Nearly a year after passage of a major financial reform law, federal bank examiners are beefing up their staff in Charlotte and around the country as they work to prevent another financial meltdown.

On the hot seat in the aftermath of the crisis, regulators are focusing more intently on mortgage-related issues, reviewing capital plans before allowing banks to raise their dividends and implementing new rules mandated by Congress.

The three major bank regulators boosting staff are the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corp. The OCC is gaining people through a merger with another agency, while the FDIC has added to its ranks by bringing back retired examiners. Highly confidential about their task, the regulators don't say how many people monitor each bank, where they all are located or exactly how they do their work.

In many cases, the examiners are working side by side in the offices of the bankers they're regulating, a process known as "embedding." This allows examiners to work with sensitive information on-site and gives them easy access to executives, but can lead to tension from time to time, officials said.

While banks often appreciate guidance from seasoned examiners, sometimes regulators are pointing out violations of law or disagreements in accounting methods, or they're raising questions about activities that can damage an institution's reputation, said Mike Brosnan, senior deputy comptroller for large bank supervision at the OCC.

"You end up having conversations that are not really agreeable," said Brosnan, whose agency monitors national banks, including Bank of America and Wells Fargo. "But if we think we're right, and we have to be right ... we are pretty much undefeated in terms of resolving the issue."

While banks have faced the lion's share of criticism in the aftermath of the financial crisis, regulators also have taken blame for their failure to head off the economic disaster. In a report this year, the Financial Crisis Inquiry Commission found that "regulators either failed or were late to identify the mistakes and problems of commercial banks and thrifts or did not react strongly enough when they were identified."

The Dodd-Frank financial reform law passed last July imposed a litany of new restraints on the banking industry, from new limits on debit card interchange fees to a requirement that banks write "living wills" describing how to break up their companies in an emergency. The law has required regulators to write new rules - and to enforce them.

Prior to the last financial crisis, regulators weren't vocal or proactive enough about the problems brewing in the industry, said Anthony Sabino, a law professor in the Peter J. Tobin College of Business at St. John's University. Having more trained examiners can only help, he said.

"As they say in the military, it's more boots on the ground," Sabino said.

Having embedded examiners is "absolutely an imperative" at a time when billions of dollars can be transferred around the globe at the touch of a button, he said. The big question going forward will be whether top regulators properly deploy their examiners.

"Now that they have the troops," Sabino said, "are they sending them to the right battlefront?"

Beefing up staffs

In Charlotte, the Federal Reserve Bank of Richmond is looking to add eight examiners to its staff of 40. The OCC has about 100 here, up slightly from years past. For major exams, it can bring in 200 more from its own staff and other agencies.

Under Dodd-Frank, the FDIC gained new powers to close down failing large financial institutions outside of bankruptcy court to avoid future bailouts. While the agency has long been able to smoothly close banks, regulators didn't previously have legal authority to shutter insurance firms and investment banks in a way that limits damage to the rest of the financial system.

The FDIC's new Office of Complex Financial Institutions now maintains three to five resident analysts at 10 of the "largest and most complex" U.S. banking organizations, spokesman David Barr said. These analysts, working with other agencies, monitor and evaluate risks, review plans for closing companies in emergencies and conduct additional examinations when needed, he said.

The FDIC doesn't disclose where these analysts are based, although Bank of America and Wells Fargo would be likely candidates for the program. Bank of America is the nation's biggest bank with more than $2 trillion in assets; Wells Fargo is No. 4 with $1.2 trillion.

The agency is in the process of determining staffing for other banking organizations with assets of more than $100 billion, Barr said. Among other large N.C. banks, Winston-Salem-based BB&T has about $157 billion in assets.

In Charlotte, the staffing changes come amid a time of transition for the city's big banks. Wachovia is now owned by San Francisco-based Wells Fargo, and Bank of America has bulked up with its purchase of Merrill Lynch. The OCC, for example, continues to monitor Wells Fargo in Charlotte but more of the work is now done in San Francisco, Brosnan said. The agency, however, now has more people than before covering the larger Bank of America, he said.

While the FDIC has a new embedding program, the OCC and Fed have had examiners working inside Charlotte's banks for years.

OCC examiners work in separate space leased by the agency and have access to their own terminals and bank systems. While they're not regularly looking over the shoulders of bank employees, they share hallways and elevators and hold meetings with their bank counterparts.

Richmond Fed examiners spend time at the banks they cover but are considered based at the agency's branch in Charlotte. "Our practice of embedding is long established and will continue as we acclimate to the new financial regulations as part of Dodd-Frank," said Richmond Fed spokeswoman Laura Fortunato.

Highly secretive process

Bank examinations are a highly secretive process, although investigations of the financial crisis have shed some light on it.

Documents released by the Financial Crisis Inquiry Commission revealed regulators' concerns about Wachovia's management in the years leading up to its near collapse. Examiners criticized Wachovia's board and top executives for lax risk management, "questionable strategic decisions" and a slow reaction to changing market and business conditions.

A congressional examination of Bank of America's Merrill Lynch deal disclosed email exchanges among examiners who were alarmed at the bank's financial condition and agitated by its attempt to back out of the deal in December 2008.

In one email, a now-retired Richmond Fed official, Mac Alfriend, passed along "preliminary thoughts on getting a pound of flesh" out of former Bank of America CEO Ken Lewis, including slashing the bank's dividend and hiring outside consultants to review corporate governance and risk management.

The safety and soundness issues examiners faced in 2008 and 2009 were "absolutely brutal," Brosnan said. One of the lessons examiners learned has been to "hold your ground better in peacetime," he said. "Once a loan is delinquent it's too late."

Brosnan stressed the importance of being fair, even in a time of tighter scrutiny of the industry. "My job is to make sure we do the right thing, be balanced and be tough because circumstances warrant it, not because it's the popular thing to do," he said.

Patricia Callahan, Wells Fargo's chief administrative officer, said the bank is under scrutiny from more examiners today but that's partly because it's so much bigger after the Wachovia merger. "We get along fine with our regulators," Callahan said. "It's not an adversarial relationship. They are trying to do the right thing, and so are we."

The focus of regulators will change as the world changes, she said. "Regulators have always looked at the mortgage business, but obviously it's a bigger focus today," Callahan said. A few years ago, regulators pressed Wells to improve its compliance with money-laundering regulations, and since then it has refined its internal controls, she said.

At Bank of America, "our goal is to be clear and transparent with our regulators," spokeswoman Eloise Hale said. "We are committed to being responsive to any additional staff or questions that our regulators may have."

At the OCC, examiners in charge for each bank have contracts to cover a bank for up to five years. After that, they are rotated to another bank or assignment, which can mean a move to another city. "We want to keep them fresh and learning," said Brosnan, who has been at the OCC since 1983, except for a four-year stint at MBNA and Bank of America. "It's a very healthy thing to do. It's not always convenient for them."

At the OCC, typical examiner pay ranges from about $85,000 to $154,000. Those wages are in line with the average pay in Mecklenburg County for finance and insurance workers of $99,000, but pale in comparison to the millions that top bank executives can bring home.

Examiners are paid well enough to attract and retain talent, Brosnan said, but he knows they could take other jobs and triple their pay. Examiners stay on the job because of the value they bring to the financial system and because of the influence they can wield in a company. In their roles, they can meet with top executives and boards and make constructive changes, he said.

"They believe in what they do," he said, "and the impact of it."