WASHINGTON — As the battle over bank regulatory appointments heats up, even the choice of an acting agency director has become political.

The Treasury Department unexpectedly announced Friday it would not pick Julie Williams, the No. 2 at the Office of the Comptroller of the Currency, to serve as acting head of the agency when John Dugan leaves next month. Instead, it chose John Walsh, the agency's chief of staff.

Most said the move appeared to be retaliatory for Williams' role in fighting to preserve national bank preemption, which the administration sought — and largely failed — to eliminate in the regulatory reform bill. Still, while the Treasury insisted the move was not a snub, multiple industry observers, former OCC officials and others privately expressed shock, describing it as "outrageous" and needlessly personal.

"It just seems odd to me," said Bob Clarke, a former comptroller and now a senior partner at Bracewell & Giuliani LLP. "I don't see the necessity in doing this."

The Treasury insisted the action was not personal, instead emphasizing Walsh's qualifications.

"We believe John is the right person for the job because of his experience as chief of staff at the OCC," said Andrew Williams, a Treasury spokesman. "Given John's background and his current role as chief of staff, he is well suited to lead the implementation effort, pending the appointment of a new comptroller."

But Williams, the first senior deputy comptroller and general counsel for the agency, appeared uniquely well suited to run the OCC until a permanent successor is confirmed, observers said. She has twice served as acting comptroller already, and was well positioned to help the OCC merge with the Office of Thrift Supervision, which was eliminated by the regulatory reform legislation signed into law on July 21. Williams was previously a top official at the OTS.

"Julie is a highly qualified person who has been acting comptroller several times in the past and has the capabilities to do it again," said Frank Bonaventure Jr., a principal at Ober, Kaler, Grimes & Shriver. "The administration disagrees with her policies but that should not take away her knowledge to do the job."

Some analysts, however, said the industry should not have been surprised. Williams was the primary architect of the OCC's 2004 preemption doctrine, which the administration tried to eliminate.

"It was always going to be a stretch for this administration to give control of the agency to the individual credited with being the architect of preemption," said Jaret Seiberg, an analyst at Washington Research Group, a division of Concept Capital. "I don't think this is a personal snub of Julie Williams. I think this is a need to remain consistent with their views that preemption should be repealed."

That answer did not satisfy former OCC officials who said that Walsh, who has worked at the agency for nearly five years, likely shares most of Williams' views on preemption. "It's not just her view — it's the OCC's view about preemption," Clarke said.

The administration originally proposed completely eliminating preemption for consumer protection rules. Instead the final law lets the OCC preempt consumer protection statutes on a case-by-case basis, but allows state attorneys general the power to enforce some federal standards against national banks. Though this is weaker than current standards, it could have been much worse for the OCC. Sources said Williams was active in pushing back against language that would have gutted or significantly watered down preemption.

Some industry representatives suggested the administration was responding to pressure from Capitol Hill not to let Williams run the agency. "It's my understanding that people on the Hill were unhappy with Julie," said Ed Yingling, the president and chief executive of the American Bankers Association.

The move fueled speculation about whether Williams would soon choose to leave the OCC. Given her extensive regulatory background and experience in preemption battles, observers said she could easily find a job at one of the largest banks or multiple banking firms. "She is one of the top banking lawyers in Washington and her legal skills established the basis for the OCC's preemption regulations issued in 2004," said Ray Natter, a partner at Barnett Sivon & Natter and a former deputy chief counsel for the OCC.

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