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WASHINGTON, Dec 5 (Reuters) - U.S. officials should improve the way they judge banks' risk levels and move supervisors out of the biggest banks and into central offices, bank regulators from Australia, Singapore and Canada recommended in a report released on Thursday.
The international group also said the U.S. Office of the Comptroller of the Currency (OCC) should clarify that ensuring the safety and soundness of banks takes precedence over other goals, such as maintaining U.S. firms' competitiveness abroad.
"The idea is really to have a culture of safety and soundness being uppermost in the examiners' minds," said Jonathan Fiechter, a former OCC senior official who led the international peer group in reviewing the agency.
Comptroller of the Currency Thomas Curry asked the group to conduct a peer review of the agency's supervision of large- and mid-sized U.S. banks as a way to assess the OCC's progress since the 2007-09 financial crisis.
The recommendations came on the same day that the United States urged Europe and Asia to match its efforts to make the financial industry safer, saying that other countries had been moving "far more slowly" in some areas of reform.
U.S. regulators were criticized by lawmakers and others for missing warning signs as they developed in the subprime mortgage market and other areas. Critics said regulators grew too close to the industry they supervised and let banks get away with dangerous practices.
The OCC is also in the midst of implementing a slew of new rules for the biggest U.S. banks that were required by the 2010 Dodd-Frank Wall Street oversight law. And a high proportion of its examiners are near retirement age, which poses challenges for the agency's future, the report said.
The group's recommendations, which Fiechter said were finalized over the weekend and submitted to the OCC on Wednesday, included suggestions to cope with staffing shortfalls and improve risk-spotting at banks.
"We have not had time to conduct a thorough analysis of the report, but I can tell you from my initial review that it is a thoughtful document with a number of important recommendations that we can use to position the OCC to meet the challenges of the future," Curry said in a statement.
Many of the group's recommendations were targeted at plugging holes that allowed high-risk issues that developed before the financial crisis to go overlooked or uncorrected.
For instance, the group found that the OCC's vision statement includes ensuring that U.S. banks can compete with other financial services firms and foreign institutions.
While that could be a secondary goal, examiners should be clear that keeping banks safe is the top priority, the report said.
Additionally, the need to cooperate with the Federal Reserve and Federal Deposit Insurance Corp, which also regulates banks, on major policy decisions sometimes kept examiners from correcting problems at banks quickly, Fiechter said on a call with reporters.
"We found in a couple of cases that, frankly, policy reactions had gotten bogged down in the effort to reach interagency agreement on how to act," he said, adding that this was something that frustrated OCC examiners.
Fiechter's group said the OCC also should consider housing bank examiners at central offices where they can compare observations and discuss emerging problems. Examiners for the biggest U.S. banks generally have offices within the bank.
This is meant to help them gain expertise on their particular bank, but critics say examiners overlook flaws because they get too close to the firms they supervise.
The group also recommended the OCC revamp its so-called CAMELS rating system, which considers banks' capital, earnings, liquidity and other factors. The ratings are not made public.
The OCC has a second rating system that takes a more forward-looking view of bank risks, but CAMELS is still considered the primary method of judging banks' health. The ratings also are baked into some regulations, Fiechter said.
Curry said he would form teams to study the group's recommendations and would expect initial conclusions within 60 days. In another 60 days, he said he expected to have a plan to implement some of the international group's suggestions.