John M. Reich
John M. Reich | |
|---|---|
| Education | B.S., Southern Illinois University; M.B.A., University of South Florida; Graduate School of Banking, Louisiana State University |
| Occupation(s) | Banking executive, government official |
| Years active | 1980s–2009 |
| Known for | Director of the Office of Thrift Supervision (2005–2009), Vice Chairman and Director of the Federal Deposit Insurance Corporation (2001–2009) |
John M. Reich was appointed as a Director of the Federal Deposit Insurance Corporation (FDIC) on January 15, 2001, by President Bill Clinton. He served as Vice Chairman of the FDIC Board from November 2002 until his nomination by President George W. Bush on June 7, 2005, to lead the Office of Thrift Supervision (OTS), a position confirmed by the U.S. Senate on July 29, 2005. Additionally, Reich briefly held the role of Acting Chairman of the FDIC in mid-2001. During his tenure as Deputy Chairman from 2001 to 2005, he chaired the FDIC’s Audit Committee amid reports from the General Accounting Office highlighting deficiencies in the agency’s information security.
Reich officially assumed the role of OTS Director on August 9, 2005, while simultaneously retaining his seat on the FDIC Board until he announced his resignation on February 12, 2009, which took effect on February 27, 2009.
OTS Under Reich and Its Aftermath
During Reich’s stewardship, the Office of Thrift Supervision was responsible for supervising several major financial institutions that either failed or nearly collapsed, including IndyMac Bank, AIG, Washington Mutual, Downey Financial, and Countrywide Financial. These incidents rank among the most significant financial collapses in recent U.S. history. The OTS later acknowledged regulatory lapses concerning AIG dating back to 2004. In the case of IndyMac, despite initial denials from Reich and OTS regarding accountability, the Treasury’s Office of Inspector General determined that OTS had not acted adequately and had permitted regulatory failures.
On June 17, 2009, President Barack Obama declared intentions to dissolve the Office of Thrift Supervision as part of broader regulatory reforms, citing existing "loopholes that have allowed important institutions to cherry-pick among banking rules."
Professional Background
Prior to relocating to Washington, D.C., Reich dedicated 23 years to community banking in Illinois and Florida, including a decade as president and CEO of the National Bank of Sarasota in Sarasota, Florida. During his leadership, the bank grew from a modest $17 million institution with two branches into a $450 million enterprise operating 19 offices.
Drawing from his community banking experience while serving as OTS Director, Reich voiced concerns about the diminishing number of community banks and highlighted how regulatory pressures adversely affect local businesses, consumers, and community leadership roles.
Reich also spent 12 years working for U.S. Senator Connie Mack (R-FL), serving as Chief of Staff from 1998 to 2000. In this capacity, he managed all offices and committee operations, including significant involvement with the Senate Banking Committee.
Regulatory Approach and Reform Efforts
A prominent opponent of excessive regulatory constraints, Reich concentrated on alleviating burdens imposed on financial entities. Starting in 2005, he directed a comprehensive three-year interagency review of federal banking regulations as required by the Economic Growth and Regulatory Paperwork Reduction Act of 1996. As head of OTS, he championed enhanced regulatory autonomy and discretion to improve operational efficiency.
On April 6, 2006, Reich cautioned that heightened competition had resulted in underwriting deterioration within certain markets due to increased loan volumes following real estate’s peak. He pointed out the proliferation of alternative mortgage products such as "interest-only" and "pay option" adjustable-rate mortgages (ARMs), warning that lenders lacking experience with these loans faced elevated risks. Although these products were legitimate financial instruments, three major issuers—IndyMac Bank, Washington Mutual, and Downey Financial—ultimately failed. The largest issuer, Countrywide Financial, was compelled to sell to Bank of America at a significant discount. Moreover, AIG Financial Products, an OTS-regulated entity heavily involved in issuing credit default swaps tied to these subprime loans, also collapsed.
