community reinvestment funds to get the merger approved, and Otting promised that the combined banks would give $5 million a year to local community nonprofits.

Because of Otting’s past work with consumer groups, industry observers say they could take more kindly to his appointment than they did to that of Mnuchin’s, who was dubbed the “foreclosure king.”

“In Joseph Otting you have someone who has support from both sides,” said Travis P. Nelson, a counsel at Reed Smith who formerly worked in the agency’s enforcement arm. “Consumer groups and chambers of commerce tend not to support the same candidate.”

But some of the consumer groups in question have changed their tune.

“Prior to the CIT-OneWest merger he was a very approachable, reasonable person,” Orson Aguilar, executive director of the Greenlining Institute, said of Otting. But “the agreement that he worked with community groups fell below expectations. He threatened groups that didn’t support the merger and threatened to withhold funding.”

Gonzalez also noted a potential conflict of interest for Otting. “If Joseph Otting actually becomes the comptroller of the currency, he would be charged with regulating the bank he formerly ran,” she said.

A potential succession at the helm of the OCC comes as the agency tries to further a plan to consider limited-purpose fintech charters, allowing fintechs to enjoy the benefits of dealing with a single regulator while having to comply with a number of bank-specific requirements.

The measure has faced opposition from both progressive and conservative lawmakers. But Republicans are likely to be more supportive once it is taken up by a Trump appointee.

“Members of Congress on both sides of the aisle are protesting the Comptroller’s proposal, but for different reasons,” Brown said. But, he added, “I would expect Republicans in the House and Senate to be supportive of the new comptroller’s policies.”