OCC joins in wider bank merger review: Hsu

WASHINGTON — The Office of the Comptroller of the Currency is reviewing its merger policy framework, acting Comptroller Michael Hsu said, marking an expansion of the multi-agency effort to reform how bank mergers are overseen. 

Hsu said that he’s directed senior OCC staff members to work with the Department of Justice and other federal banking agencies to reconsider how it weighs bank mergers. 

The comments, given in remarks at the Brookings Institution, mark a step forward in the OCC’s bank merger policy review process, following a speech last month where Hsu outlined his concerns on large regional banks and financial stability. 

Bloomberg News

The OCC's escalation of its position on bank merger policy also underlines the political struggle at the Federal Deposit Insurance Corp., the OCC’s banking regulator counterpart, whose Democrat-controlled board ousted Trump-appointed Chair Jelena McWilliams over the issue. 

Hsu had been more reticent than other Democratic policymakers — namely Consumer Financial Protection Bureau Director Rohit Chopra — to embrace bank merger reform during the FDIC power struggle late last year. Sen. Sherrod Brown (D-Ohio) previously called on Hsu and on the Federal Reserve to join the FDIC in its reform effort. 

In his speech, Hsu reiterated concerns about large regional bank mergers and what he called financial stability risks. To counter these risks, Hsu said the OCC is “actively considering” conditioning larger bank merger approvals on “credible and verifiable commitments to achieving resolvability, tailored to the resolution risk of the resulting bank.” 

Hsu cautioned that the OCC’s review would not focus on overhauling the current foundations of bank merger review, and would instead look to more technical changes. 

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

Among those changes, the OCC is considering options for public meetings to solicit community feedback for larger bank mergers, Hsu said. He pointed to a public meeting held by the Fed and the OCC on the proposed U.S. Bank and MUFG-Union bank merger. 

Hsu said the OCC intends to keep the pipeline of proposed bank mergers active as the agency considers any changes, bypassing the possibility of a moratorium on large bank merger applications and approvals. 

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

In a discussion after Hsu’s speech, Daniel Tarullo, who has previously advocated for the Biden administration to rethink the way it assesses bank mergers, said that, along with Hsu’s comments, the remarks after the FDIC launched its bid to reform bank merger review process suggested 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,” Tarullo said. “Not because it's wrong, but it just sort of shows us that there's still this issue.” 

Others, including Mehrsa Baradaran, a law professor at the University of California, Irvine, and Andrew Olmen, partner at Mayer Brown and former deputy director of the U.S. National Economic Council, said they believe that Congress should weigh in on bank merger reform, particularly around issues of resolvability for larger regional bank mergers and in how the regulator considers Community Reinvestment Act obligations. 

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

Aaron Klein, senior fellow at the Brookings Institution, who moderated the event, said afterward that there’s growing agreement that regulators should replace the tools they currently use to assess concentration in banking. 

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