Hsu: OCC Joins Wider Bank Merger Review

Acting Comptroller Michael Hsu announced that the Office of the Comptroller of the Currency is evaluating its merger policy agenda, signaling an increase in the multi-agency initiative to overhaul how bank mergers are handled.

Hsu said he has instructed senior OCC officials to consult with the Department of Justice and other federal banking authorities to rethink how the agency evaluates bank mergers.

Acting Comptroller Michael Hsu
Image Source: American Banker

Following a speech last month in which Hsu expressed his fears about major regional banks and financial stability, the statements made at the Brookings Institution indicate a step ahead in the OCC’s bank merger policy review process. 

The OCC’s toughening stance on bank mergers highlights the political wrangling at the Federal Deposit Insurance Corp., the OCC’s banking regulator equivalent, where a Democrat-controlled board dismissed Trump-appointed Chair Jelena McWilliams over the matter. 

During the FDIC power battle late last year, Hsu was more hesitant to accept bank merger regulation than other Democratic authorities, including Consumer Financial Protection Bureau Director Rohit Chopra. Senator Sherrod Brown (D-Ohio) has already urged Hsu and the Federal Reserve to join the FDIC’s reform efforts. 

Hsu expressed his concerns about significant regional bank mergers and capital adequacy threats in his address. To mitigate the risks, Hsu said the OCC is “actively considering requiring credible and verifiable commitments to achieving resolvability, tailored to the resolution risk of the resulting bank.” 

Hsu stressed that the OCC’s examination would concentrate on more technical modifications rather than overhauling the current underpinnings of bank merger scrutiny. 

“I do not think the statutory prongs of competitiveness, safety, and soundness, meeting community needs, and financial stability need to be revisited. Rather, the modes of analysis used by regulators to apply these factors need to be improved.” 

Michael Hsu

The OCC is evaluating possibilities for public gatherings to elicit community comment for larger bank mergers, among other reforms, according to Hsu. He mentioned the Fed and the OCC holding a public meeting on the U.S. Bank and MUFG-Union bank merger. 

Hsu stated that the OCC plans to maintain the pipeline of planned bank mergers open while considering any revisions, avoiding the danger of a huge bank merger freeze. 

“The problem with a moratorium is that it just simply locks in the status quo and prevents the kind of competition that is healthy.”

Michael Hsu

Daniel Tarullo, who earlier campaigned for the Biden administration to reconsider how it evaluates bank mergers, said that, along with Hsu’s remarks, the statements after the FDIC initiated its offer to transform the bank merger review process recommended that regulators “don’t have a lot of confidence in the resolution process” for larger bank mergers. 

“It’s a sort of striking position to be taking 13 to 14 years after the financial crisis. Not because it’s wrong, but it just sort of shows us that there’s still this issue.”  

Daniel Tarullo

Mehrsa Baradaran, who is a law professor at the University of California, Irvine, and Andrew Olmen, a partner at Mayer Brown and a former deputy director of the United States National Economic Council, think Congress should evaluate bank merger reform, especially on problems of settling for larger regional bank mergers and how the regulator perceives Community Reinvestment Act duties. 

“We can’t make these decisions based on each bank merger that comes in.”

Mehrsa Baradaran

After the discussion, Aaron Klein, a senior scholar at the Brookings Institution who moderated it, said there is growing consensus that authorities should change the tools they presently use to analyze banking consolidation. 

“The status quo analysis seems unlikely to be used going forward.”

Aaron Klein

Information from American Banker

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