On July 21, 2008—amidst these institutional failures but prior to others—Reich presented his agency’s "Financial Institution Reform Initiative," urging Congress to create a rigorously regulated framework that promotes transparency and fairness in mortgage lending practices. He called for elevated standards across all market sectors and mandated that all home loan originators verify borrowers’ repayment capabilities.
Reich underscored OTS’s proficiency in overseeing mortgage banking and advocated for granting it federal authority over currently unregulated mortgage originators to safeguard consumers and rebuild trust in the housing finance market.
Involvement in IndyMac Bank Controversy
The collapse of IndyMac Bank on July 11, 2008, represented the fourth largest bank failure in the history of the United States. Before its downfall, IndyMac depended extensively on expensive and less reliable brokered deposits alongside secured borrowings to finance its operations. The institution concentrated on stated income loans and aggressively underwritten mortgages within rapidly rising housing markets, particularly in California and Florida.
On June 26, 2008, Senator Charles E. Schumer issued letters alerting to the potential risk of IndyMac’s failure, which Director Reich later identified as a factor that hastened the bank’s demise. On July 21, 2008, Reich attributed media speculation as a cause of diminished trust in financial entities such as IndyMac, Fannie Mae, Freddie Mac, and Lehman Brothers.
Following revelations on December 22, 2008, Reich dismissed OTS western regional director Darrel W. Dochow after it was uncovered that IndyMac had backdated an $18 million capital injection to portray itself as "well capitalized" in its March 31, 2008, 10-Q report. Additionally, Dochow had restricted regulatory examinations of IndyMac’s loan portfolio contrary to agency recommendations. Reich characterized this backdating as a "relatively small factor" contributing to the bank’s failure.
Reich stepped down on February 27, 2009. A Treasury Department inspector general report published on February 26, 2009, assigned responsibility for inadequate supervision at OTS under Reich’s leadership for substantial FDIC losses amounting to $10.7 billion stemming from IndyMac’s collapse, along with $270 million in uninsured depositor losses. The report determined that Prompt Corrective Action should have been initiated as early as May 2008.
Inspector General Eric Thorson rejected Reich’s assertion that Schumer’s letters triggered the failure. Assistant Inspector General Marla Freedman emphasized a recurring pattern of excessive risk-taking at IndyMac coupled with regulatory shortcomings at OTS. Correspondence between Reich and the inspector general revealed his concurrence with the agency’s findings.
After Reich’s resignation, Scott Polakoff assumed the role of acting director but was placed on leave by Treasury Secretary Timothy Geithner on March 26, 2009 amid ongoing investigations by the Treasury Inspector General concerning the backdating controversy.
Involvement in AIG Controversy
During a congressional hearing in May 2006, Reich addressed OTS's supervision of international financial holding companies via its Complex and International Organizations division. He highlighted initiatives aimed at minimizing additional "regulatory scrutiny" for U.S.-based firms operating within Europe, enabling them to bypass certain personnel qualification requirements and elevated reserve mandates.
A Government Accountability Office report released in March 2007 underscored a disparity between OTS's limited size and the complexity of the institutions it regulated, noting a scarcity of specialized personnel—OTS employed only one insurance expert overseeing major insurers such as AIG.
In March 2008, Acting Director Polakoff admitted before a Senate committee that OTS had "fallen short" in its oversight of American International Group Inc., failing to properly evaluate risks associated with complex illiquid assets and credit-default swaps. Polakoff acknowledged that earlier intervention was warranted and concurred with a senator’s characterization of OTS as "the regulator that we've been looking for."
Civic activities
Reich has held the position of chairman on the board of trustees for a public hospital located in Ft. Myers, Florida and led the Sarasota Family YMCA board. His participation extends to numerous civic groups as well as youth baseball initiatives within Sarasota. While in Washington, DC, he fulfilled roles as an elder and trustee at the National Presbyterian Church and directed its Fund for Charitable Giving. Since March 2009, he has been a member of the board for the Senior Housing Crime Prevention Foundation.
Education
Reich earned a B.S. degree from Southern Illinois University and completed an M.B.A. at the University of South Florida. Additionally, he graduated from the Graduate School of Banking at Louisiana State University.