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by Todd Larson
"This is one moment I'll never forget," says Gene Ludwig, pointing to a photo on the wall of his Washington, DC, office. "The president looked me in the eye and said 'Is this the right thing to do?' And I said 'Yes, it is.' He looked across the cabinet table and said 'Then just go do it.' And I did."
The 1993 photo is standard DC-insider fare: Ludwig stands outside the White House cabinet room with then-Secretary of the Treasury Lloyd Bentsen, current Secretary Robert Rubin, and President Clinton, among others. What Ludwig "did" after the picture was snapped is far from standard. Within the space of five years, Ludwig elevated his little-known bureau of the Treasury Department, the Office of the Comptroller of the Currency (OCC), into one of the most visible and powerful offices in the federal government. In the process, he became the most celebrated - and controversial - comptroller since Honest Abe first created the office in 1863.
As comptroller, Ludwig served as the chief federal supervisor and regulator for the country's 3000 national banks. (Despite his title, the banks no longer issue currency; they do, however, hold close to 60% of US commercial banking assets.) In addition to policy recommendations, the job included supervision of the OCC's vast staff of examiners, the teams responsible for on-site supervision of national banks' loan and investment activities, liquidity measures, and overall risk sensitivity. The goal (per the OCC's stated mission): to ensure the "safety and soundness of the national banking system" by reigning in and disciplining wayward banks whose policies might expose them to the risk of failure.
It was the widespread bank failures and resultant "credit crunch" of the early '90s that led to Ludwig's appointment in the first place. With regulators clamping down on credit standards, would-be borrowers - including small businesses and potential homeowners - found it nearly impossible to obtain credit at affordable rates. Low and moderate income Americans in particular were being frozen out, resulting in a taint on the banking system - and, by extension, the OCC - that Clinton and Bentsen were anxious to remedy.
So, following Clinton's 1992 election, the president-elect invited Ludwig, an old friend and banking industry specialist at Washington's Convington and Burling, to guide the banking policy components of the presidential transition team. (The pair's relationship stretched back to their days as Rhodes Scholars at Oxford and as classmates in Yale Law School's class of 1973.) From there, it was a short step to the OCC.
Ludwig, a native of York, PA, inherited an office both vacant (his predecessor had been rejected for a second term a year before) and, thanks to the ongoing banking crisis, a target of congressional ire. He was initially unsure whether he was the man for the job. "I wanted to think about it," he recalls. "But when I got back to my office, my secretary said that she had the president on one line and the Secretary of the Treasury on the other." Who could say no?
Although Ludwig's lack of experience in policy circles only increased the scrutiny directed at the OCC, the new comptroller didn't let the pressure intimidate him. To the contrary, he returned to the source of his authority - the National Banking Act - and sketched out an aggressive plan to reassert the office's chartered powers in the name of seismic industry transformation. "For a variety of different reasons, partly timidity, comptrollers had not used their authority to allow the banking system to develop fully," Ludwig explains. "It was clear to me that I had the power to make these changes. We didn't need legislation. It was also clear to me that it would create a political ruckus."
Ludwig's ruckus-raising changes included not only a successful 11-point program to address the credit crunch, but the dramatic liberalization of laws limiting banks to basic loan and deposit activity - an effort intended to stem the steady defection of top corporate customers to competitors with direct access to bond and equity markets. "We could Band-Aid the [credit] problem," Ludwig explains, "but people failed to realized it was a systemic problem, and what we needed was a paradigm shift." With the president's mandate, the OCC moved to allow banks to begin offering products and fee-based services in insurance and securities historically (thanks to 1934's Glass-Steagall Act) beyond their purview. He also simplified the OCC's bulky regulatory apparatus by "rewriting every rule in the book," and improved banking safety and soundness by implementing computer-based risk-prediction models and a system of "risk-based supervision" which focuses attention on volatile investments like derivatives. Ludwig proudly points out that in his final two-and-a-half years, not a single national bank failed.
The changes, however, initiated a firestorm of criticism, particularly from special interests like the insurance industry, who viewed Ludwig's pro-bank activism as an assault on their financial fiefdoms. "I was quite pilloried at the time by the interest groups as a wild man or something," he laughs. If Ludwig's comments sound a bit arch, it's because of what happened - namely, four 9-0 decisions by the Supreme Court defending his actions and, specifically, his assertion of the comptroller's chartered powers. "It was clear the Court was more interested in the basic authority of the comptroller," Ludwig recalls. "The National Bank Charter was meant to evolve, and they were explicit that the comptroller was to be the arbiter of how that charter evolved. It's hard to say you're acting in an ultra vires fashion," he adds, "when the Supreme Court completely and unanimously tells you you have the authority to do it."
"It was clear to me that I had the power to make these changes. We didn't need legislation. It was also clear to me that it would create a political ruckus."
Head down and hands in pockets, Gene Ludwig has paced his DC office for an hour, his story a restless recitation of oft-repeated events and statistics he seems eager, above all, to get through. Then, for the first time, he pauses, interrupting his narrative to reflect on the ethical and political imperatives behind his public record. "I think this is fundamental to the well-being of the country," he explains. "We simply cannot be a nation of haves and have-nots. We can't have a nation that's the wealthiest nation on earth but leaves our citizens behind. It's not only the right thing to do, it's the only way to keep a safe and sane world."
When his five-year term expired in 1998, Gene Ludwig had governed over the most profitable and revolutionary period in banking history, and received almost universal praise that he had indeed done the right thing. Then, to the dismay of congressional and industry leaders, he refused President Clinton's invitation for a second term. "You get a bit stale in these jobs," he explains. "You're somewhat shielded from the private sector, and you lose touch. I began finding myself thinking the same thoughts and saying the same things. I knew I had to refresh myself to remain effective."
To refresh himself, the man bankers trust decided to man Banker's Trust. Ludwig accepted the vice-chairmanship of the banking behemoth in June of 1998, only to leave shortly thereafter when the company was sold to Europe's Deutsche Bank. He is now the managing general partner of the Promontory Financial Group, a merchant bank specializing in financial services companies.
While he declines to discuss the personal difficulties encountered by the president during his administration, Ludwig does admit that "the intense partisanship during this era was unfortunate" and made his job "doubly hard." He praises Clinton for being a "remarkably careful reader" of his various recommendations, and shares his belief that Al Gore would make a "splendid president." Both Gore and Clinton, says Ludwig, "had an absolute concern for doing the right thing. When I had a strong view on how things should go, there was never, on any occasion, anything but support. 'You think that's the right way to go, you do it your way' was always the answer."
"It sounds corny," Ludwig continues, "but I stuck with the comptroller job, even with other offers, because I wanted to be able to say that I made a positive difference and to say to my kids that I did the best I could to make the country a better place...I'm the lucky one that I had the chance to be able to actualize those ideas."