Comptroller of the Currency

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COMPTROLLER OF THE CURRENCY

COMPTROLLER OF THE CURRENCY. The National Currency Act of 1863 created a system of federally chartered national banks and the Office of the Comptroller of the Currency, a bureau of the Treasury Department, to administer the new banking system. The legislation aided the Union's financing of the Civil War by enabling national banks to issue a new paper currency, national bank notes, backed by purchases of U.S. government bonds. The Comptroller held the bonds, and if a bank failed, the Comptroller liquidated them and reimbursed the bank's note holders. This policy was a major step toward a safer and more uniform national paper currency, replacing the diverse bank notes issued by hundreds of state-chartered banks.

A revised National Bank Act of 1864 authorized the Comptroller of the Currency to hire a staff of examiners to supervise and inspect national banks. The Comptroller also received authority to regulate national bank lending and investment activities. Fifteen decades later, at the start of the twenty-first century, these remained among the Comptroller's chief functions. Other functions later conferred on the office include approving or denying applications for new charters, branches, and changes in bank capitalization, as well as the power to act against banks engaging in unsound practices, including removing bank officers and directors.

From the 1860s to the 1920s, comptrollers interpreted their legislative mandate narrowly, in particular holding that the law did not permit national banks to open branches. This interpretation, together with laxer state banking laws and regulations, led to a revival of state-chartered banking. The United States became a country with a "dual banking system" of federal and state-chartered banks. At the peak of U.S. bank numbers in the early 1920s, there were more than thirty thousand commercial banks, of which only eight thousand, with about half of U.S. bank assets, were under the Comptroller's supervision.

The devastating bank failures of the Great Depression ushered in a period of strict banking regulation that lasted until the 1980s. For much of this period, comptrollers along with other banking regulators acted to prevent bank failures by restricting new entry and banking competition. Few banks failed in these decades, but strict regulation caused banking to lose financial-system market share to non-bank financial intermediaries and the securities markets.

Starting in the 1960s, several comptrollers worked to expand the powers of national banks and free them from what they regarded as excessively strict regulation. This expansion led to regulatory conflicts with the Federal Reserve System, which, in addition to executing monetary policy, also supervises banks. Congress supported the Federal Reserve more than the Comptroller in many of these conflicts, but the Comptroller's continuing advocacy of deregulation for national banks influenced the Federal Reserve to move in the same direction.

Deregulation and bank consolidations brought major changes to U.S. banking at the end of the twentieth century. In 2001, the Comptroller supervised some 2,200 national banks in a system of 8,200 commercial banks, with the national banks accounting for about 55 percent of the assets of U.S. banks.